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/llon tkhj TWE L FTH F E DE RAL RESERVE DI S T RI CT FEDERAL RESERVE BANK OF SAN F R A N C I S C O Review of Business Conditions The Aluminum Industry— Part I: Development of Production . . 97 REVIEW OF BUSINESS CONDITIONS most significant development in the econ omy in recent months is the resumption of inventory accumulation, as indicated by second quarter figures for Gross National Product. W ith the stimulus of a $2.5 billion jump in inventory investment, G N P rose at a seasonally adjusted annual rate of $5.2 billion from the first to the second quarter. This gain exceeds the rise of $3.1 billion from the final quarter of 1956 to the opening quarter of this year, even though prices have increased more slowly in recent months. Consumer purchases increased at an annual rate of only $2.2 billion, compared with a gain of $4.4 billion between the final quarter of 1956 and the opening quarter of 1957. Spending for durables fell by nearly a billion dollars from the first quarter level as sales of automobiles and household appliances failed to register expected seasonal gains. The drop in purchases of durables was more than offset, however, by increases in expenditures for nondurables and services. T h e Private domestic investment rose in the second quarter. The entire increase stemmed from the jump in inventory investment; other compo nents changed by minor amounts. A small in crease in outlays for nonresidential building was offset by a further decline in residential construc tion expenditures, while business spending on durable equipment receded slightly. Net foreign investment, which roughly meas ures the excess of exports over imports, also dropped from the first quarter level, though it remained positive. The increase recorded for total government purchases of goods and serv ices amounted to $1.5 billion less than the pre vious quarter-to-quarter gain of $2.8 billion. The smaller gain resulted from smaller increases in state and local government as well as in Federal outlays. The general picture provided by estimates of G N P for the second quarter is one of an econ omy operating at a high but relatively stable level of activity. G N P is actually a record of goods and services produced in a given period of time, as well as a tally showing how consum ers, business firms, and government spend dol 94 lars. Each dollar spent on a final purchase rep resents a vote of approval for the production of some good or service. Consumers cast fewer votes for new housing and for durables, to the disappointment of the construction and manu facturing industries, but continued to cast a heavy ballot in favor of services. They also dis played an increased preference for nondurable goods. T able 1 G ross N a t io n a l P roduct Seasonally A djusted Annual Rates (in billions of dollars) G ross National P r o d u c t ......... . Personal Consumption Expenditures ........................ Durables ........................ .. Nondurables .................... Services ............................. Gross Private Domestic Investm ent ........................... Residential nonfarm co n stru ctio n .................. Other ................................. Producers’ durable equipment .................... Change in inventories . . Government Purchases F e d e r a l............................... State and local .............. N et Foreign Investment 1956 Fourth quarter $426.0' ,------------ 1957First Second quarter quarter $429.1 ' $434.3 27 2 .3 ' 34.8 135.3*102.2r 2 7 6 .7 ' 35.9 137.3r 103.4' 278.9 35.0 139.1 104.9 68.5 6 2 .7 ' 65.0 15.1 r 18.4r 14.4' 18.5' 13.9 18.9 29.9r 5.1r 8 2 .8 ' 49.0r 33.9 r 2.4 3 0 .7 ' — '.8 ' 8 5 .6 ' 5 0 .3' 3 5 .3' 4 .1 ' 30.5 1.7 86.9 51.1 35.8 3.5 r = Revised. Source: United States Department of Commerce, Survey oj Current Business. Business firms constantly attempt to gauge how their customers— consumers, governments, or, perhaps, other business firms— will vote. A c cordingly, they plan production schedules, hire workers, purchase materials, and, if necessary, expand capacity. Forecasting errors may cause stocks to pile up on shelves and in warehouses or, if consumer intentions have been underesti mated, lead to a depletion of such stocks. During short periods of time inventories of finished goods serve as an indicator to business firms as to how well they had forecast the balloting of their cus tomers. Large errors can lead to undesired ex cess capacity and perhaps to cancellation of ex pansion plans. The failure of consumer purchases to expand as expected has played a significant role in re straining the expansion of business activity over August 1957 MONTHLY REVIEW the first six months of the year. Retailers have trimmed orders, manufacturers have cut pro duction, and manufacturing employment has re ceded. However, the economy has been able to absorb with relative ease the adjustments that have occurred. Unused capacity currently in evi dence in most industries is m oderate; the G N P accounts show that business spending for nonresidential construction and for equipment re mains strong. District nonfarm employment rises in June In the Twelfth District, the second quarter closed with a gain in nonagricultural employ ment from May to June of nearly 0.5 percent after seasonal adjustment. The advance was the largest for any month so far in 1957 and is only slightly less than the average monthly gain dur ing 1956. All major industry groups partici pated in the rise. Finance and service industries continued to expand more rapidly than total nonfarm employment, and the number of work ers in government and mining jobs showed siz able gains also. Despite the rise in mining em ployment, which resulted from the expansion of activity in petroleum extraction in California, the number of workers in the industry was down about 1 percent from the June 1956 level. Em ployment in construction showed a slight rise for the first time in several months, but never theless was down 6 percent from a year ago. Employment in the aircraft industry has tended to level in recent months as increases in Washington have nearly been offset by declines in California. It appears that aircraft employ ment may trend downward during the remainder of the year. Efforts of the Defense Department to reduce spending for military goods have re cently led to elimination of over-time hours and the stretching-out of delivery schedules. In ad dition to this economy wave, rapid advances in technology have resulted in the decision that some types of missiles and aircraft have become obsolete. In the Los Angeles area cancellation of development work on the Navaho missile has resulted in the layoff of 6,000 employees. Ulti mately, it is expected that 15,000 workers will be affected. Another District firm has announced that it will cut employment by from 9,000 to 12,000 workers in the next six months as exist ing military orders are filled and production of a large bomber is shifted to a Midwest plant. In addition to the expected drop in aircraft employment, July employment figures were re duced because of labor disputes that were in prog ress during the employment survey week. Affected chiefly were the San Francisco Area metal trades industries and construction in the Los Angeles Area, where at least 20,000 workers were idled. Construction slips further in June The District construction picture darkened somewhat in June according to preliminary es timates of building permits granted. Total per mit valuations decreased 14 percent from May. Slightly less than half of the decline resulted from a drop in the value of nonresidential per mits. For the first half of 1957 total and residen tial valuations are each off 11 percent from the 1956 pace. A slightly different picture is presented by contracts awards data. According to one estimate, nonresidential contracts were about 2 percent above those of 1956 in the first half of 1957, while residential awards slipped 4 percent. Total awards, however, are reported to have risen 12 percent as contracts for utilities and public works construction are running about one-third higher than in 1956. A large fraction of the latter activ ity involves construction in non-metropolitan areas which does not require building permits. The movement of construction employment in the District (dow n 6 percent from the year-ago level in June) suggests that District construction activity lies somewhere between the depressed level pictured by the building permit series and the more optimistic one suggested by contracts awards figures. Auto registrations decline in May Complete data for new passenger car registra tions in District states reveal a drop of 3 percent from April to May to a level slightly below that of May 1956. For the year, however, registra tions are about 1 percent above the first five months of 1956. California registrations in June were 3 percent below those of May and 14 per- 95 FEDERAL RESERVE BANK OF cent less than in June 1956. In another segment of retail trade, department store sales after sea sonal adjustment jumped 4 percent from May to June and were up by about the same percentage amount from June last year. According to esti mates available for the four-week period ending July 20, the year-to-year margin may have nar rowed. Generally, sales at Pacific Northwest de partment stores show declines from a year ago, while little or no gain is reported for stores in San Diego, Downtown Los Angeles, and the San Francisco-Oakland area. Steel production continues strong Steel production in the Western Steel District in June was maintained at about the May rate of 99 percent of capacity although a drop in total tonnage occurred because of fewer working days. Weekly estimates of blast furnace operations for the first three weeks of July suggest that the high May-June rate continued. Nationally, pro duction of primary aluminum in the first six months was approximately 4 percent less than during the comparable period in 1956. In the District the decline has probably been more siz able because of the shortage of electric power in February and early March. In the Twelfth Dis trict’s forest products industry, output in July dropped sharply because of annual employee va cations. Mining firms in the Twelfth District are re ported to be offsetting price declines in copper, lead, and zinc by selectively mining higher-grade ores and by postponing mine development work. Nevertheless, mine production of copper during the first five months of this year dropped 2 per cent from the same period in 1956. Lead produc tion showed a gain of 7 percent. Since May, how 96 SAN FRANCISCO ever, two major lead-zinc mines in Nevada have ceased operating and another in California plans to cut output sharply in the third quarter. Loans outstanding decline at District reporting member banks Loans outstanding at weekly reporting mem ber banks in the District declined moderately during the four weeks ending July 24. The drop of $85 million in total loans contrasts with the $148 million rise in the previous four-week pe riod when borrowings increased as the June cor porate income tax instalment fell due. There was a small gain of $11 million in this category dur ing the comparable July period a year earlier. During July of this year loans to commercial and industrial firms fell by a larger amount than total loans, as part of the loss was compensated for by small gains in agricultural and in security loans. Real estate and “ other” loans declined slightly. Am ong classified business borrowers, the larg est reduction in indebtedness in July was regis tered by food, liquor, and tobacco manufactur ers— a drop of $24 million. Declines of $7 mil lion or more occurred for manufacturers of met als and metal products, for retailers, and for utili ties and transportation firms. A considerable portion of the drop in business loans, $38 million, is not identifiable by industry. Reporting member banks in the District added to their holdings of government securities during the first half of the four-week period ending July 24. In the following two weeks, however, $171 million in government obligations were sold, leaving a small net gain for the period. The in crease of $11 million occurred as increased hold ings of Treasury bills more than offset a reduc tion in notes and certificates held. MONTHLY REVIEW August 1957 The Aluminum Industry Part I: Development of Production has developed from the status of a curiosity to a commonly used metal within less than 100 years. Although the use of aluminum is worldwide, Europe and North America are dominant in its production and consumption. The United States produces almost half of the world’s output and consumes an even larger proportion. Copper, lead, and zinc, which were established metals long before aluminum was even produced, have been out distanced by aluminum in terms of production and consumption in the United States. The alu minum industry now ranks second only to steel in size among the nation’s metal industries. lu m in u m A l laboratory This remarkable growth has all taken place since 1888 when the first aluminum was pro duced by the electrolytic process. Production and consumption of the metal increased year by year almost without interruption, although declines took place immediately after W orld W ar I, dur ing the first years of the depression, and after W orld W ar II. The rate of growth, from each year to the next, averaged more than 12 percent over the period 1900-56. Although aluminum production and usage grew almost continuously, the metal and the industry did not become really familiar to the general public until Pearl Harbor and W orld W ar II, when the critical need for aircraft generated a demand for aluminum far beyond the capacity existent at the time. By 1943 annual primary1 production was boosted to over 920,000 tons as compared with less than 164,000 tons in 1939. The war promoted aluminum not only by greatly expanding capacity but by im proving technology and popularizing its uses. One consequence of the aluminum expansion was a shift in the main center of aluminum pro duction. Up until 1939 not a pound of aluminum 1 Primary aluminum refers to aluminum produced from bauxite; sec ondary aluminum is recovered from scrap. Historically, the producers and consumers of primary and secondary aluminum have been mem bers of separate industries; secondary aluminum is not freely substi tutable, in the eyes of the trade, for the primary product because of impurities. The primary producers account for approximately SO percent of total production in the United States and represent the bulk of the capital invested in the aluminum industry. This article deals with the growth and development of the integrated primary aluminum industry. was produced in the Pacific Northwest; by 1943, 28 percent of the United States production came from this area. The Government recognized the need for additional aluminum beyond the ex panded capacity being created by the Aluminum Company of America and Reynolds Metals Com pany, a manufacturer of foil and other products which entered the primary aluminum industry in May of 1941. In June 1941, the Government be gan financing an additional expansion program, mainly designed and operated by Alcoa, which was vastly expanded again a year later. Since the Pacific Northwest was one of the few locations where surplus electric power was available to supply such a large expansion, many of the new plants were located there. These Government plants were purchased by private companies after the war and not only continued to operate but have expanded production to almost double the wartime peak in 1944 for the Pacific Northwest. Today aluminum is one of the most important manufacturing industries in Oregon and W ash ington. It is the largest single user of industrial power in that region and provides regular jobs for thousands of workers. Expansion of reduction capacity, under con struction or planned in 1957, will increase United States aluminum capacity by nearly 44 percent over that of 1956. This expansion is taking place in the face of an easing of supply. But since most of the new plants are scheduled for the Ohio Valley area, this additional production will be concentrated in a new center. These develop ments raise a number of interesting questions and problems that concern not only the Pacific Northwest but the industry as a whole. The factors governing the location of aluminum pro duction activities and the ability of the market to absorb the greatly increased forthcoming pro duction will be of interest to students of economic growth and regional planners alike. This article on aluminum is the first in a series of three that will be published on the industry. The first instalment provides a brief history of 97 FED ER A L RES ER VE B A N K O F S A N F R A N C I S C O the aluminum industry together with a descrip tion of its current organization. A discussion of the demand for aluminum and possible changes in that demand will follow. The concluding arti cle is concerned with the factors of economic location in the aluminum industry and the influ ence of technological and institutional changes on the current cost structure. The detailed consid eration here of process, industrial organization, and structure, in addition to providing material of intrinsic interest, will be found indispensable for an understanding of later sections of the study. D escription of Production Sta ge s Commercial development of the aluminum industry did not really start until the discovery in 1886 of the electrolytic process for reducing aluminum from aluminum oxide by first dis solving it in molten cryolite. Although changes have been made in detail, the entire process of producing aluminum has changed very little basically since that discovery. Today there are four basic stages: the mining of bauxite, the re fining of bauxite to aluminum oxide (called alu mina by the trade), the reduction of alumina to aluminum, and the fabrication of aluminum into desired forms. Although aluminum comprises an estimated 8 percent of the earth’s crust, it usually occurs in rocks and clays that cannot be utilized eco nomically as a source for aluminum with present technology. The mining of bauxite, the chief ore for the aluminum industry, is comparatively simple, consisting usually of open pit operations with power shovels after the stripping off of whatever over-burden exists. Underground min ing is necessary in some localities, however. After mining, the ore is loaded into trucks or dump cars and taken to an ore-treating plant where it is washed, crushed, and dried in preparation for the second stage, the production of alumina. In some cases, as in Arkansas, the crude ore is taken di rectly to the alumina plants. A t the alumina plant the finely powdered bauxite is stirred into a hot solution of caustic soda, and the alumina is extracted while the im purities remain in suspension. Passed through large filter presses where the residues are re 98 moved, the salt solution is then taken to great precipitation tanks which are as high as a fiveor six-story building. A s the liquid cools, alu minum hydroxide, which is aluminum oxide chemically combined with water, crystallizes out of the solution as a solid. It is then removed, washed free of caustic soda, and the chemically combined water is drawn off by heating the hy droxide white hot in huge oil-fired rotary kilns. The resulting white powder, alumina, becomes in turn the basic raw material for the reduction plant. Electricity essential to smelting of aluminum The reduction of aluminum from aluminum oxide is an electrolytic process which requires a large and continuous supply of electrical energy. A typical reduction plant consists of one or more lines of electrolytic cells or potlines. The pots are open steel boxes usually 12 by 15 feet in outside dimensions and about 3 to 4 feet high, lined with fire brick and thick carbon blocks or casings in which are embedded cathode connections. Above the pots and extending down into them are car bon anodes which receive current through huge copper or aluminum bus bars. Cryolite is heated to molten form in the pots and then alumina is dissolved in it. This solution is called the elec trolytic bath. The passing of direct current from the anodes through the solution of cryolite and alumina and out through the cathodes electrolyzes the aluminum oxide by liberating the oxy gen or recombining it with the carbon anodes to form carbon monoxide or dioxide, thus releasing the pure aluminum metal which collects in a molten state at the bottom of the pots. Each pot can produce about 500 pounds of aluminum every 24 hours. The molten metal is tapped periodi cally. A s the pure aluminum is formed and re moved, alumina is fed into the bath as needed. The process is continuous, operating on a 24hour basis the year around. The pots are con nected with one another but individual pots may be closed temporarily for repairs, since the lin ings have to be replaced about every two years. Wrought products most important The next stage consists of converting the blocks of aluminum into wrought products and August 1957 castings. W rought prod ucts develop from metal changed in shape by me chanical working of the ingot, while castings uti lize the molten metal to fill forms of sand or metal. Castings, w hich range from sand and mold to die castings, account for ap proximately 15 to 20 per cent of aluminum ship m ents, while w rought products make up the re mainder. MONTHLY REVIEW C hart 1 D I A G R A M M A T I C S K E T C H OF T H E P R O C E S S OF A L U M I N U M P R O D U C T I O N The m ost important wrought product in terms of volume and utility is aluminum sheet. T o make sheet, slabs, rectangular in shape and softened by pre-heating, are passed between large rollers until sufficiently flattened and elongated and then given further finishing treat ment. Some mills now use slabs weighing up to two tons directly from the smelter. Sheets below the thickness of l/& inch are Source: Adapted from Earl B. Shaw, World Economic Geography (New York, J. Wiley and Sons, 19SS). made by cold rolling and annealing the metal. This pistons are manufactured by this means. Mis produces a better surface than hot rolling and cellaneous wrought products include aluminum adds strength and hardness. powder, flake, and paste, which are used in the Extruded shapes, another major wrought paint, paper, photographic, and other industries. product, are formed by placing the metal, heated Rods, bars, and wire are other important wrought to a plastic condition, in a cylinder and forcing products fabricated either by forging or extru it through dies. Aluminum is very adaptable to sion. this process, permitting a wide variety of forms which may be combined for exterior decoration or formations. Tubes are also made by extrusion. Ordinary structural shapes like I beams, angles, or channels are fashioned by forcing hot ingot between special rolls. Forgings are made by hammering or pressing aluminum into predetermined shapes by the use of giant hammers or multi-ton mechanical and hydraulic presses. Such items as propellers and Castings, one of the largest individual outlets for aluminum, are made by four methods: plas ter, sand, iron mold, and die casting. The lastmentioned process, which involves forcing mol ten metal under pressure into closed molds, per mits very fine limits of dimensional accuracy and makes finish machining unnecessary. Castings become components of automotive equipment, cooking utensils, motors, household appliances, 99 FEDERAL RESERVE BANK OF aircraft and machinery equipment, and numerous other products. W hen one looks at the present-day aluminum industry with its complex production and fabri cation operations and its many products, it is easy to forget the time-consuming and arduous background of experimentation that was neces sary to make all of this possible. A t first it was necessary to experiment in the laboratory merely to isolate the metal. Then the search continued for a process that was commercially feasible. And there were engineering and merchandising problems that had to be solved before the metal could become important commercially. The in dustry as seen today is the result of some 70 years of development. Experimental aluminum Although aluminum is the world’s most abun dant metal, it is so thoroughly and intricately con cealed by nature that its very existence eluded scientists for centuries. It was not until 1807 that Sir Humphrey Davy established the existence of the metal, and the first pellet of the metal was produced in 1825 by the Danish scientist Oer sted. By gently heating potassium amalgam with aluminum chloride and distilling the mercury from the resultant aluminum amalgam, he ob tained a small lump of metal having the color and luster of tin. Frederick W oehler in Berlin re peated Oersted’s experiment in 1827 but failed to observe production of aluminum. Using me tallic potassium instead of potassium amalgam he obtained aluminum in the form of a gray pow der. Nine years later, a third scientist, Henri Sainte-Claire Deville changed W oehler’s method by substituting sodium for potassium. The metal was now made in lumps the size of marbles rather than pinheads. By 1854, Sainte-Claire Deville had succeeded in reducing the cost from $545 to $17 per pound. In June of the next year, SainteClaire Deville announced before the French Academy of Sciences that within four months he hoped to place the aluminum industry on a firm basis. Some years later, when his book D e I’A lu minum was published, he concluded it with these w ord s: I have tried to show that aluminum may become a useful metal by studying with care its physical and chemical properties. As to the place it may 100 SAN FRANCISCO occupy in our daily life, that will depend on the public’s estimation of it and its commercial price. The introduction of a new metal into the usages of man’s life is an operation of extreme difficulty. W ith Sainte-Claire Deville’s method, the prin cipal problem was the cost of sodium. About three pounds of sodium were needed for each pound of aluminum. Hamilton Y . Castner of New Y ork was responsible for the next improve ment by reducing the cost of sodium, but alumi num still remained relatively costly to produce. Throughout this period of experimentation with the purely chemical production of aluminum there lingered the hope of somehow reducing aluminum by an electrolytic process. In fact, the discoverer of aluminum, Sir Humphrey Davy, tried to decompose aluminum electrolytically by first melting it with an extremely strong current. The result was a brittle white aluminum alloy. Henri Sainte-Claire Deville actually reduced alu minum electrolytically during the same year he refined the sodium process. However, the current needed had to be produced from batteries. This made the method so expensive that there was little inducement to develop it commercially in com petition with the sodium reduction process. A n other 25 years elapsed before dynamoelectric machinery was sufficiently common to be sug gested for the current needed for electrolysis on a commercial scale. New industry begins in a woodshed It was in 1886 that Charles M. Hall, a young student at Oberlin College, Ohio, finally discov ered an electrolytic process that was technically and commercially feasible. Hall knew that alumi num oxide could be cheaply obtained from baux ite, an ore bearing aluminum oxide. The bar to electrolysis, however, was its extremely high melting point of 2050° Centigrade. Hall reasoned that if he could find a solvent which would dis solve alumina in substantial quantities, he could electrolyze it in solution. He found the solvent in cryolite, a sodium aluminum fluoride compound, and in a woodshed behind his home in Oberlin, on February 23, 1886, succeeded in producing aluminum by electrolyzing a solution of alumina in molten cryolite. Hall was sure that his process had commer cial possibilities but he lacked the money to de August 1957 MONTHLY REVIEW velop it. After many failures in trying to interest people with capital he finally succeeded in con vincing the founders of the Pittsburgh Testing Laboratory, Alfred E. Hunt and George H. Clapp, who proceeded to raise $20,000 in cash and set up The Pittsburgh Reduction Company with Hall as a major stockholder. Production was started on September 18, 1888, at the rate of 50 pounds per day, in a small, five-employee plant superintended by Hall. The price was set at $5 per pound, but the metal found such a limited market that the price was soon reduced to $4 and then $2. By 1890, however, production was expanded to 475 pounds per day, and a larger plant was opened in the following year. Monopoly based on the Hall Patent Hall secured a patent for his discovery even though Paul L. T. Heroult of France had inde pendently discovered the same process. From 1888 to 1891 The Pittsburgh Reduction Com pany was protected by the Hall Patent, which did not expire until 1906. In 1891, however, the Cowles Company began to manufacture alu minum using the Hall process. After a bitter patent suit The Pittsburgh Reduction Company was awarded damages. New litigation later arose over the Bradley Patent on using the heat from the electric current used in electrolysis for melt ing the cryolite. The Hail process employed the same principle, but the original patent did not cover this aspect. In 1903 the validity of the Bradley Patent was upheld, which prevented The Pittsburgh Reduction Company from making aluminum without infringing on the Bradley Pat ent. A settlement was finally effected which gave The Pittsburgh Reduction Company the license to the Bradley process until it expired in 1909, three years after the Hall Patent was to expire. Thus from 1888 to 1909 The Pittsburgh Reduc tion Company was able effectively to bar com petition by reason of patent rights. Industrial and market structure The Pittsburgh Reduction Company began consolidating its position and expanding its in terests into the various stages of production al most from the outset. It was soon recognized that since there was no ready market for aluminum, it was necessary for the company to roll sheet and fabricate sundry articles to familiarize the metal trades and consumers with the various uses of the metal. A s a result, The Pittsburgh Re duction Company expanded into fabrication fa cilities as its production of aluminum grew. Moves were also made to acquire facilities for all other phases of aluminum production. As it happened, deposits of bauxite were dis covered in Georgia and Alabama at just about the time Hall was producing his first aluminum. The Pittsburgh Reduction Company began to acquire these bauxite deposits in 1894, and by 1909 it had control as well of large deposits in Arkansas. Meanwhile, the company had built its own alumina plants, railroads, and generating plants. By the time its name was changed to A lu minum Company of America in January 1907, the company had become a completely integrated concern. The ore produced at its mines was run through crushing, grinding, and drying plants and then sent to East St. Louis, Illinois, where it was converted into aluminum oxide for the re duction plants at Niagara Falls and Massena, New York, and Shawinigan Falls, Quebec. Most of the electricity fed into the reduction cells was generated by the company, which also owned a substantial part of the rights to the water power which turned its dynamos. The company made its own carbon and had its own source of cryo lite. After establishing itself in all phases of alu minum production the Aluminum Company of America embarked on an ambitious expansion program. One consequence was that entry into the industry was rendered difficult for new firms. A lcoa’s acquisition of a large part of the domestic deposits of bauxite suitable for aluminum reduc tion and the company’s restrictive agreements with those firms which bought bauxite from it for purposes other than metal production were formidable obstacles to entry until 1912 when these agreements were cancelled. Furthermore, the company’s rapid extension of operating ca pacity and acquisition of enormous undeveloped power reserves, along with its fund of merchan dising and technical experience, seemed to leave 101 FED ERA L RESERVE BANK O F SAN FRANCISCO little room for fresh capital and enterprise by other firms. returned shipments were often greater than the metal that could be utilized. The only determined attempt to enter the alu minum industry in the United States before W orld W ar I was made by a group of experi enced French aluminum producers who pos sessed their own bauxite in France. W hen the outbreak of the war prevented further financing in Europe to complete their partially constructed power plant and reduction works in North Caro lina, the necessary capital could not be found in this country. The stockholders sold out to the Aluminum Company of America, which ap peared to be the only potential buyer. During the early years from 1888 to 1895, a chemical laboratory for checking quality was the extent of technical control. Mechanical testing was farmed out to testing bureaus. If a salesman complained that an experimental lot of sheet was too hard or too soft to suit a customer’s require ments, the mill production had to be slowed up for more samples. Because of these problems the Aluminum Company of America developed its own fabricating facilities and sales force as a means of expanding uses of the metal and over coming the fears of potential users. There was always the hope that aluminum would replace some other material because of its inherent quali ties and that every sample was the potential seed from which future tonnage would grow. That these policies and hopes were more than justified is fully apparent in the subsequent growth of the market and the ability of the company to main tain its monopolistic position until 1941. Industrial growing pains The discoveries which made feasible the lowcost production of aluminum did not directly lead to its widespread use. Manufacturers, schooled in the tradition of metals such as iron, copper, and steel, were slow to utilize its potentialities. For many years after it became possible to make alu minum at a low price it was difficult to sell at any price. In each new field aluminum had num erous and sometimes great obstacles to overcome. Scientists had to establish accurately what it could and could not d o ; new techniques of ma chining, welding, and extrusion had to be worked o u t; new aluminum alloys and new ways of mak ing alloys had to be found, and what is more, this knowledge had to be taught to the trade. Hand books had to be prepared that fitted aluminum into the tables with which engineers are accus tomed to work. There was no cozy niche all ready to receive a new metal. On the contrary, it had to fight its way into every market over the barriers of ignorance, tradition, lethargy, and competition. The first few years of introductory selling were largely given to attempts to interest found ries, rolling mills, and wire drawing plants in the new metal. Results were slow because equipment and methods intended for high-melting point metals were not readily adapted to the lower fusion range of aluminum. Even when it became possible to produce aluminum in fairly large quantities, lack of familiarity with the metallurg ical characteristics of the light metal led to blis ters, slivers, and blowholes. Scrap losses and 102 Early uses Despite the many technical and marketing problems, sales of aluminum by the Aluminum Company of America expanded from 99 tons in 1893 to over 3200 tons in 1903. Prior to 1890 the uses of aluminum were limited to two general classes. The first included parts of instruments or machines of various kinds, in which the labor per piece was so much greater than the cost of the ma terial used that the latter cost was negligible. The second class might be termed “ metal fancy goods” or novelties. A typical display of aluminum ar ticles in 1894 included, besides cast and spun utensils, such an assortment as metal-backed brushes, collar buttons, tea balls, salt and pepper sets, bookmarks, trays, card counters, cardcases, paper cutters, looking glass and picture frames, hairpins, combs, penholders, candlesticks, match boxes, spoons, and house numbers. O f all the fields of use developed during the decade following the introduction of the Hall process, no single one resulted in such a con tinuously increasing yearly consumption as alu minum electrical conductors. As early as 1895, The Pittsburgh Reduction Company had elec trical resistance tests made at the laboratories of August 1957 MONTHLY REVIEW the Westinghouse Electric and Manufacturing Company and Lehigh University. In the follow ing 10 to 15 years aluminum enjoyed some suc cess in the field of electric transmission lines. But the potential market in the general engineering trades was not appreciably developed until much later. It was the growth of large-scale production of automobiles which enabled the output of alumi num to expand so rapidly just before W orld W ar I. By 1914 about 80 percent of the cars made in this country contained aluminum crank cases and gear cases. In 1915 it was estimated that at least one-fourth of the annual production of aluminum was consumed in the form of light, stiff alloys, most of which went into motorcars. By the mid-1920’s, however, improved technol ogy in the drawing of steel made it possible for the automobile makers to substitute the cheaper metal. The outbreak of W orld W ar I, on the other hand, gave a huge boost to the demand for alu minum. Production in the United States was raised from 40,000 tons in 1915 to nearly 60,000 tons in 1917 and 1918. Uses in such items as machine guns, time fuses for shrapnel, aluminum powder for explosives, and aircraft disappeared with the return of peace, but the uses which con sumed great tonnages during the war stimulated new applications. Impact of World W ar II on the Industry Up to 1941, the production of primary alumi num was entirely in the hands of the Aluminum Company of America. This company operated an alumina plant at East St. Louis, Illinois, which was a relatively convenient point for assembling and treating bauxite ores produced in central Arkansas and ores imported from South Am er ica and also for shipping alumina to the com pany’s four smelters. T w o of these were located in the Southeast at Alcoa near Knoxville, Ten nessee, and at Badin on the Yadkin River in central North Carolina, and two in New York State, at Niagara Falls and at Massena on the St. Lawrence River. All these plants made heavy use of hydro-electric power, partly company owned and partly secured from public utility sources. Toward the end of 1940 the Reynolds Metals Company, a highly diversified enterprise with an established reputation in the production of alumi num foil, indicated a strong desire to enter the production of primary aluminum in anticipation of heavy defense needs. After lengthy negotia tions, Reynolds was finally able to secure a loan from the Reconstruction Finance Corporation by pledging its plants as collateral, with special pro visions designed to ensure the Government first claim on Reynolds Metals’ earnings. Less than three months later, construction of an alumina and a reduction plant was begun near Sheffield, Alabama on a site now called Listerhill. They were in production by May, 1941. Beginning in 1937 the Aluminum Company of America embarked on a large expansion pro gram which in successive instalments extended over a five-year period and resulted in consid erably more than doubling its physical plant capacity. In addition to substantial fabricating facilities, including a new foundry and forging plant at Los Angeles, this program provided for a new alumina plant at Mobile, Alabama, to op erate on South American bauxite ores, and for the enlargement of the company’s principal re duction works at Alcoa, using Tennessee Valley Authority power. Increased capacity was also planned at the company’s three other smelters to the degree that power supply made possible. Wartime expansion of aluminum capacity and output In spite of the very large plans for expansion embarked upon in 1937, the size of the American aluminum industry was drastically revised up ward by W orld W ar II. The enormous demands of the national defense and lend-lease programs not only for aircraft production but also for a wide variety of other military uses of aluminum far outstripped the resources of the existing units in the industry. When it became obvious early in 1941 that aluminum requirements for military purposes had been underestimated, Government agencies took steps to establish controls over existing supplies and to stimulate a greatly in creased volume of output. A priority system was established in February 1941 which drastically restricted the use of aluminum for civilian pur 103 FEDER AL RESERVE BANK O F poses, and a Government-sponsored expansion of productive capacity was launched in June of the same year, followed by a second and enlarged program in February 1942. Together these two programs called for the guarantee of raw material supplies, for the construction at Government ex pense of two alumina plants and nine new smelt ers, and for hastening the installation of addi tional hydroelectric facilities. W ith the exception of one smelter, built by Olin Industries, all the new Government plants were designed and constructed for the Defense Plant Corporation by the Aluminum Company of America and were operated by that company during the emergency period. Several of the new Government plants were completed by May 1942, and all of them were in operation by m id-1943. Their output had reached capacity before the end of that year except in two instances where labor shortages prevented full operation. In addition, Reynolds Metals constructed another plant at Longview, Oregon and added to their plants at Listerhill by securing an additional loan from the Reconstruction Finance Corporation. The Longview plant was completed by August 1941, and the expansion at Listerhill was finished by June 1942. Production of primary aluminum in 1943 exceeded 920,000 tons; and the total supply from all sources — primary, secondary, and imports — was nearly 1,400,000 tons, as against actual shipments to fabricators of about 1,085,000 tons. This compared with a production of about 164,000 tons in 1939. Raw material and fabricating facilities enlarged In addition to the new primary aluminum re duction plants, the Government’s expansion pro gram had included two large alumina plants, located in Arkansas and Louisiana, for the con version of bauxite to alumina. These facilities, completed in successive stages in 1943 and 1944, more than doubled the capacity of the three alu mina plants previously existing. Bauxite impor tation problems became acute in the summer of 1942 owing to the scarcity of shipping and intensified enemy submarine activity in the Ca ribbean. The consequent necessity of using more domestic ore of considerably lower grade than 104 SAN FRANCISCO the Guiana bauxites led to the construction of special facilities at the four largest alumina plants to permit the maximum recovery of alumina from these lower grade ores. The Government’s plans for enlarging the capacity of the industry also extended to the con struction of a considerable number of aluminum fabricating plants. These new plants were mostly Government-owned but were operated by con cerns experienced in the metal working indus tries. A large expansion of privately-owned fab ricating capacity also took place, some of which was financed by Government agencies. Emphasis was placed on rolling mills to produce strong alloy aluminum sheet and on plants to increase the output of extruded and tubular products, rods and bars, and special forgings and castings, all of which were vitally important in the tremen dous expansion of aircraft production. Emergence of the Northwest as an aluminum center A striking shift in the geographic location of the American aluminum industry resulted from the large expansion caused by defense needs dur ing the period 1939 to 1943. Until practically the eve of the war the industry’s plant facilities through the primary metal stage, then repre sented only by the Aluminum Company of Am er ica, were all located east of the Mississippi River. The construction between 1939 and 1943 of two privately-owned and five Government-owned smelters in the Pacific Coast states, together with one plant in Arkansas, resulted in shifting nearly 50 percent of the industry’s primary reduction capacity far to the west of the center of the coun try. Locating the Government’s two large new alumina plants in Arkansas and Louisiana, while not so radical a move, also shifted the center of gravity of raw material supply somewhat to the westward. The emergence of an aluminum industry in the Pacific Northwest was determined by two basic factors. The United States needed aluminum badly and immediately in the pursuit of its war effort. The Pacific Northwest was one of the few areas in the country that had the surplus of elec tric power needed. The Aluminum Company of America also built and operated two reduction August 1957 MONTHLY REVIEW plants in California at Riverbank and Torrance for the Defense Plant Corporation, but these plants did not continue operating after the war as the needed power could be obtained only by rationing. Postw ar Transition W ith the closing of hostilities the Government faced the problem of disposing of plants built to satisfy war needs at any cost. Aluminum capacity had been expanded 7 times during the war while certain fabrication stages had been expanded over 45 times. Moreover, the geographical loca tion and the very structure of the aluminum in dustry had been changed by the location of new plants. Its control, its geography, technology, economics of supply, cost, price, and its potential markets had all changed. This, combined with the Government’s desire to promote competition, presented numerous problems of disposal that were to have a dramatic impact on the future of the aluminum industry in this country. During the war the Aluminum Company of America nearly trebled its own facilities in a $300 million construction program. In addition, the company designed and operated Government plants worth nearly $500 million. Its assign ment included eight of the nine Govern ment smelting plants and nine of the largest Gov ernment fabricating plants. Thus, although Alcoa was operating more than 90 percent of the United States capacity for alumina and primary metal at the end of 1944, the United States Government owned 58 percent of the nation’s smelting capac ity ; Alcoa, 35 percent; and Reynolds, 7 percent. In the autumn of 1945, most of the Govern ment aluminum plants were shut down. The C hart 2 L O C A T I O N IN T H E U N I T E D S T A T E S A N D C A N A D A BAUXITE R E F IN IN G , AL U M IN U M RED U C T IO N AND F A B R IC A T IN G FAC1LIT1 E S ^ , I 9 5 6 1 Figures under symbols refer to thousands of tons of aluminum produced in that region. s Only fabricating facilities of fully integrated producers are included. Sources: The figures and locations are compiled from United States Department of Commerce, Materials Survey— Aluminum, pp. III-l, III-2, III-5 ; American Bureau of Metal Statistics, Year Book, 1956, p. 90. 105 FEDERAL RESERVE BANK OF prospects for disposal of the Government invest ment of $705 million in the aluminum industry were uncertain. The two primary aluminum pro ducers had sharply curtailed production in their own plants. Their inventories of aluminum were piling up. Threatening the market were hun dreds of millions of pounds of surplus aluminum from cancelled war contracts and from aircraft moving to the scrap heap. The primary industry was still largely controlled by the Aluminum Company of America, while its only competitor, the Reynolds Metals Company, was reducing its output to a small proportion of A lcoa’s. Disposal of Government aluminum plants in the postwar period The question of disposal of the Governmentowned plants, representing more than half the alumina capacity, well over half the smelter capacity, and a large fraction of the fabricating capacity of the industry, posed a major problem. In the Surplus Property Act of 1944, Congress affirmed its belief in free competition in Am er ican industry, stipulating that war plants be disposed of in a manner which would stimulate competition and break monopoly controls. A Government suit had been brought against the Aluminum Company of America for monopoly in 1937 in the United States District Court for the Southern District of New York. After five years of litigation the suit was decided in favor of Alcoa in 1942 and the Government appealed to the Supreme Court. Four of the Justices dis qualified themselves, leaving the Court without a quorum. A bill was then enacted constituting the Court of Appeals for the Southern District a court of last resort to determine the appeal. The war had interrupted the prosecution of the suit so it was not until 1945 that this court of New Y ork reversed the decision of the Southern Dis trict Court and ruled that the Aluminum Com pany of America had been monopolizing the ingot market. The District Court was ordered to await the disposition of the Government plants to determine what action, if any, would be neces sary. W hen the Government plants were offered for sale very few companies showed any interest. As one deterrent, much uncertainty surrounded the 106 SAN FRANCISCO market prospects for aluminum. As another, new firms were hesitant to enter the field without an assured supply of alumina. The Government had a big alumina plant at Hurricane Creek, Arkan sas that utilized low-grade bauxite ores, but the patents were held by the Aluminum Company of America. Without license to use these patents the plant was useless. After lengthy negotiations Alcoa agreed to grant a nonexclusive royalty-free license to the Reconstruction Finance Corporation for the life of the patents relating to the extraction of alu mina from low-grade bauxite. In return, the R.F.C. or any sublicensee had to grant Alcoa a license to use any improvements made on the patents. This agreement was followed shortly by arrangements to lease the alumina and reduction plants in Arkansas to Reynolds Metals Company. Reynolds then acquired additional reduction plants; and the Kaiser interests, through the Permanente Metals Corporation, leased three large reduction and fabricating plants. Later Permanente leased the alumina plant at Baton Rouge in order to be independent of others for alumina. Thus, during 1946, Reynolds and Kaiser together obtained 75 percent of aluminum plant disposals. Disposal fostered competition The control by Reynolds and Kaiser of almost 50 percent of the productive capacity of the in dustry now made effective competition a possi bility. These two companies absorbed by lease or sale 12 basic plants with an original cost of $289 million. Reynolds obtained the larger share, eight plants (original cost, $194 m illion). Permanente obtained four plants (original cost, $96 m illion). Reynolds Metals Company was accorded prior ity in purchasing in that it had already entered the primary aluminum business in 1940. Kaiser’s entry into aluminum was without previous expe rience in the industry. During this period of confusion regarding the disposal of the aluminum plants and the state of the market, production dropped sharply. In 1945 production of aluminum ingot fell 36 percent below the average 1944 level to only 495,000 tons. Throughout the first half of 1946 produc tion was held back by strikes, shortages of soda August 1957 M O N T H L Y R EV IE W ash for alumina production, and inadequate power supplies. Production in 1946 dropped to 410,000 tons, the lowest since before 1941 and less than in any subsequent year. Production and consumption started increasing again after 1946. By June 1950 when the outbreak of the Korean W ar necessitated another expansion of capacity, Reynolds Metals and Kaiser Aluminum and Chemical were well established. Various incen tives in the form of accelerated amortization, government purchase guarantees, and the guar anteeing of private loans were offered to secure expansion in capacity. The three established firms provided the main response. Entry for com pletely new firms was inhibited by the high in itial capital outlay required in comparison to the plants purchased at substantially less than cost after W orld W ar II. Current Structure of the Industry The aluminum industry of the United States is large whether employment, assets, or sales is used as an indicator. The Aluminum Company of America alone employs 55,000 workers with sales close to a billion dollars per year. The United States is now the world leader in alu minum production and consumption by a wide margin. As of 1955 over 40 percent of the world’s reduction capacity was located in the United States while Canada had over 16 percent. Conse quently, the United States and Canada have well over one-half of the world’s productive capacity. Because of the geographical distribution of baux ite deposits in relation to industrialized nations, there is a heavy movement of bauxite and, more recently, aluminum in international trade. British Guiana, Dutch Guiana, and Jamaica have pro vided over 80 percent of the United States baux ite requirements and 100 percent of Canadian requirements. The United States has rapidly de pleting deposits in Arkansas which are of a lower grade than the South American ores. Europe is quite well endowed with bauxite, particularly in France, Hungary, and Yugoslavia. France, N or way, Germany, and Italy are the principal pro ducers of aluminum, although most of the other European countries also produce some alu minum. The United States is a m ajor importer, along with Europe, despite its dominance in T A l u m in u m R e d u c t io n for 1 956 in able 1 C a p a c it y and S elected A United States ............................... . C o n s u m p t io n reas Capacity* (tons) 1,775,500 762,000 13,700 764,700 98,200 Consumption (tons) 1,778,000 91,900 30,000 961,200 83,200 Russia and the Iron Curtain 730,300 n. a. n.a. Not available. 1 Capacity dependent on availability of power. Source: American Bureau of Metal Statistics, Yearbook 1956, (New York, 19S7), pp. 88 and 92. world production. Canada is the world’s largest exporter, supplying both the United States and Europe. Industrial organization One peculiarity of the aluminum industry, par ticularly in the United States, has been the high degree of vertical and horizontal integration, which is to say, each firm has moved into the four basic stages of aluminum production as well as extending its control over an increasing num ber of plants at any one stage. Currently the drive for integration appears stronger than ever. As soon as Kaiser and Reynolds entered the field they made strenuous efforts to develop their own sources of bauxite, alumina plants, fabricating mills, etc. Although there are thousands of small independent fabricators, the bulk of the business is done by the three principal ingot producers. At the moment three giants dominate the field — Aluminum Company of America, Reynolds Metals, and Kaiser Aluminum and Chemical Corporation, but there are others. Anaconda Copper Company entered the field toward the end of 1955 with a plant of 60,000 tons annual capac ity of ingot at Columbia Falls, Montana. More recently, Harvey Machine Company announced the start of a 60,000-ton smelting plant at The Dalles in Oregon, which is expected to begin op eration in 1958. In addition, Olin Mathieson has teamed up with Revere Copper and Brass to build a plant of 120,000 tons annual capacity in the Ohio Valley region. The projected combined capacity of these three new entrants amounts to about 15 percent of the current capacity of the three leading firms. 107 FEDERAL RESERVE BANK OF Description of the leading companies O f the three leading companies the Aluminum Company of America remains the largest and the most highly integrated. The sole producer of alu minum for years, Alcoa now accounts for 44.6 percent of United States capacity. It is the most completely integrated company in the industry, having large raw material reserves, supporting transportation and power facilities, alumina plants, reduction facilities, and fabricating units. Alcoa, along with the other firms, has been engaged in a tremendous expansion program in all phases of its business. A new alumina plant with a capacity of 700,000 tons is to be built at Point Comfort, Texas, which will supply the adjacent smelter as well as the one at Rockdale, Texas. Plans have also been announced to build a 150,000-ton reduction plant at an Ohio River site in Indiana. It will include a 375,000-kilowatt steam power plant fired by coal in addition to ingot-casting equipment, a carbon plant for manufacturing anodes, machine shops, electrical shops, a rectifier station, and other service instal lations. Upon completion of its present plans, Alcoa’s installed reduction capacity will be 962,500 tons. Reynolds Metals Company possessed 27.5 per cent of United States reduction capacity at the end of 1956. It is a producer of major aluminum products, including foil, in which it holds a dom inant position. In addition to ingot and conven tional mill products, the company fabricates parts for incorporation in the end products of other manufacturers and has a number of product divisions engaged in fabricating corrugated roof ing, siding, gutters, downspouts, and aluminum windows. Reynolds Metals Company probably does more fabricating of finished goods than either of the other two leading companies. W ith the acquisition of bauxite reserves in Jamaica and Haiti, Reynolds has established itself in the four basic production phases in the aluminum industry. Kaiser Aluminum and Chemical Corporation is the third giant in the field, accounting for 24.5 percent of United States reduction capacity at the end of 1956. Kaiser Aluminum and Chemical Corporation has moved very rapidly in the inte 108 SA N FRANCISCO gration of its facilities to the point where its operations now extend from bauxite mines to consumer products. Canadian firm is important supplier of aluminum Aluminium Limited of Canada bears mention because of its huge size and its exports to the United States. The Aluminum Company of America began foreign operations by producing aluminum in Canada as early as 1901. By 1928, it organized Aluminium Limited, which acquired most of A lcoa’s foreign holdings. The two com panies were legally separate entities but tied to gether by the fact that Alcoa's stockholders now became holders of Aluminium Limited, the shares of which were distributed on a pro rata basis to the owners of Alcoa. In 1951 the New Y ork Cir cuit Court ruled that stockholders in both firms would have to dispose of their stock in one of the companies. Aluminium Limited’s total annual re duction capacity, held through its Canadian sub sidiary, Aluminum Company of Canada, at the end of 1956 was 762,000 tons, as compared with Aluminum Company of America’s 792,500 tons, Reynolds’ 488,500 tons, and Kaiser’s 434,500 tons. In addition, Aluminium Limited has inter ests in smelters in six other countries, with an aggregate capacity of 88,000 tons per year. Aluminum Company of Canada, like United States firms, is embarked on ambitious expan sion schemes. Its Kemano-Kitimat project, north of Vancouver in British Columbia, is believed to be the largest hydroelectric power development ever initiated by private capital. The reduction plant at Kitimat already has a capacity of 180,000 tons per year although the project is not yet completed. W ith further implementation of the over-all Kitimat plan at some future date, the generating capacity could be increased to ap proximately 1,592,000 kw., which would supply firm power capable of supporting an aluminum smelting capacity of 551,000 tons per year. The principal activities of the Aluminium Lim ited enterprise embrace mining, shipping and transporting of the basic raw materials, genera tion of hydroelectric power, production of pri mary aluminum metal, and fabrication of some of the output into forms useful to the metal trade. August 1957 M O N T H L Y R EV IE W Its international sales organization covers most areas of the world, and its research development program embraces nearly all aspects of the indus try. Because the company’s primary producing capacity is almost five times its fabricating capacity, Aluminium Limited has become the largest supplier of aluminum ingot for inde pendent fabricators in the western trading world. In recent years, 65 percent by weight of its alu minum sales have been made in ingot form. Most of the remaining 35 percent is fabricated within the company organization and sold as semifin ished material, such as sheets, rods, extruded shapes, and castings, to manufacturers who per form the final operations in making end products available to consumers. A few subsidiary opera tions manufacture and sell such finished goods as transmission line cables, cooking utensils, and aluminum foil, but these account for little more than 5 percent of the gross volume of its metal sales. Newly emerging structure of aluminum industry The completion of plans already announced by the various companies will lead to slight changes of relative corporate positions within the indus try. Nevertheless, important changes are taking place in the geographical concentrations of pro duction and the level of capacity. Completion of expansion plans already under way or announced will culminate in United States capacity in 1958 45 percent greater than that of 1955. Canadian capacity will have increased even more by the end of 1958 with an expansion of 47 percent. A n interesting feature of the expansion plans in the United States is the move to a new loca tion in the Ohio River Valley region. By the end of 1958 Pacific Northwest capacity will have dropped from 37 percent to 29 percent of the national capacity while the Ohio Valley region will have jumped from zero to 18 percent. The Harvey Aluminum plant at The Dalles in O re gon is the only new plant scheduled for con struction in the Pacific Northwest. Together with a shift in the location of new aluminum reduction facilities there has been a change in the energy source of electric power. By 1958 hydroelectric power will supply 65 per cent of the aluminum industry’s needs rather than 72 percent as at present. Gas will have de clined from 24 percent to 18 percent, while coal and lignite will have jumped from 4 to 17 per cent as sources of electrical energy. Some of the reasons for this shift will be discussed in the third instalment of this series. The marked expansion scheduled for alumi num reduction capacity has raised some question as to the ability of the market to absorb all of the output that will be forthcoming within the next three years. In the next article a discussion of the factors that have influenced consumption in the past and that will affect the levels of consump tion in the future will be presented. 109 FED ER AL RESERVE BANK OF SAN FRANCISCO BUSINESS INDEXES — TWELFTH DISTRICT* (1 9 4 7 - 4 9 average = 100) T ota l C a rn onagri- T ota l m f ’g foadings cu ltu ra l E le c t r ic e m p lo y e m p lo y ( n u m Copper* pow er ber)* m ent m en t In d u stria l p r o d u c tio n (p h y sica l v o lu m e )1 Y ear an d m o n th Lum ber 1929 1933 1939 1948 1949 1950 1951 1952 1953 1954 1955 1956 95 40 71 104 100 113 113 Petroleum® C ru d e R e fin e d C e m e n t 118 111 121 na 87 52 67 101 99 98 106 107 109 106 106 105 1956 June July August September October November December 121 120 117 112 110 111 112 1957 January February M arch April M ay June 108 115 115 111 111 114 ue Lead1 112 116 122 119 122 129 54 27 56 104 100 112 128 121 130 133 145 156 165 72 93 105 101 109 89 87 77 71 75 77 105 17 80 101 93 113 115 112 111 101 117 118 29 26 40 101 108 119 136 144 161 172 192 210 105 105 105 104 104 104 103 125 132 128 136 128 135 132 161 160 171 168 163 146 139 82 75 84 78 81 79 72 135 110 123 122 127 123 123 215 212 212 209 217 216 210 134 134 102 102 101 101 101 101 131 130 132 132 138 131 120 127 140 154 157 152 79 88 88 78 82 r 75 125 138 133 135 126 121 220 211 221 228 229 78 50 63 100 103 103 W a te rb o rn e fo re ig n tra d e 3’ 6 D ep ’ t Retail store fo o d sales prices t, i (v a lu e)8 E x p o r ts Im p o r t s ' 55 102 97 105 120 130 137 134 143 152 102 52 77 100 94 97 100 101 100 96 104 104 30 18 31 104 98 105 109 114 115 114 122 129 64 42 47 103 100 100 113 115 113 113 112 114 190 110 163 86 85 91 186 171 140 131 164 195 135 136 137 138 153 152 153 153 154 156 159 105 102 101 107 102 100 106 126 132 131 131 130 132 131 114 115 114 114 115 116 116 204 215 207 212 256 242 234 139 138 138 138 138 139 160 159 159 159 159 160 105 96 100 103 99 101 131 127 133 127 126 131 116 117 116 117 117 118 237 269/267 298 i02 99 103 112 118 121 120 127 134 135 .... ---- 124 72 95 98 121 137 157 200 308 260 308 443r 427 559 500 459 563 401 436 421 417 489 534 BANKING AND CREDIT STATISTICS — TW ELFTH DISTRICT (a m ou n ts in m illio n s o f d o lla r * ) M em b er b an k reserves a nd related Item s C o n d itio n item s o f all m e m b e r b an ks' Y ear and m o n th Loans U .S. and G o v ’t d is c o u n t s s e c u r it ie s D em a n d T o ta l dep osits tim e a d ju s te d 3 d ep o s its 2,239 1,486 1,967 5,925 7,093 7,866 8,839 9,220 9,418 11,124 12,613 495 720 1,450 7,016 6,415 6,463 6,619 6,639 7,942 7,239 6,452 1,234 951 1.983 8,536 9,254 9,937 10,520 10,515 11,196 11,864 12,169 1,790 1,609 2,267 6,255 6,302 6,777 7,502 7,997 8,699 9,120 9,424 1956 July August September October November December 12,157 12,173 12,423 12,384 12.504 12,804 6,396 6,439 6,491 6,468 6,431 8.383 11,392 11,356 11,581 11,747 11,867 12,078 9,233 9,286 9,305 9,326 9,235 9,356 1957 January February March April May June July 12,488 12,556 12,576 12,649 12,694 12,9 lb 12,912 6,505 6,356 6,177 6,520 6,315 6,249r 6,319 11,812 11,279 11,129 11.622 11,210 11,310/' 11,407 9,587 9,690 9,794 9,839 9,995 10,155/10,188 1929 1933 1939 1949 1950 1951 1952 1953 1954 1955 1956 Bank rates on short-term b usin ess loans* 3.20 3.35 3.66 3.95 4.14 4.09 4.10 4.50 4.57 4.65 ' 4.74' F actors a ffectin g reserves: Reserve bank credit* — — + + + + + + — — + + — — + + — 4.81 ........... + — ““ C om m er c ia l11 T reas u ry 14 0 110 - 192 - 930 -1 ,1 4 1 -1 ,5 8 2 -1 ,9 1 2 -3 ,0 7 3 -2 ,4 4 8 —2.685 -3 ,2 5 9 + 23 + 150 + 245 + 378 +1,198 +1,983 +2,265 +3,158 +2,328 4-2,757 +3,274 6 4 3 5 0 17 - 143 315 454 417 143 303 + + + + + + 33 41 37 35 56 29 49 - 558 816 170 445 261 374 426 + + + + + + + 34 2 2 13 39 21 7 14 2 38 52 M on ey in c ir c u lation* _ B ank d e b its Index 31 cities'- >« Reserves11 (1 9 4 7 -4 9 100)' 6 18 31 65 — 14 + 189 + 132 39 + 30 + 100 — 96 175 185 584 1,924 2,026 2,269 2,514 2,551 2,505 2,,530 2,654 42 18 30 102 115 132 140 150 154 172 189 240 217 400 312 209 451 — 8 — 103 — 59 — 2 38 + 38 + 2,519 2,565 2,640 2,.542 2,579 2,654 195 198 182 195 195 200 249 494 170 430 209 402 320 — 144 — 139 — 9 — 31 54 + 20 + 6 + 2,548 2,517 2,495 2,560 2.526 2,483 2,457 206 200 199 202 200 203 205 — + 1Adjusted lor seasonal variation, except where indicated. Except for department store statistics, all indexes are based upon data from outside sources, as follows: lumber, California Redwood Association and U.S. Bureau of the CensuB; petroleum, cement, copper, and lead, U.S. Bureau of Mines; electric power, Federal Power Commission; nonagricultural and manufacturing employment, U.S. Bureau of Labor Statistics and cooperating state agencies; retail food prices, U.S. Bureau of Labor Statistics; carloadings, various railroads and railroad associations; and foreign trade, U.S. Bureau of the Census. 1 Daily average. 1 N ot adjusted for seasonal variation. 1 Los Angeles, San Francisco, and Seattle indexes combined. 6 Commercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and Washington customs districts; starting witb July 1950, “ spe cial category” exports are excluded because of security reasons. * Annual figures are as of end of year, monthly figures as of last Wednesday in month. 1 Demand deposits, excluding interbank and U.S. G ov 't deposits, less cash items in process of collection. M onthly data partly esti mated. * Average rates on loans made in five major cities. 1 Changes from end of previous month or year. 10 Minus sign indicate® flow of funds out of the District in the case of commercial operations, and excess of receipts over disbursements in the case of Treasury operations. 11 End of year and end of month figures, u Debits to total deposits except interbank prior to 1942. Debits to demand deposits except U.S. Government and interbank deposits from 1942. />— Preliminary. r— Revised, 110
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