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M o n th ly FEDERAL RESERVE B A N K O F S A N F R A N C IS C O D E C E M B E R 1, 1 9 4 2 h e U nited States has been at war a year. M obiliza tion o f human and material resources fo r war pur poses has advanced far during this time. T h e full mean ing o f this rapidly form in g “ war econ om y” has not yet reached home to all people, but its im plications are fast becom ing m ore concrete in the w ork and hom e life o f every citizen. T o some it means lon g hours o f w ork in war industries at excellent rates o f pay ; to others it means the necessity o f changing occupations ; to still others it means the serious impairment o f established business en terprises ; to others it means the building up o f thriving new business enterprises engaged in war w ork. T T o all alike, whether service man o r civilian, the new “ war econ om y” entails a necessity fo r accepting restric tions upon individual freedom in varying degree. F o r civilians, there are restrictions upon spending and pre scriptions as to terms o f payment fo r a lon g list o f com m odities ; there is a grow in g list o f good s subject to ration ing ; and many other form s o f governmental restraints upon accustomed freedom o f action are already in force or contemplated. In the broader sense, these positive g o v ernmental directives reflect the necessities involved in developing war production to the utmost, and in sending men and material to a w orld-w ide battlefront. Part o f the story is being told in terms o f tremendous expansion o f some industries, and part o f it is being told in terms o f econom ic disrup tion ; but through the entire scene runs the thread o f governm ent action, under the ne cessities o f war, reaching far d ow n into the lives o f individuals in order to organize and equip the nation fo r a life or death struggle. R evival in Twelfth District Shipbuilding Return o f shipbuilding on the Pacific Coast to the status o f a giant industry is il lustrative o f the marked expansion o f p ro ductive activity in the T w e lfth District. Since the first o f the year, district yards have delivered m ore than 250 cargo vessels, and have been active as well in the repair and construction o f naval units. Deliveries o f cargo vessels during the first 10 months o f the year w ere approxim ately 10 times those made in all o f 1941. T his expansion in construction o f ships reflects an increase in the number o f shipways in use and also a significant and persistent shortening in the average period o f time required to com plete a cargo vessel. O ne yard now building L iberty ships completed its first ship in O c tober, seven months after w ork first started on the yard itself. T he 146 L iberty ships delivered by fou r other dis trict yards in the first seven months o f 1942 required an average o f 130 days from keel-laying to delivery. This period was reduced to 65 days fo r 30 ships delivered by the same yards in A ugust, to 58 days fo r 37 ships deliv ered in September and to 52 days fo r 41 ships delivered in O ctober. In this latest month, one yard o f the fou r deliv ered 12 ships built in an average o f 41 days. Expansion in Ste el Production Facilities T he local shipbuilding industry, despite the high priority ratings accorded its re quirements, has been faced with an almost chronic shortage o f materials, principally o f steel. T his, o f course, has been a result o f the marked expansion o f shipbuilding at a time when requirements o f other war industries w ere also increasing. T he short age will be alleviated somewhat during the first quarter o f 1943 when a new steel plant in southern C alifornia is scheduled fo r com pletion. Units now under construc tion have a capacity fo r producing 450,000 tons o f ingots annually, and fo r rolling 300,000 tons o f plates. T h ey will add about 35 percent to present capacity o f the dis trict steel-producing industry. O n N ovem ber 3, the R F C announced an additional loan o f 26 m illion dollars fo r enlarge- WAR FINANCE IN DECEMBER In December alone, the United States Treasury has to borrow $9,000,000,000, over one-third the entire amount borrowed during the last World War. Every individual American and every American corporation should purchase Government securities to the limit of their ability. For complete details as to the securities offered this month, see any Bank, Investment Dealer, Securities Broker, or member of the Victory Fund Committee. ★ ★ ★ ★ SUPPORT YOUR GOVERNMENT—THE TWELFTH DISTRICT MUST DO ITS SHARE ★ ★ ★ ★ 60 FEDERAL RESERVE BANK OF SAN FRANCISCO December 1, 1942 ment o f the plant to an ultimate ingot capacity o f 675,000 tons annually. In Utah, facilities fo r producing 1,230,000 tons per year have been under construction fo r som e months. C om pletion o f facilities now under con struction or definitely scheduled represent a tripling o f the capacity o f the T w e lfth District steel-producing industry. graphic uses, and the cessation o f other shipments except fo r paper production in the far west and fo r L endLease. A lso, logs were ordered withheld from three pulp mills located in the area covered by the order and, later, 14 additional mills w ere notified that a further diversion o f logs from pulpm aking to lum ber uses could be e x pected. Further Limitations on U se of Lum ber Sto p p a ge of Construction on H yd ro e lectric Projects A lth ou gh there exists som e prospect fo r alleviation o f the local deficiency in steel, shortages are becom ing m ore acute in various other materials. F o r this reason, further action to direct the flow o f scarce materials to the m ost essential uses has been necessary. O ne such instance is the W P B order (L -2 1 8 ) issued late in O c Necessity fo r distributing available materials am ong first uses, ju dged in terms o f their immediate contribution to the war, led the W P B on O ctob er 28 to revoke priority ratings and to prohibit certain construction on the five district hydroelectric pow er projects listed below : tober directing that shipments o f D ouglas fir lumber, produced in this country largely in the P acific N orthw est, be limited to or fo r the account o f the arm y procure ment office or contractors and other persons designated by that office. Despite the fact that D ouglas fir has been termed the m ost critical species o f lum ber in the United States fo r w ar purposes, the daily average cut, apart from small fluctuations, has been unchanged since last M arch. B oth total lum ber production and output o f D ouglas fir in the district during the three months ending in O ctober have been m oderately below a year earlier. A n important factor in this year-period decline has been the shortage o f loggers, discussed at length in the O ctober issue o f this R eview . Curtailm ent in Pacific C o a s t Pulp Production W ith lumber output falling well behind demand, e f forts to ease one factor limiting production, the shortage o f logs, have led to the diversion o f pulpw ood logs to sawmills. T his, together with curtailed im ports o f Can adian pu lpw ood and labor shortages affecting the indus try, has resulted in a reduction o f w o o d pulp production in the P uget Sound area. O n O ctober 26 the W P B o r dered the cessation o f pulp shipments to the East, except fo r essential nitrating (o rd n a n ce ), rayon, and photo- Production and Employment— Index numbers, 1923*25 a v e ra g e = i0 0 With Seasonal /-------- Adjustment ----------1942m f Industrial Production1 Oct. Sept. Aug. Oct. Lumber2 ........................... . p l4 5 139 136 149 — — — — Refined o il........................ Cement ............................. 182 214 203 169 W heat flour...................... 97 99 97 117 — — — — P e tr o le u m ........................ Electric power................. . p334 p329 r318 273 Factory Employment and Payrolls3 Employment Pacific C oast................. p298 p289 283 196 California ............... 332 326 324 237 Oregon ....................... p260 p260 245 150 139 W ashington ............ , p248 p230 220 Payrolls Pacific C oast.................. p496 p486 456 256 539 535 505 California ............... 307 Oregon .................... . p440 p426 410 200 Washington .......... . p434 p413 378 178 Without Seasonal /Adjustment>-------- 1942--------- \ 194Í Oct. Sept. Aug. Oct. p l5 7 162 163 161 194 p l8 8 184 184 210 226 226 195 116 118 117 115 110 p llO 99 110 p 333 p344 r349 272 p311 p302 348 338 p270 p281 p258 p242 292 334 255 227 205 248 156 144 p524 p505 566 544 p471 p473 p464 p438 480 525 455 397 271 323 214 191 *Daily average. 2Converted to 1935-39 base. Back figures will be supplied on request. 3Excludes fish, fruit, and vegetable canning, p Preliminary, r Revised. Name of Project Location Davis D a m ........................ Ariz.-N ev. Keswick D a m ....................California Anderson Ranch P roj.. Idaho Shasta D a m ......................California Grand Coulee D a m .. . . W ashington Type of Construction Stopped Entire project Entire project Entire project 1 power plant unit 3 power plant units N et Loss in Potential Generating Capacity 225.000 K .W . 75.000 K .W . 27.000 K .W . 75.000 K .W . 174.000 K .W . Construction on these p rojects had been permitted to con tinue on a low priority basis fo r several months prior to the stoppage order, but it was understood that as mate rial shortages became m ore critical drastic action w ould be taken. Expansion and Shift in D e m a n d for Petroleum Products T h e C alifornia petroleum industry is also encounter ing problem s in m eeting the demands o f the war econ om y. Since June, the over-all demand fo r petroleum products has been at record levels despite the loss o f the previously im portant Japanese market and an appre ciable decline in civilian consum ption o f gasoline. W e re the distribution o f this demand am ong the several p rod ucts unchanged from the pre-w ar pattern, there w ould be little problem in m eeting it. Dem and is not so distributed, how ever, and as a result the problem o f the industry in recent months has been that o f produ cin g adequate amounts o f the types o f products to which demand has shifted. T h e shift has been mainly to heavy fuel oil, largely a residual product o f the refining process. D u ring the first 10 months o f 1942, demand fo r this product totalled 105 m illion barrels, 21 percent higher than a year earlier. In this period, net refined production amounted to 77 m illion barrels, indicating a difference o f 28 m illion bar rels to be met fro m other sources. Substantial w ithdraw als have been made fro m stocks, and output o f wells p ro ducing crude petroleum usable in its original state as heavy fuel oil has been increased. S om e relaxation in W P B regulations on the drilling o f new and the mainte nance o f old wells was announced in O ctob er to encour age production o f crude yielding a high prop ortion o f fuel oil. W o m e n in Industry U n der the driving urge fo r m ore production o f the means o f w aging a successful war, shortages have devel oped not only in materials but in m anpow er as well. December 1, 1942 61 M O N T H L Y R EVIEW W om en have been drawn into industry on a substantial scale in recent months. In September, the latest m onth fo r which data are available, the number o f wage earners em ployed in California m anufacturing industries underwent the first decline since the outbreak o f war. Em ploym ent o f wage earners, on the other hand, increased sharply further to a new high o f 144,500, o f w hom 42,600 were em ployed in the aircraft industry. In nondurable g ood s industries, including the highly sea sonal fruit and vegetable canning industry, 85,100 wom en were em ployed in September, com pared with 50,000 in A pril. male female C on sum er G o o d s Shortages Department stores carry a w ide variety o f consum er good s and behavior o f sales o f these stores is indicative o f a broad segment o f retail trade. F o r the fifth consec utive month, value o f sales o f department stores in the T w elfth District increased in O ctober, after adjustm ent fo r seasonal influences, and were 32 percent higher on a daily average basis than in O ctober 1941. O ver-all stocks o f these firms continue large, show ing a year-period gain at the end o f the month o f 21 percent. In September and O ctober, however, total department store inventories de clined markedly, contrary to the usual seasonal increase. A lth ou gh over-all stocks o f consum er good s are appar ently still substantial, the range o f com m odities available to consum ers is becom ing progressively narrow er. M o re over, in the case o f an increasing num ber o f items, the quantities which m ay be purchased during a period o f time are subject to restriction. Gasoline and coffee have now join ed sugar on the list o f form ally rationed con sumer items in daily use. In form a l rationing at the con sumer level o f a number o f other com m on items, includ ing som e dairy products and meats, has been instituted in various localities o f the district in N ovem ber. Farm Production G o a ls of Essential Foods in 1943 P roduction o f m ost fo o d s in the U nited States during the current year has exceeded all prior records. F o r the year as a whole it is estimated that output, in the aggre gate, will be up som e 10 percent ov er a year earlier and will be about 25 percent higher than the 1935-39 average. Considerable shifts in production o f food stu ffs took place in 1942 under the program o f production goals set up by the U nited States Department o f A gricu ltu re and fu r ther shifts will be encouraged in 1943. Little if any increase— perhaps a reduction— in the over-all farm production o f fo o d s m ay be expected in 1943. W ith demand fo r some fo o d products already out stripping or threatening to outstrip supply, it is m ore than ever necessary to encourage production o f the food s most needed at the expense o f less essential products. N utritive value relative to bulk is the prim ary factor in the determination o f “ essentiality” o f agricultural products in war time. P roduction goals fo r 1943 call fo r still further increases in the items stressed in the 1942 goals, such as dry beans and peas, milk and eggs, meats and potatoes. Representatives o f the U nited States D e partment o f A griculture, organized into state and county war boards, are currently engaged in assembling in fo r mation fo r use in establishing state and county break downs. Goals fo r winter vegetables, o f interest prim arily in California, A rizon a and certain southern states have been released. T h ey call fo r an increase o f 30 percent in the acreage o f carrots, 25 percent in lima beans, and 15 percent in both snap beans and onions. A b ou t the same acreages as a year earlier o f cabbage, tomatoes, beets, and spinach have been called for, while decreases are suggested in acreages o f cauliflower, cucumbers, can taloupes, celery, eggplant, watermelons, lettuce, green peppers, artichokes, and asparagus. Lettuce grow ers in the Imperial V alley o f C alifornia had com pleted in large part their plantings o f lettuce prior to announcement o f the goal fo r this crop, and reports indicate that only where stands are p oor have they shifted crops. G row ers in the Salinas V alley have stated they plan to replace considerable acreages usually planted to lettuce with sugar beets, onions, and carrots. Straw berry acreage in the three P acific Coast states in 1943 will be considerably below that o f 1942. Current estimates indicate that 17,100 acres will be devoted to this crop against 25,120 in 1942. A i d to Farmers P roducing Essential Products T h e war effort has drawn heavily upon farm labor, has limited the availability o f transportation facilities fo r m oving farm crops, and has restricted the production and availability o f farm implements. V arious steps, however, have been taken to relieve shortages o f m anpower and producing, processing, and distributing facilities in order to encourage the maintenance o r expansion o f p rodu c tion o f essential farm products. T h e N ovem ber 13 amendment to the Selective Service A c t provided fo r the deferm ent o f men fou n d by local boards to be “ nec essary to and regularly engaged in an agricultural occu p a tio n /' Currently farm ers must possess certificates o f need to purchase m any farm implements and am ong the considerations determ ining the granting o f these certifi- Distribution and Trade— Index numbers, 1935-39 daily a verag e= 10 0 R e tail T rad e W ith Seasonal t------- Adjustm ent------- ,-------- 1942------- * 1941 O ct. Sept. A u g . Oct. Department store sales (value) Twelfth D istrict.......... p l8 2 176 172 Southern California.. p l7 7 171 166 Northern C alifornia.. p l6 7 165 151 Portland ........................ p200 180 180 W estern W ashington. p229 213 217 Eastern Washington and Northern Idaho p l4 5 171 168 Southern Idaho and Utah ........................... p l9 3 177 196 P h o e n ix ........................... p i 96 206 228 Automobile sales (num ber)1 Total ................................ — Passenger ................. — C om m ercial............... — Carloadings (number)1 Total .................................... p l0 7 Merchandise and misc. p l l 3 O t h e r ............................... plOO 138 146 124 136 159 p l91 p l7 9 p l7 2 p212 p240 184 176 164 204 238 158 155 139 173 204 145 147 128 143 166 109 p l9 8 193 152 150 139 132 p224 p213 193 180 164 159 162 144 14 14 24 14 14 23 79 69 184 129 140 116 123 130 115 118 138 92 — — — — — — — — — 112 118 104 107 116 95 100 114 82 11923-25 daily average = 100. p Preliminary. W ithout Seasonal ,------- Adjustm ent-------\ ,--------1942-------- \ 1941 Oct. Sept. A ug. Oct. p l2 6 p l37 p i 13 62 December 1, 1942 FEDERAL RESERVE BANK OF SAN FRANCISCO cates is the essential character of the products raised. The announcement of winter goals by the Department of Agriculture indicated that further steps are contemplated to shift needed labor, materials, farm machinery, and transportation facilities to the production of essential farm products. Farm Price C e ilin g Legislation Under the terms of the amendments to the Emergency Price Control Act of 1942 approved on October 2, price ceilings for farm products cannot be established below parity or below the highest market price between January 1 and September 15, 1942, whichever is higher. If such ceilings do not adequately reflect increases in farm labor and other costs since January 1, 1941, the President is directed to raise them. The amendments also provide for loans to farmers at 90 percent of parity on cotton, corn, wheat, rice, tobacco, and peanuts, thereby effectively placing “floors” under prices of these crops. In the case of wheat and corn, however, the loan rates may be held at 85 percent of parity when, in the discretion of the President, this is necessary to prevent increases in prices of feed for livestock and poultry. a total of over 32 billion dollars. Federal Reserve banks added 900 million to their holdings of Governments. O f the remainder of the increase in the public debt, 800 mil lion went to Federal agencies and trust funds, and 6 bil lion dollars went to mutual savings banks and non-bank investors, including individuals, corporations, and trusts. O f this figure of 6 billion, 1.5 billion was accounted for by net sales of Series E War Savings Bonds to individBanking and Credit— Averages of Wednesday figures (millions of dollars) 1942 N ov. /— Change From— \ 1942------ \ 1941 Oct. Sept. N ov. Condition Items of W eek ly Reporting Member Banks Commercial, industrial, and agricultural loa n s.................................... Open market paper.............................. Loans to finance securities transactions .............................................. Real estate loans.................................. All other loans...................................... Total investments.................................... ., United States Government securities,. All other securities.............................. Adjusted demand deposits......................, Time deposits.......................................... .. Coin and Currency in Circulation Total (changes on ly ).............................. . Federal Reserve notes of F.R.B. of S.F. Member Bank Reserves.................................... 1,031 -2 -12 -126 474 13 +5 +9 + 1 -24 -13 0 +i -4 -7 -5 -14 -4—92 + 265 4-96 +261 -4 +5 + 113 + 182 +11 + 1 -10 -24 -56 +769 + 806 -37 +502 + 18 39 364 141 2,190 1,887 303 1,985 1,108 --1,187 1,217 4-1 +67 +65 +73 + 133 + 135 +77 +581 + 550 +255 C urren t F ederal Bu d ge t Estimates Problems and developments in finance, as in industry and agriculture, are dominated by war requirements. Budget receipts of the Federal Government for the cur rent fiscal year ending June 30, 1943 are expected to exceed the 13 billion dollars obtained during the previ ous fiscal year by more than 60 percent. The Revenue Act of 1942, approved on October 21, is expected to provide some 4 billion dollars in the present fiscal year and about 7 billion in a full year’s operation. Receipts of 21 or 22 billion dollars, however, will not meet more than about 25 percent of estimated expenditures. The estimate of expenditures was raised by 22 billion dollars to 85 billion early in October when the figures presented in the President’s January budget report were revised. On the basis of those estimates, the total Government debt, direct and guaranteed, will increase by 63 billion dollars to 140 billion dollars by the end of June 1943. Three billion dollars will be provided by Government agencies and trust funds, but 60 billion dollars will have to be borrowed from individuals, banks, and other insti tutions. In the first four months of the current fiscal year, July 1 to October 31, the interest bearing public debt increased 20.4 billion dollars. Increased Bank Investm ents in G ov e rnm e nt Securities It is against the background of fiscal requirements of the Federal Government that the recent major changes in bank earning assets and deposit liabilities must be interpreted. In the first three months of the current fiscal year, commercial banks in the United States absorbed about 6 billion dollars of the increase of 14 billion dollars in the interest bearing public debt, expanding their invest ments in Government securities by about 24 percent to uals and 1 billion by net sales of Series F and G War Savings Bonds to individuals, corporations, and trusts. During this same quarter, member banks in the Twelfth District increased their investments in Govern ments by approximately 900 million dollars, or over 40 percent, to an estimated total of 2.9 billion. Relatively, the district increase was noticeably greater than that for all commercial banks in the country as a whole. In the succeeding seven weeks, through November 18, district member banks added approximately 100 million dollars further to their holdings of Government securities. In contrast to the large expansion in investment holdings, loans of these banks have declined persistently in recent months. Effect of Bank Purchase of Securities U p on Deposits Net additions to bank portfolios of loans or invest ments increase deposits. A simple example will illustrate the point. A bank pays for its allotment in a new issue of Government securities by authorizing the Federal Reserve bank of its district to debit its reserve balance carried with that Federal Reserve bank and to credit the account of the Treasury. Outstanding deposit liabilities of the purchasing bank are in no way affected. When the Treasury disburses the funds they are received by the public and in large part are promptly deposited, but not necessarily with the same bank that created them by purchase of the securities, or with banks in the im mediate vicinity. Somewhere in the country, however, deposits are increased.1 In contrast, when a customer 1A bank may make payment by war loan deposit account, i.e. by credit ing a special deposit account of the Treasury on its books. Subsequent calls on this deposit lead to its transfer to the Treasurer’s general account with the Federal Reserve bank. The final effect upon reserves and deposits of the banking system is identical to that described above. December 1, 1942 M O N T H L Y REVIEW of a bank buys a security, no deposits are created. The customer pays for the security with a check drawn on his deposit account and there is consequently a transfer of deposits to the Treasury. As a result, disbursements by the Treasury of funds obtained in this way merely restore deposits, and no net increase in the money sup ply occurs. From June through October, daily average net demand and time deposits of member banks in the United States increased approximately 6.5 billion dollars to 61 billion. Almost all the increase (6.1 billion) took place in demand accounts. Deposits of district member banks increased by 920 million dollars to 6.5 billion. The relative increase since June amounted to 16 percent for the district, com pared with an increase of 11 percent for the United States. The rise in bank investments has not been the only factor bearing upon changes in deposits. Large and fre quent Treasury transfers of funds to this district from other parts of the country and their disbursement lo cally have been another major influence contributing directly to the increase in deposits. At the same time, how ever, deposits have been drawn upon heavily by custom ers of local banks to make net payments outside the dis trict and have also been drawn upon to meet increasing local demands of the public for currency. But these three factors are not of the same level of significance as the in crease in bank investments. Treasury transfers of funds to this area swell deposits locally, and interdistrict pay ments for the accounts of bank customers result in a net outflow of funds that draws off local deposits. In both cases, however, the transactions merely represent inter regional shifts in deposits and do not affect total deposits in the country as a whole. Withdrawals from deposits to provide cash for hand-to-hand circulation, moreover, merely represent a conversion from one type of circulat ing medium to another. From a national standpoint, the major factor in the recent expansion of the money supply has been and continues to be the increase in bank hold ings of Government securities. U rg en cy of Non-Bank. Purchases of G o v e rnm e nt Securities An expanding supply of money in the hands of the public, were it to be spent as received for a shrinking volume o f civilian goods, would seriously disturb the en tire price structure and hamper the war effort. Such a situation could be met effectively only by arbitrary re strictions upon expenditure through comprehensive ra tioning. The only alternative to this possibility is the diversion of existing funds on a large scale from the 63 public to the Government. This diversion can be accom plished in two ways— by taxation and by the purchase of Government securities on the part of non-bank buyers. Taxes have been increased substantially but by no means enough to cover the cost of the war effort. It is of the greatest importance, therefore, that non-bank buyers ex tend their purchases of Government securities to the utmost. Regardless of the expansion in money supply result ing from the effect of commercial bank purchases of securities, the difference between the Treasury’s require ments and whatever is obtained from non-bank sources must be obtained from the banking system. O f the 60 billion dollars which it is estimated the Treasury needs to borrow from the public during this fiscal year, 14 billion had been raised through September. More than 40 percent was loaned by commercial banks and there is no doubt that further large purchases of Government se curities will have to be made by those institutions. The Federal Reserve System has taken action to assure that the banks may have the reserves necessary to make these purchases and to support the resulting increase in deposits. R ecent Federal Reserve Policy In recent months the System has made substantial open-market purchases of Government securities. From June 30 through November 18, holdings of such securi ties have increased by 2 billion dollars. In September and October the Board of Governors of the Federal Reserve System ordered three successive reductions in reserve requirements against demand deposits of central reserve city banks in New York City and Chicago, lowering them from 26 to 20 percent. Fuller utilization of existing reserves and a wider dis tribution of securities to member banks have been encour aged by two recent steps. First, the System has adopted the policy of purchasing, under a repurchase agreement, all Treasury bills offered by banks at a discount of 0.375 percent. Second, all Federal Reserve banks in October reduced their discount rates from 1 to 0.5 percent on notes of member banks secured by Government obliga tions maturing in one year or less. These two steps reduce the necessity of a bank maintaining a relatively wide mar gin of excess reserves to provide for an unexpected need for funds, since they permit Treasury bill holdings to be converted into cash or reserves immediately at a specified minimum price, and permit borrowing on approved se curities at an unprecedentedly low rate. 64 FEDERAL RESERVE BANK OF SAN FRANCISCO December 1, 1942 S u m m a ry o f N a tio n a l B u sin e ss C o n d itio n s Released November 23, 1942— Beard of Governors of the Federal Reserve System output expanded further in October and the first half of November. Retail food prices continued to advance while prices of other commodities generally showed little change. Distribution of commodities to consumers was maintained in large volume. I n d u s t r ia l P IN D U S T R I A L P R O D U C T IO N Federal Reserve monthly index of physical volume of production, adjusted for seasonal variation, 1935-39 average=100. Latest figure shown is for October 1942. D E P A R T M E N T S T O R E S A L E S A N D ST O C K S Federal Reserve monthly indexes o f value of sales and stocks, adjusted for seasonal variation, 192325 average = 100. Latest figures shown are for October 1942. r o d u c t io n Industrial production continued to advance in October and the Board’s seasonally adjusted index rose 3 points to 188 percent of the 1935-39 average. Gains in armament production accounted for most of the increase, and it is estimated that currently well over 50 percent of total industrial output is for war purposes. In lines producing durable manufactures, approximately 80 percent of output now consists of products essential to the war effort. Steel output reached a new high level in October as production expanded to 100 percent of rated capacity. In the first half of November output declined slightly to around 99 percent, reflecting some shutdowns for furnace repairs, according to trade reports. Activity in industries producing nondurable goods declined less than seasonally in Octo ber. Production of foods, especially canning, was unusually large for this time of year and output of textiles continued at a high level. Mineral production, which usually in creases in October, declined slightly this year owing chiefly to a decrease in coal produc tion which had been maintained in large volume throughout the summer. Value of construction contracts awarded in October increased somewhat over that of September, according to reports of the F. W . Dodge Corporation. Publicly-financed projects continued to account for over 90 percent of total awards. The Department of Commerce estimates that, in the third quarter of 1942, expenditures for new construction amounted to 4.2 billion dollars, of which 3.5 billion came from public funds. For the first nine months of this year the corresponding figures were 10.2 and 7.7 billion dollars. Construction of military and naval facilities and of industrial buildings accounted for the bulk of the expenditures. D is t r ib u t io n Department store sales increased in October and the Board’s seasonally adjusted index rose to 129 percent of the 1923-25 average as compared with 123 in September and 130 in August. In the first half of November sales increased further and were 17 percent larger than in the corresponding period last year, reflecting in part price advances of about 10 percent. Railroad shipments of freight were maintained in large volume during October and declined seasonally in the first half of November. C o m m o d it y P r ic e s Retail food prices continued to advance sharply from the middle of September to the middle of October and further increases are indicated in November. Prices of most other goods and services increased slightly in this period. In the early part of October maxi mum price controls were established for a number of additional foods. Maximum price levels for many other food products have been raised, however, and the Office of Price Administration reports on the basis of a recent survey that in numerous instances sellers are not complying fully with the regulations now in effect. C O ST O F L IV IN G Bureau of Labor Statistics indexes, 1935-39 average^lOO. Fifteenth of month figures. Last month in each calendar quarter through September 1940, monthly thereafter. Latest figures shown are for October 1942. EXCESS RESERVES OF M EM B ER BANKS Wednesday figures, partly estimated. Latest fig ures shown are for November 11,1942. B a n k C r e d it a n d G o vern m en t S e c u r it y M ark ets Excess reserves of member banks were 2.5 billion dollars in the middle of November, a somewhat higher level than generally prevailed in the preceding four months. A t New York City banks excess reserves amounted to about 500 million dollars. Additions to member bank reserve balances during the four weeks ending November 18 were the net result of an increase of 500 million dollars in Reserve bank holdings of Government obligations, which approximately covered the continued heavy currency drain, and a decrease of 200 million in Treasury balances at the Reserve banks. Holdings of Government securities by reporting banks in 101 cities increased by 1.9 billion dollars to 24 billion during the four weeks ending November 11. Almost half of the increase occurred at New York City banks. There were substantial increases in holdings of Treasury notes, bonds, and certificates, and a smaller increase in Treasury bills, while holdings of guaranteed obligations declined. These changes reflected new offerings and retirements by the Treasury during the period. Commercial and industrial loans at reporting member banks in leading cities increased somewhat during the first two weeks of November. Brokers’ loans in New York City increased around Government financing dates, but subsequently declined. Prices of United States Government securities were steady in the four weeks ending November 18. Long-term taxable bonds yielded 2.32 percent, and 3-month Treasury bills sold at a yield of 0.37 percent.
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