Full text of Economic Review (Federal Reserve Bank of San Francisco) : December 1944

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Qewieur

Monthly

FEDERAL RESERVE B A N K OF S A N
DECEMBER

FRANCISCO

1944

Pacific Coast W artime Shipbuilding
he contribution of Pacific Coast shipbuilders to the

Twar effort has been impressive. Starting from a rela­
tively low level of activity in 1939, the subsequent expan­
sion of the industry has made possible the delivery of
nearly 2,000 merchant vessels by the end of 1944, hav­
ing a tonnage substantially greater than that of the entire
prewar American merchant fleet. At the same time, the
industry has been engaged in the construction of destroy­
ers, aircraft carriers, escort vessels, and a large number
of landing craft and miscellaneous auxiliaries for the
armed forces. It is not yet possible, for reasons of mili­
tary security, to give a complete account of the naval
construction phase of this extensive program, or to de­
tail in any adequate manner the large volume of repair
work that has been performed in West Coast shipyards.
Within these limitations, the following analysis attempts
to give some account of how the wartime expansion of
Pacific Coast shipbuilding has come about, some of the
problems it has had to meet, and what has been accom­
plished to date in terms of actual shipbuilding perform­
ance. Some information on investment in shipyard plant
facilities and employment is also presented. A discussion
of certain repercussions on other industries of the Twelfth
District resulting from rapid expansion of shipbuilding
activity in this area was presented in the May 1944 issue
of the Review. Attention is also called to the companion
article in this issue of the Review on the postwar inten­
tions and prospects of Pacific Coast shipbuilders. Other
significant aspects of Pacific Coast shipbuilding will be
discussed in forthcoming issues.
The Current Situation

Whatever the prospects for a reasonably early close of
the European phase of the war, recent statements by the
heads of the Navy Department and the Maritime Com­
mission emphasize the need for a constantly increasing
intensification of the war effort in the Pacific Coast area.
Although earlier losses of shipping by enemy action have
been more than made good, the war’s demand for ships
continues insatiable. The Maritime Commission took de­
livery of 1,677 vessels during 1944 and at the end of the
year announced the award of contracts for 226 more. Of
these, 82 are to be constructed in Pacific Coast yards.
Together with a backlog of around 460 vessels under con­

★




tract on January 1, 1945, these new orders will assure a
volume of work sufficient to carry about 9 of the 12 large
Pacific Coast yards building for the Commission well
through the year 1945. The three remaining yards, all
on San Francisco Bay, will probably work through their
backlogs at various times during the first three quarters
of the year. One of these concerns has for the past three
years been doing a large volume of ship repair w ork; two
new dry docks, one of very large size, are currently being
installed at this plant, and it is not improbable that its
entire facilities will be assigned to repair work before the
year is over. Similar utilization is currently planned for
the largest of all the Maritime Commission yards, the
Richmond plant of the Permanente Metals Corporation.
New naval construction on the Pacific Coast, although
not nearly so large as the program of the Maritime Com­
mission, remains impressive. The naval program on this
Coast involves chiefly vessels of intermediate and smaller
size, and includes both combat ships and a wide variety
of auxiliary craft. Commercial shipyards working prima­
rily on new naval construction or general repair work
have accounted for nearly two-fifths of the total volume
of private shipyard employment in this area during the
past three years. In addition, there has been a steady in­
crease in the activity of the Government navy yards and
dry docks, which is now at an all-time high. The Govern­
ment establishments, while playing an important part in
the destroyer, submarine, and escort vessel programs,
have found their principal usefulness during the past few
years in repair work for the Pacific fleet. Contrary to the
situation in private shipyards, their total employment con­
tinues to expand.
The immediate problem for the private yards is to
counteract the tendency, present now for more than a
year, for their work-people to drift away to other jobs
and other localities. The volume of maintenance and re­
pair work involved in servicing an ever-growing cargo
and combat fleet, together with the construction of new
vessels, will probably tax the physical facilities and man­
agerial capacity of Pacific Coast shipyards in 1945 as se­
verely as any job they have ever undertaken. Their suc­
cess in meeting this problem will play an important part
in hastening the end of the war.

tf-OA. Vioto'uf' ★ ßuy, 'Wa’i ßondU -k Ke&p. Eltern ★

60

FEDERAL RESERVE BANK OF SAN FRANCISCO

Revival of Shipbuilding under fhe Merchant Marine A c t

Until about six years ago, ship construction on any im­
portant scale had practically disappeared from this re­
gion. Total employment in ship and boat building and
repair in the whole Pacific Coast region, during most
of the twenties and thirties, averaged around 10,000 to
12,000 , much the greater part of which was in the two
naval establishments at Vallejo and Bremerton. Most of
the large private shipyards that were hastily set up or
expanded in the last war were dismantled during the
lean years following 1921, or converted to repair yards,
steel fabrication, or engineering work. The marine activ­
ity of the remaining private yards was for a long time
restricted largely to dry docking and repair work, or to
the construction of relatively small craft, such as fishing
boats or pleasure yachts, with an occasional Coast Guard
cutter or survey ship. Not a single ocean-going merchant
vessel of 2,000 gross tons or more was built on the W est
Coast during the decade and a half ending in 1938. Naval
construction, following the disarmament treaties of the
nineteen-twenties, was also greatly curtailed ; a few cruis­
ers and some destroyers and submarines w^ere built in the
two navy yards, together with some auxiliary vessels, but
no contracts for warships were placed with private ship­
yards on this Coast until the rearmament program really
got under way, late in 1940. At the beginning of 1939, the
private shipyard industry of the Pacific Coast consisted
of about half a dozen fair sized plants, in terms of physi­
cal layout, and several dry docking and repair establish­
ments, together with a considerable number of boat build­
ing and small repair yards. The majority of the larger
concerns were not, however, entirely dependent upon
ship work for a livelihood, but engaged in miscellaneous
steel fabrication and construction activities as well. This
was the underlying basis upon which the wartime expan­
sion of the industry has been superimposed.
In order to give effect to the policy of Congress, set
forth in the Merchant Marine Act of 1936, to rehabilitate
the American merchant fleet, which was rapidly becom­
ing obsolete, the Maritime Commission embarked in 193738 upon a policy of systematic replacement of obsolete
vessels. This long range replacement program was initi­
ated at the rate of 50 vessels per year, in contemplation of
the construction of 500 new ships over a period of ten
years. The first 50 vessels, including the luxury liner
“ America” and a group of a dozen fast tankers, were
ordered in 1937-38 from six eastern shipyards. Within
the next two years, 1939-40, contracts were placed for
129 additional vessels, distributed among sixteen ship­
yards. Five West Coast yards were given orders for 38
of these vessels, designed as standard cargo carriers of
turbine or Diesel engine propulsion. Only two of these
concerns were actually established shipyards, although a
third had built some emergency vessels during the last
war, while the two others were new ventures. None of
them had more than two shipways suitable for large ship
construction. The 23 vessels ordered in 1939 were laid
down at a leisurely pace ; one was completed in July 1940,
and the 22 others at various times in 1941. Their produc­




December 1944

tion period, from keel laying to delivery, ranged from an
average of 11 months for five ships turned out by the
speediest builder, to 16 months for two groups of four
vessels each by the slowest builders.
Emergency Shipbuilding Program, 1941 -44

This relatively modest beginning was soon dwarfed
by the flood of orders for new ships, the need for which
first became evident as the tempo of Axis submarine activ­
ity was stepped up and grew increasingly imperative after
the United States was drawn into the war. Already, in
the fall of 1940, the British Government had placed orders
in the United States for 60 large cargo vessels of simpli­
fied design, 30 of which were to be built in a new ship­
yard, the Todd-California Shipbuilding Corporation, to
be established, with British funds, at Richmond, Califor­
nia, and the others at a similar yard in Maine. These were
the largest individual contracts that had been placed for
merchant vessels in this country since the last war, and
involved approximately 50 million dollars each. The ne­
cessity for speed of construction was emphasized in order
to counteract the destruction of merchant shipping by
growing Axis submarine activity. Ground was broken for
the new Richmond shipyard early in 1941, and, in spite
of serious delays in delivery of ship steel during the sum­
mer, five vessels were delivered before the end of the
year and the remaining 25 within the first seven months
of 1942. The Maine yard delivered its first ship in Febru­
ary 1942 and completed its contract the following No­
vember.
On January 3, 1941 the President announced the in­
itiation of an emergency shipbuilding program calling
for the construction of 200 cargo vessels of extremely
simplified design and large carrying capacity. This was
the initial step in the so-called “ Liberty” ship program,
destined to become the largest and most significant ship­
building effort in history. Because of the congestion in
existing shipbuilding facilities of the country, already
fully occupied with both naval and merchant vessel con­
struction, it was decided to set up seven entirely new
shipyards, financed with Government funds and operated
by private companies associated with established con­
cerns, in order to undertake the emergency ship program.
Of the seven new shipyards, two were allocated to the
Pacific Coast— the California Shipbuilding Corporation
at Wilmington, on Los Angeles Harbor, and the Oregon
Shipbuilding Corporation at St. Johns, on the Willamette
River, within the corporate limits of Portland. To each
of these two yards were assigned 31 of the new emergency
ships, while 75 vessels were allocated to two yards on the
Atlantic Coast and 63 to three Gulf Coast yards. An allot­
ment of 36 million dollars from the President’s emergency
fund provided for the cost of shipbuilding facilities, while
the 200 vessels were expected to cost around 300 million,
in addition to approximately half that amount for steel
and other materials supplied directly to the shipyards by
the Maritime Commission.
Following enactment of the lend-lease legislation in
March 1941, the emergency ship program was increased

December 1944

MONTHLY REVIEW

by an additional 112 Liberty ships, and before the end
of the year still other additions brought the total up to
352. Three more emergency shipyards were established,
including the Richmond Shipbuilding Corporation, ad­
jacent to the Todd-California yard .1 Thirty-six vessels
were allocated to this yard, and the previous contracts of
“ Calship” and “ Oregonship” were increased by 24 and
12 vessels, respectively, thus bringing the total number
of emergency ships awarded Pacific Coast builders up to
134 for the year, or 164 including the 30 British vessels.
The greatest pressure for the construction of Liberty
ships came in 1942. Upwards of 1,000 more vessels of this
type were ordered, 798 of them from Pacific Coast build­
ers, and the number of new shipyards designed to build
them was expanded to 16. On the Pacific Coast, the four
original yards at Wilmington and Richmond, California
and at Portland, were increased to seven in the spring of
1942 by the addition of new shipyards at Sausalito, Cali­
fornia, Portland (Swan Island), and Vancouver, Wash­
ington. The last two, however, were soon switched to
vessels of other types, Swan Island to tankers, and Van­
couver to landing craft for military operations and subse­
quently to aircraft carriers. The extremely high rate of
productivity of the original West Coast yards, which
really got into their stride during 1942, made it possible
to switch the Sausalito yard also to tanker construction.
The Commission was more or less reluctantly committed
to a continuing large program of Liberty ships by pressure
from the War Production Board and the non-availability
of turbine engines, the manufacturing facilities for which
were preempted by naval requirements. By the beginning
of 1943, however, the situation had eased to the point
where it was possible to reduce the award of new Liber­
ties, at least to Pacific Coast yards, and to initiate the
construction of the so-called “ Victory” ship; no addi­
tional contracts for Liberties have been placed in this
area since June 1943, and a number of those previously
ordered were converted to other than cargo carrying
purposes.
Production Problems of the Emergency Program

Admittedly inferior to the standard, or long range,
vessels of the Maritime Commission, the emergency type
of freighter was a concession to the necessity of provid­
ing a large fleet of cargo vessels, suited to wrork in con­
voys, in the shortest possible time. The general design
of the Liberty, or EC-2 ships, was similar to that used
in the 60 British vessels, except that they used oil fuel,
while the British ships were coal-burners. A Division of
Emergency Ship Construction was created in the Mari­
time Commission, responsible for the design and layout
of the new shipyards and for the design and construction
of the hulls, engines, and equipment of the vessels them­
selves. The major problem, aside from the procurement
of steel, was to obtain engines and auxiliary equipment
for the proposed new ships without interfering too seri­
ously with the progress of the Commission's long range
1 These two yards were subsequently merged into the Permanente Metals
Corporation, Shipbuilding Division, thus bringing the facilities of both
under the Maritime Commission.




61

program, which had grown to over 600 vessels actually
contracted for by the end of 1941, of which nearly 500
were still to be delivered. It was found that unused manu­
facturing facilities could be drawn upon by resorting to
the old-style reciprocating type of engine instead of tur­
bine or Diesel drive, and by using steam-driven winches
and other auxiliary equipment not being installed in the
Commission’s standard type vessels. The chief character­
istics of the Liberty ship are minimum cost, rapidity of
construction due to adaptability to mass production meth­
ods, and simplicity of operation. Speed was deliberately
sacrificed to large cargo capacity; triple expansion re­
ciprocating engines of 2,500 horsepower drive the Lib­
erty ship at a normal operating speed of 10 to 11 knots,
as compared with the 14 to 19 knots of the Commission’s
long range vessels, while a useful load can be carried of
approximately 10,000 tons.
Because of the increasing scarcity of skilled shipyard
workers it was planned to follow as far as possible the
practice in the first world war, when hundreds of stand­
ardized cargo vessels were “ assembled” at a few large
shipyards from parts and equipment fabricated at hun­
dreds of interior shops and factories. The most important
developments in speeding up ship construction during the
period between 1917 and 1941 were the introduction of the
principle of préfabrication of large parts or sections and
the general replacement of riveting by welding. Both of
these improvements were quite generally and successfully
utilized by the new yards specializing in Liberty ship con­
struction. The crowded condition of the older shipyards,
frequently occupying a cramped physical space, usually
limited the opportunity to employ préfabrication methods
to any considerable extent ; the newer yards were free from
this handicap and could lay out their physical facilities in
such sequence as to obtain the maximum benefit of pré­
fabrication, utilizing the labor of many crews or gangs of
workmen concurrently in assembling individual pieces of
steel into sections or units ready for final delivery to the
building ways. This procedure results in a marked reduc­
tion in the time required by each vessel on the building
way, thus permitting a more effective use of that critical
stage in ship construction. A notable example of préfabri­
cation methods is the Richmond yards of the Permanente
Metals Corporation, where an entire préfabrication plant,
employing upwards of 5,000 workmen, serves two ship­
yards having an aggregate of 19 building ways. Welding
has almost completely displaced riveting at many ship­
yards and is an important factor in the development of
the préfabrication technique. The all-welded ship also
permits a considerable saving in steel and weight, due to
the absence of overlapping plates, thus increasing the
cargo carrying capacity of the vessel. And, perhaps most
important of all in an emergency, wrelders can be trained
far more rapidly than riveters and can perform their task
without helpers, thus making possible the recruitment and
effective utilization of large numbers of relatively un­
skilled workers. By use of assembly line methods and
elaborate division of labor, both shop operations and out­
fitting can be so sequenced that unskilled workers can be

62

FEDERAL RESERVE BANK OF SAN FRANCISCO

trained in a matter of weeks to perform the specialized
tasks to which they are assigned. The utilization of such
methods by the newly constructed shipyards, together
with the extensive employment of mechanical equipment,
such as heavy duty cranes for the handling of materials
and large parts, has made possible a striking reduction in
the average time required in ship construction.
The Pacific Coast yards specializing in building Lib­
erty ships have set particularly good records for both
speed and cost of construction. For the 2,206 such vessels
delivered by all United States shipyards up to June 30,
1944, the average time elapsed from keel laying to deliv­
ery was only 63 days. For five Pacific Coast yards, which
delivered a total of 1,137 vessels during this period, the
average building time was slightly under 50 days, as com­
pared with an average of 72 days for seven Atlantic Coast
yards, delivering 782 vessels, and 88 days for the 287
vessels delivered by four Gulf Coast yards. Cost compari­
sons, in terms of dollars per vessel for actual construc­
tion, exclusive of materials, and in terms of man-hours
required, are also favorable to the Pacific Coast builders.
The Truman Committee has published some detailed cost
figures for each of the 15 shipyards which were building
Liberty ships in 1943, by which time practically all the
emergency yards had attained their full development and
probable maximum operating efficiency. In that year 1208
Liberty ships were delivered, 642 by five Pacific Coast
yards, 440 by six Atlantic Coast yards and 126 by four
Gulf Coast yards. For all 15 yards the average cost of
construction per ship, exclusive of builders’ fees, and cost
of materials supplied by the Government of approximately
$742,000 per vessel, was $904,300, and the average num­
ber of man-hours required for construction was 565,800.
For the 642 vessels delivered by the five Pacific Coast
yards, including one high cost yard that delivered only
10 Liberties in that year, the corresponding figures were
$734,300 and 434,100 man-hours per vessel— more than
18 percent and 23 percent, respectively, below the overall
averages.
The Victory ship, turbine driven, is both larger and
faster than the Liberty, and approaches in size and per­
formance the larger vessels of the Commission’s standard
long range replacement program. Over 400 of these ships
had been ordered from five Pacific Coast yards by the
end of 1944, and about 200 delivered, including 105
converted to “ combat loaded transports.” An important
factor contributing to this program is the successful manu­
facture of marine turbine engines, initiated on a substan­
tial scale at Sunnyvale, California— a wartime develop­
ment that has interesting possibilities for the future.
The wisdom of the Commission’s policy of keeping the
emergency shipbuilding program as distinct as possible,
in its physical aspects, from the activities of the yards
building standard types of vessels, is abundantly attested
by the results. To an extent unequalled in previous Ameri­
can experience, each shipyard was able to specialize its
operations and to concentrate on a single type of vessel.
The procurement of materials for all the emergency yards
was largely centralized in the Maritime Commission it­




December 1944

self and a certain amount of interchange or pooling of
critical materials or parts was made possible. Not only
was a huge volume of tonnage constructed but the job
has been performed in record time. Bringing new ideas
and new methods into the shipbuilding art has worked
well. Novel methods of construction, ingenuity in the
adaptation of limited materials and supplies, substitution
of the new time-saving technique of welding for the slower
process of riveting, extensive application of the principle
of préfabrication of large units of hull sections and super­
structure, and the general use of assembly-line methods
of construction, along with considerable farming out of
wrork to sub-contractors, are among the procedures which
have carried a task of unprecedented magnitude to a
highly successful outcome.
Summary of Maritime Commission Building Programs

Over the six-year period 1939-1944, the building pro­
grams of the Maritime Commission on the Pacific Coast
have included over 2,500 vessels, involving a total outlay
in excess of 4 billion dollars. More than 2,000 of these
vessels had been delivered by the end of 1944, and some
500 remained to be completed. The distribution of these
orders and deliveries, by type of vessel, was as follows :
Vessels
ordered1

Vessels
delivered

Remaindi

Long Range P rogram :
Cargo vessels2 ....................................
Tankers ................................................
Emergency Program :
Liberty ships3 ....................................
Victory s h i p s .......................................
O th ers:
M ilitary types4 ..................................
Cargo carriers5 ..................................

359
243

256
157

1,202

1,202

464

193

271

157
132

145
59

12
73

Total ............ ...............................................

2,557

2,012

545

103
86

_

1 Including orders announced January 3, 1945.
2Including a number of C-3 type vessels taken over by the N avy Depart­
ment for conversion to aircraft carriers.
3 Including 30 vessels built for the British Purchasing Commission in
1941-42.
4 Including tank landing ships, aircraft carriers, frigates, and attack trans­
ports.
5 Including 90 “ coastal” vessels, of 2,800 to 4,000 deadweight tons, and 42
“ ship-shaped” concrete barges, of 5,000 deadweight tons.

The total deadweight tonnage involved in this pro­
gram is between 24 million and 25 million tons, a figure
greatly in excess of the entire prewar American merchant
marine. It will be noted that Liberty ships accounted for
substantially half of the entire Maritime Commission pro­
gram for the West Coast, in terms of orders placed, and
rather more than that in terms of vessels delivered to the
end of 1944. Eighteen large shipyards have participated
in the construction of the vessels listed above. In addi­
tion, a number of small concerns have built lifeboats,
wooden barges and tugboats, none of which are included
in the above summary.
Approximately 230 million dollars of public funds have
been invested in shipbuilding facilities in these plants, the
greater number of which are entirely new creations de­
signed to facilitate the war emergency program. This
means, in effect, that the operators of such plants are
practically the agents of the Government in the opera­
tion of these properties. They have little or no investment
of their own in the physical plant and relatively little in

December 1944

the inventories of material or work in process, the bulk
of which has been supplied by the Maritime Commission.
Much the same condition prevails in the case of several
private shipyards engaged in naval construction work;
the Defense Plant Corporation, or some similar agency,
has provided their physical facilities, while the material
and outfitting equipment were supplied by the Navy De­
partment.
Naval Construction and General Repair W ork

Production and Employment—
Index numbers, 1935-39
average=100

With seasonal
<------- adjustment-------- >
,--------- 1944--------- \ 1943
Industrial production1
N ov. Oct. Sept. N ov.
Lumber .................................... 134
128 125
152
Refined oils2 ..........................
—
—
—
—
Cement2 ..............................................
118 131
119
W heat flour2 .......................... 129 117
117
133
Petroleum2 .............................
—
—
—
—
Electric power2 ................... 433 412 410
470




128
139
239 230
..
136
142 139
133
133
410 r410

145
227
139
139
134
429

144
196
119
146
120
444

273 275 316
315 319 r373
226 225 242
196 196 214
243 243 258
131 rl2 5 169

666

668

673

1 Daily average.
2 1923-25 average = 100.
3 Excludes fish, fruit, and vegetable canning,
r Revised.

Private yard s:
Maritime Commission

1940
25.5

1941
46.0

1942
64.5

1943
79.5

19441
95.0

7.5
11.5

74.0
50.0

294.5
172.5

321.0
204.0

278.0
163.0

19.0

124.0

467.0

525.0

441.0

44.5

170.0

531.5

604.5

536.0

1 Estimated.

Three new supplementary naval dock yards have been
created during the past two years at Hunters Point, San
Francisco, at San Pedro, and at San Diego. The two
older establishments have played an important part in
the current destroyer, submarine, and escort vessel pro­
grams and have also constructed a number of fairly large
auxiliary craft. Their principal role, however, during
the past year or two has undoubtedly been repair work
on battle damaged warships. An increasing number of
private shipyards are being pressed into repair service,
as well as the new docking facilities at Hunters Point
and San Pedro. Additional drydock construction is also
under way in private shipyards on Puget Sound, the W il­
lamette River, and San Francisco Bay, and a large new
private drydock has been proposed for Los Angeles Har­
bor. Over 5,000 merchant vessels operated under the
jurisdiction of the War Shipping Administration have
received major repairs at West Coast repair yards during
the three years, 1942 to 1944; the tempo of this work is
steadily rising.
The character of the Pacific Coast shipbuilding effort
during 1945 is likely to be altered by the increasing shift
from ship construction to ship repair and maintenance.
As this occurs, mass production methods will decline in
importance. Employment-wise, this implies a shift from
large gangs of semi-skilled workpeople, working on
particular jobs according to assembly line methods, to
smaller groups of highly skilled, all-around mechanics,
with adaptability and experience at a premium. Obvious­
ly, this means a shrinkage in overall numbers employed
and less regularity of work for individual workmen,
though not necessarily for the industry as a whole.

Without seasonal

,--------1944--------\1943
Nov. Oct. Sept. Nov.

..
313
..
..
..
..

760

Navy yards ...........................

( ------adjustment-------

270 272
313
312 318 r371
222 218
240
193
189
214
240 235
255
123 r 122
157

677

most rapid from about the middle of 1941 to the end of
1942, particularly in the yards building emergency ves­
sels for the Commission. Total employment by types of
yards at the end of each year from 1940 to 1944 was as
follows (in thousands) :

Total .

The naval and military program, initiated in 1940, has
represented a volume of contracts placed with private
shipyards of the Pacific Coast approximating 3 billion
dollars. It has comprised a wide range of vessels of the
intermediate and smaller types, including light cruisers,
destroyers, repair ships, mine layers and mine sweepers,
submarine chasers, destroyer escorts, landing barges, air­
craft carriers, salvage vessels, tugs and floating dry docks,
and has provided for the needs of the Army as well as
naval requirements. Not less than 100 shipyards and boat
building establishments up and down the coast have par­
ticipated in this business, including some of those work­
ing on Maritime Commission orders. In many cases, ships
under construction for the Commission were requisitioned
at various stages of construction and converted to spe­
cialized naval purposes ; in one case an entire shipyard
was taken over and its ships redesigned as aircraft car­
riers. The Commission has also administered the building
of both combat vessels and auxiliaries for the Navy, in­
cluding tankers, refrigerator ships, landing craft, frigates,
aircraft carriers, and attack transports. These ships have
been given priority over Maritime Commission work at
certain yards which were equipped to build such vessels.
Up to about mid-1941 employment at the two large
navy yards on the Pacific Coast, Mare Island and Puget
Sound, had regularly exceeded the total of private ship­
yard employment, usually by a wide margin, although
not all navy yard personnel are engaged in ship construc­
tion or repair. This situation rapidly changed, however,
under the impact of the national defense program and the
accelerated building program of the Maritime Commis­
sion. Expansion of private shipyard employment was

Factory employment and payrolls3
Employment
Twelfth D istrict........................
California ...................... 311
Pacific N orthw est.................
O r e g o n ...............................
W a s h i n g t o n ......................
In te r m o u n ta in ......................
Payrolls
California .......................... 667

63

MONTHLY REVIEW

679

761

Distribution and Trade—
Index numbers, 1935-39
daily average=100

With seasonal

(------ adjustment------

^

,------- 1944------- , 1943

N ov. Oct.
Department store sales (valu e)1
Twelfth District ................. 253 228
Southern C aliforn ia............ 267 244
Northern California .......... 230 212
Portland .................................. 247 215
W estern W a s h in g t o n ------ 293 272
Eastern W ashington and
Northern I d a h o ............ . 228
169
Phoenix .................................. 267 234
Carloadings (num ber)2
Total ......................................... 115
106
Merchandise and m isc.. 130
123
Other ..................................
95
86

Sept. Nov.

Without seasonal
adjustment------>

(------

,--------1944------- , 1943
N ov. Oct. Sept. N ov.

217
222
210
207
238

216
222
189
215
268

299
306
276
288
351

238
244
219
227
282

226
228
209
233
264

255
255
226
250
320

203
263

198
228

274
313

230
255

227
231

239
266

105
122
85

110
123
94

116
130
97

125
148
96

121
144
94

111
123
96

1 Revised series. Tabulations of back figures for these and other cities and
areas will be made available upon request.
2 1923-25 daily average == 100.

64

FEDERAL RESERVE BANK OF SAN FRANCISCO

December 1944

Postwar Intentions of Pacific Coast Shipbuilders
Pacific Coast shipbuilding industry today is ex­
periencing a serious labor shortage in part because
workers expect a later job shortage. It is generally ad­
mitted that shipbuilding in ordinary times can use only a
small fraction of the number of workers currently needed
to complete the ship construction program. It may not be
as widely recognized, however, that the shipbuilding in­
dustry probably will go through two transitional stages
between the wartime construction program and the final
postwar level of activity. The first stage is that of repair-

I

l h e

E m p l o y m e n t a n d P o s t w a r I n t e n t io n s of W e st C o a st
S h ip b u il d e r s 1

Total
Employment (number of persons)
(a) 1939 average2 .............................
6,500
(b ) 1943 average3 ............................. 515,000
(c) November 1 9 4 4 " ........................... 440,000
Expected Postwar Employment4
(number of persons)
(a) during repair and modifica­
tion p e r io d .................................. 113,000
(b ) in ordinary year with good
b u s in e s s ............ . ........................
40.000
(c ) in ordinary year with poor
16.000
b u s in e s s .......................................
Expected Postwar Employment as
Percentage of 1943 Employment
(a) during repair and modifica­
tion p e r io d ..................................
(b) in ordinary year with good
b u s in e s s .......................................
(c) in ordinary year with poor
b u s in e s s .......................................

ConNew
verted
Prewar shipyard prewar
shipyard
opera- manufacoperators
tors
turers
6,500
144,000
123,000

—
314,000
268,000

52,000

54,000

—
57,000
49,000

7 ,0 0 0 5

30,000

1 0,0005

11,000

5 ,0 0 0 5

22

36

17

12 6

8

7

17B

3

2

85

Expected Postwar Employment as
Percentage of 1939 Employment
— Shipbuilding Only
(a) during repair and modifica­
tion period ................................
(b) in ordinary year with good
b u sin e ss.......................................
(c) in ordinary year with poor
b u s in e s s .......................................

1,630

8007

460

460

—

170

170

—

Intended Postwar U se of Present
Facilities (percentage of total
facilities now operated, weighted
by 1944 volume of operations)
(a) close down, sell, or turn back
to G overn m en t........................
(b) use in producing prewar
products ....................................
(c) use in producing new peace­
time p r o d u c ts ...........................

76

38

22

60

8

49

2

2

8

11

8307

95-99

—

40

1 Exclusive of navy yards.
2 Employment in establishments engaged in shipbuilding and ship-repairing
and boat building and boat-repairing only. Source: U . S. Census of M anu­
facturers.
s Source : U . S. W a r Manpower Commission.
1 Estimated by applying relationships expected by reporting yards to all em­
ployment in the same class of yards. Reporting prewar shipbuilders repre­
sent 40 percent of the total employment of their class in 1943 ; reporting
operators of Maritime Commission yards represent 60 percent ; and re­
porting prewar manufactures represent 35 percent. The over-all coverage
of the reporting sample was a little over 50 percent.
5 Predominantly in activities other than shipbuilding.
6 W ill be reconverting to prewar production.
7 Percentage of total 1939 shipbuilding employment that this class of yards
alone expects to employ.
«Negligible.
Source : Federal Reserve Bank of San Francisco, in cooperation with the
Committee for Economic Development.

ing battle damage and otherwise maintaining the mer­
chant marine on a war footing. This type of work already
is being performed in increasing amount, and two major
San Francisco Bay yards are now converting their facili­
ties to concentrate on such repairs. The second transi­
tional stage will consist of removing military installations
from passenger and cargo vessels, re-outfitting them and




otherwise putting them in good shape for sale, return to
private ownership, or transfer to stand-by status. Ship­
yard operators expect this second stage to last for two,
three, or even four years after the end of both the Euro­
pean and Pacific wars and to employ as many as 113,000
people.
As shipyards move from the emergency construction
program into a period of wartime maintenance of the mer­
chant fleet with remaining new construction increasingly
concentrated on special types of work, and from there to
an immediate postwar period of active repair and modifi­
cation work, and finally to ordinary non-war operations,
the general course of shipbuilding employment is ex­
pected to be downward. The decline may take the form
of a series of relatively sharp drops, at intervals, or it may
continue to be gradual. Military exigencies may even
cause temporary reversal of the downward movement
from time to time. But, while individual yards may ex­
perience sudden changes in activity, shipyard operators
as a whole do not look for an immediate drop from a point
at or near the wartime peak to the normal postwar level,
or to a point below the normal postwar level as is ex­
pected by industries in which considerable plant recon­
version must precede civilian production.
Information relating to the postwar expectations and
intentions of private shipyard operators on the West
Coast was assembled in the spring and summer of 1944
by the Federal Reserve Bank of San Francisco in co­
operation with the Committee for Economic Develop­
ment. Shipbuilders accounting for a little more than half
the total shipbuilding employment on the Coast furnished
reports. The figures presented herein are based on a
summation of these individual reports rather than on a
collective judgment of shipyard operators concerning the
postwar prospects of the industry as a whole.
Employment Immediately After the W ar

Reporting shipyard operators look for an immediate
postwar decrease in employment to about 22 percent of
the average in 1943, the peak year, or about 26 percent of
the November 1944 level. If the reporting yards fairly
represent all Pacific Coast shipbuilding, this indicates an
expected immediate postwar employment of 113,000, on
a scheduled 40 hour or shorter work week, compared
with 440,000 on the longer average work week scheduled
in November 1944. Some, perhaps 7,000, of the 113,000,
should not properly be counted as employees in the ship
or boat building and repair industries, since a number of
concerns now engaged primarily in shipbuilding intend
to reconvert to their prewar activities, which were pri­
marily non-shipbuilding. Employment of the remaining
106,000 is predicated on several sources of demand that
shipyard operators hope will develop.
One expected source of demand is the need for work
on account of deferred maintenance and repair of mer­
chant vessels. During the war, ordinary maintenance and
non-essential repairs have been postponed. It is assumed

December 1944

MONTHLY REVIEW

65

The second group of shipbuilders are primarily the
operators of Maritime Commission or Defense Plant
Corporation yards, with, for the most part, no prewar
shipbuilding or manufacturing experience or plant. These
are essentially “ war babies,” that is, emergency yardsowned by the Government and operated by private or­
ganizations. With few exceptions, they have highly un­
certain postwar futures. There are about 20 establish­
ments of this type, but they have accounted for an im­
portant part of the wartime shipbuilding. In the peak
year, 1943, they employed an average of 314,000 persons.
In November 1944, they had about 268,000 workers, and
would have hired more if they could have found them.
While they hope to participate in the immediate postwar
repair and modification activity, with about 54,000 em­
ployees, assuming that the Maritime Commission places
contracts with them for such work, their longer range
prospects are quite doubtful. Many, if not most, of the
emergency yards will be dismantled or reduced to stand­
by status. A few of them, however, have facilities and
installations suitable for peacetime ship construction and
repair and maintenance, which the present managements
hope to operate continuously on a modest scale.
The surviving emergency yards plus prewar shipyards
are expected to employ about 30,000 in good years after
Continuing Postwar Employment
the immediate postwar period of repair and modification.
Within a few years after the war, when the repair and Prewar shipyards probably will account for most of the
modification wrork has been completed, reporting West expected postwar employment. If more of the emergency
Coast shipyard operators expect their employment to yards should be kept in operation, it probably would re­
decline further, to about 8 percent of the 1943 average. sult in a greater spreading of the work, rather than in a
If these expectations are realized, concerns now engaged substantially higher employment in prewar and emer­
in shipbuilding would employ about 40,000 persons. Of gency yards combined. In a poor year, employment in
these, 10,000 would be in plants which had reconverted prewar and emergency yards is expected to be much
and were no longer in the shipbuilding industry, and lower, perhaps about 11,000 persons. Even this number
30,000 would still be shipbuilding employees. The latter would be nearly twice the employment in ship and boat
figure is between four and five times as many as were in building and repairing in 1939.
the industry in 1939. In stating their postwar expecta­
The third group, a dozen or so concerns, chiefly engi­
tions, the reporting operators were asked to assume gen­
neering firms and steel fabricators, converted and added
erally good business conditions. Most of them assumed,
to their plants in order to build ships during the war.
in addition, that this country would maintain a large post­
They expect to employ about 10,000 persons in an or­
war merchant marine and would service that part of it
dinary postwar year, assuming general business condi­
engaged in Pacific trade in West Coast yards. If these
tions to be good, compared with 57,000 in 1943 and
assumptions should not be borne out, the above employ­
49,000 in November 1944. Their postwar activities would
ment expectations would not be realized. Under the
not be in shipbuilding, and the immediate postwar period
assumption of poor general business conditions, for ex­
is regarded by them as one of low activity, while plants
ample, the reporting shipyard operators look for ship­
are being reconverted, rather than one of high activity in
building employment to be only 35 to 40 percent as great
converting'a wartime merchant marine to peacetime use.
as with good business conditions.
Although some of the concerns in this group may intend
to participate in ship repair and modification for a time
Employment in Different Classes of Shipyards
Three important groups of concerns, having quite dif­ immediately after the w'ar, their over-all expectations are
ferent postwar expectations, contribute to wartime ship­ for a smaller volume of employment— 7,000— in the re­
building on the West Coast. One consists of prewar ship- conversion period than in an ordinary postwar year of
builders who have simply expanded their regular activities good business, when they expect to employ 10,000.
and who plan to continue building and repairing ships
and boats after the war. There are perhaps 125 such Utilization of Present Facilities
concerns in all, including many small prewar boat works.
Established yards, that is, those engaged primarily in
This group emploved 144,000 in 1943 and 123,000 in shipbuilding before the war as well as now, intend ulti­
November 1944. Reports from a sample of these firms mately to close down, sell, or turn back to the Govern­
indicate immediate postwar employment during the re­ ment 38 percent of the plant capacity currently operated
pair and modification period of 52,000.
by them. They plan to continue to use 60 percent of it in

that ships taken over by the Government from private
owners will be put in good condition at Government
expense before or immediately after being returned to the
private owners. It also is assumed that commercial type
vessels built for the Government will be similarly repaired
before being sold, leased, or laid up. Additional work
anticipated by the shipyards consists of the removal of
military installations from cargo and passenger vessels,
and the re-outfitting of emergency type ships to improve
their convenience and usefulness in commercial carriage.
Another possibility, which is more in the nature of a hope
than of a firm expectation, is the construction of new ships
for former maritime nations whose shipping has been
largely destroyed and whose own shipyards are inade­
quate to build enough replacements in a short time. If
European shipyards should be restored between the end
of the European and the Japanese phases of the war; if
American emergency vessels should be sold abroad on an
as is basis, to be repaired in the foreign yards; if emer­
gency vessels should be laid up without prior repair or reoutfitting; or if Pacific Coast yards should obtain a
smaller share of the business than the reporting operators
estimate; shipbuilding employment immediately after the
war doubtless wrould be considerably less than 106,000.




66

FEDERAL RESERVE BANK OF SAN FRANCISCO

shipbuilding, and to convert only a negligible portion to
new peacetime production. Operators of Maritime Com­
mission yards not tied in with prewar industrial plant
expect that over 95 percent of the present capacity ulti­
mately will be closed down. The prewrar manufacturers
who have converted to shipbuilding plan to close down
40 percent of the plant now operated in shipbuilding, and
to convert 49 percent to the manufacture of their prewar
products and 11 percent to the manufacture of new peace­
time products. For some firms in this group, ship or boat
building may be among the new peacetime products.
The ways and yard structures of large shipyards are
not readily convertible to other uses, at least not on a
large scale. This is not necessarily true, however, of all
facilities of all concerns in the shipbuilding industry, be­
cause some of them make parts, sub-assemblies, equip­
ment and various special devices, for small craft as well
as for large ships, and so may have peacetime non-maritime markets for their present products or for other
products involving similar processes. But the bulk of war­
time employment is in yards fabricating large vessels, and
present operators do not contemplate wholesale conver­
sion of these yards and facilities to other productive use.
Postwar Expenditures

It follows that the shipyards can not be counted on to
contribute greatly to the so-called postwar industrial
workpile. Very few outlays are reported to be anticipated
for changing over to peacetime production. Reporting
concerns accounting for 54 percent of reported value of
production think no outlays whatever will be necessary
to make the changeover ; reporting concerns accounting
for 22 percent of reported production are uncertain as to
what outlays they may make, or do not furnish figures for
other reasons ; and reporting concerns accounting for the
remaining 24 percent of reported production definitely
plan outlays in changing over from war to peace produc­
tion. The concerns with definite plans contemplate only
modest expenditures amounting, on the average, to less
than 1 percent of a year's value of production at the
February 1944 rate. Even on the unlikely supposition
that the uncertain concerns will in fact spend proportion­
ately as much as those with definite plans for postwar
expenditures, and on the additional assumption that re­
porting concerns are representative of all West Coast
shipbuilders in respect to postwar expenditures, only
about $9,000,000 in postwar reconversion outlays can be
expected. Over $5,000,000 of this amount would be spent
by prewar manufacturers in reconverting to non-ship­
building production. Prewar shipyards account for the
bulk of the remainder. Only 70 percent of the total, or
about $6 ,000 ,000 , would be spent immediately after the
war— the rest would await favorable postwar develop­
ments. Ten percent of the outlays would be for purchase
of Government owned plant and equipment, 30 percent
for structural additions, alterations and repairs, 25 per­
cent for retooling, 30 percent for accumulation of working
inventories, and 5 percent for other purposes.
No difficulties are expected in raising the funds for
intended postwar outlays. About 40 percent of the funds
are expected to come from the concerns' own resources,




December 1944

with banks furnishing the remainder. Prewar manufac­
turers plan to make 70 percent of their contemplated out­
lays from their own resources, going to the banks for only
30 percent. Prewar shipbuilders, by contrast, plan to bor­
row 80 percent, and most of the remaining funds, to come
out of their own resources, depend on the favorable settle­
ment of Government contracts.
Recapitulation

If the expressed intentions of West Coast shipyard
operators are realized, the following developments can
be expected after the war. First, there will be a period of
relatively high activity in repairing the wartime fleet and
putting it in condition for peacetime disposal. Even if all
yards should be fully occupied during this period, em­
ployment would decline, since fewer people can work
simultaneously on relatively specialized repair opera­
tions affecting only part of a vessel than on the mass
production of standardized ships. Furthermore, it is un­
likely that all the existing facilities will be suitable for
simultaneous full utilization in repair and modification
work. During this period, manufacturers who have con­
verted their plants to shipbuilding expect to employ fewer
than at some later date wrhen their facilities will have been
reconverted. Continuing shipyards, however, expect to
have several times as many jobs as later when postponed
repair and maintenance, and modification of war instal­
lations and design will have been completed. Second,
employment will decline further, to less than one-tenth
of the 1943 average, even if business throughout the
country is good. The actual rate at which West Coast
postwar shipbuilding may continue depends at least as
much on national and international political decisions as
on business decisions of the present shipyard operators.
Accordingly, figures representing the sum of operators’
expectations at the time of the survey may fail by a wide
margin to reflect actual postwar experience. If the ship­
yard operators foresee correctly the economic and po­
litical factors affecting shipbuilding activity, the postwar
decline in shipbuilding employment alone will amount to
30 percent of total manufacturing employment in the three
West Coast states in the fall of 1944. Compared with
1939, however, postwar shipbuilding employment would
represent a four or five fold increase in a good year.
Third, so far as is known, major shipyard operators
do not intend to convert present yard structures and
facilities to peacetime manufacture of new products, or to
purchase Government owned yards and facilities on a
large scale for private postwar operation. Because of the
non-convertibility of most yard structures and facilities,
and the certainty that normal postwar shipbuilding activ­
ity will be lowr compared with present capacity, few
expenditures of any sort are anticipated by shipyard
operators during the reconversion period. Most of the
intended outlays, furthermore, are for reconverting pre­
war non-shipbuilding plants, rather than for converting
shipyards. Eighty-five percent of the intended outlays are
earmarked for additions, alterations and repairs, retool­
ing, and acquisition of working inventory. No new con­
struction is planned.

December 1944

67

MONTHLY REVIEW

Department Store Sales
has been the case each year since 1938, Christmas
A s^buying
attained a new record in 1944. After allow­
ance for seasonal influence, department store sales aver­
aged 239 percent of the 1935-39 average during the fourth
quarter. Actual fourth-quarter sales approximated 318
million dollars in 1944 compared with 279 million in 1943,
and a 1935-39 fourth-quarter average of 138 million. Dur­
ing the past few years, a larger proportion than usual of
Christmas purchases has been made in November and
even earlier in the year. This tendency has become pro­
gressively more important, and the present distribution
of sales within the fourth quarter differs somewhat from
that of prewar years.
Wartime restrictions on manufacture have upset the
normal interdepartmental balance of inventories held by
department stores. Accordingly, the allocation of the con­
sumer’s dollar among departments is now less a matter
of unimpeded choice than it is a matter of selection from
a narrowing list of goods available. Relative changes, over
a year or several years, in sales of individual departments
clearly show how commodity limitations have affected
shopping habits. In general, dollar changes have roughly
corresponded in importance, however, to the departments
themselves; that is, most larger departments experienced
the larger absolute increases in sales, and vice versa. Such
data do not reveal anything of the important wartime
changes which have occurred within individual depart­
ments, such as the disappearance of particular articles,
stock upgrading, or the tendency of the average con­
sumer, whose income is higher than it was before the war,
to select more often from the so-called “ quality” grades.
The accompanying table showing changes in the dollar
value of departmental sales in the Twelfth District from
November 1941 and November 1943 to November 1944
has been prepared to indicate how the tremendous preChristmas sales were distributed and to illustrate recent
shifts in the character of consumer purchases, department
by department. Corresponding percentage change figures
are also shown. Data for November are used because N o­
vember 1944 departmental sales figures are the most
recent available, and because of the interest in Christmas
shopping activity at this time of the year. The increasing
emphasis on earlier Christmas shopping may have had
some effect on the comparisons shown in the table, but
this effect is probably fairly uniform as among the several
departments.
From November 1941 to November 1944 the largest
percentage gains took place in nondurable goods, headed
by several articles of women’s apparel and accessories,
and infants’ and children’s wear. Durable consumer
goods such as housefurnishings display the smallest
gains, and sales of major household equipment and
radios and phonographs declined. Civilian production of
these articles was largely stopped early in the war. A l­
though the percentage increase from November 1943 to
November 1944 in sales of major household appliances is




in sharp contrast to the decrease over the past three years,
the shift has little significance because of the small dollar
sales volume in 1944 as compared with 1941.
D e p a r t m e n t S tore S a l e s — b y D e p a r t m e n t s —
T w e l f t h D is t r ic t
(d o lla r fig u re s in th o u sa n d s)

Nov. 1944
Dollars

Increase from
.-Nov. 1943—^
Per­
Dollars cent

Increase from
r-Nov. 1941-^
Per­
Dollars cent

Total store ...............................

$101,940

$15,180

18

$49,540

Main store departm ents.. . .

90,630

13,820

18

45,200

99

M en’s furnishings, hats, c a p s ...
W om en ’s & misses’ coats & suits;
W om en ’s & misses’ d r e s s e s ....
Toilet articles, drug s u n d ries...
Blouses, skirts, sportswear..........
Stationery, books, magazines. . . .
Toys, games, sporting goods,
cameras ..............................................
Infants’ wear, infants’ furniture.
W om en ’s & children’ s h o siery ..
Silverware, jewelry, clocks,
watches ..............................................
Silk & muslin underwear, slips,
etc............................................................
W om en ’s & children’s shoes..........
M en’s c lo t h in g ....................................
B oys’ clothing & furnishings. . . .
Furniture, beds, mattresses,
springs ..............................................
Draperies, curtains, upholstery,
etc............................................................
Handbags, small leather goods. . .
Linens, towels ....................................
Silks, rayons, velvets ......................
Notions ..................................................
Juniors’ coats, suits, dresses. . . .
Knit underwear ..................................
Art needlework, artists’ supplies.
Negligees, robes, lounging
apparel ................................................
Girls’ wear ...........................................
Corsets, bra ssieres.............................
Furs ..........................................................
Blankets, comforters, sp re a d s...
Millinery ................................................
Domestic floor coverings ..............
W om en’s & children’s gloves. . .
H andkerch iefs.......................................
Aprons, house dresses, uniforms.
China, glassware ...............................
Housewares .........................................
Domestics, muslins, s h e etin g s...
W oolen dress goods ........................
Cotton wash goods ..........................
Lamps, shades ....................................
M en’s & boys’ shoes & slippers. .
Luggage ................................................
Major household appliances..........
Radios, phonographs, records. . .
N ot classified ......................................

5,770
4,450
4,260
4,250
4,230
4,170

950
690
600
300
560
930

20
18
16
8
15
29

2,860
2,490
1,670
2,410
2,360
2,230

98
127
65
131
126
114

3,370
3,340
3,150

520
720
720

18
27
30

1,640
2,220
1,520

95
200
93

2,940

450

18

1,480

101

2,780
2,730
2,480
2,130

590
500
480
590

27
23
24
39

1,780
1,370
980
1,290

177
101
66
152

2,070

320

19

650

46

1,920
1,830
1,700
1,520
1,430
1,420
1,410
1,380

240
120
90
290
270
250
300
280

14
7
5
24
23
21
27
26

780
900
810
790
700
730
820
570

68
96
90
109
96
106
140
70

260 23
280 26
360 37
*450 *26
70
6
220 21
*20 *1
280 30
150 16
130 16
20
2
150 19
*50 *7
160 33
90 16
80 17
80 19
10
3
90 56
* f *2
1,160 18

820
800
620
870
640
600
380
700
640
520
280
120
360
350
370
250
230
200
*240
* 60
3,660

149
152
90
196
97
86
44
139
146
115
43
15
125
123
145
79
86
70
*48
*29
91

Basement d e p a rtm en ts...................

11,290

1,340

14

4,330

62

6,200

840

16

2,590

72

2,090

240

13

840

67

50

8
1
8
19
14

260
40
80
190
330

52
8
19
72
82

W om en’s, misses’ , juniors’, girls’,
& infants’ apparel ........................
M en’ s & boys’ clothing &
furnishings .......................................
Domestics, blankets, linens,
t o w e ls ...................................................
Shoes .......................................................
House furnishings .............................
Piece goods .........................................
N ot classified .......................................

1,380
1,330
1,320
1,320
1,310
1,300
1,240
1,210
1,090
970
950
940
650
630
630
560
500
490
260
130
7,700

760
590
470
460
730

* t

30
70
90

95

*Decrease. tL ess than $5,000.
N o te : Figures do not necessarily add to totals because of rounding.

The distribution of annual sales, which is not affected
by seasonal influences, differs somewhat from that of the
November sales shown above. Sales of commodities which
are popular as gifts, such as toiletries, toys, and jewelry,
are relatively less important than in November, but sales
of more prosaic goods such as shoes, hosiery, and draper­
ies, are relatively more important. Sales of women’s outer
clothing and men’s furnishings rank high on both bases.

68

FEDERAL RESERVE BANK

December 1944

OF SAN FRANCISCO

Bank Credit, Deposits, and W ar Loan Drives
loan drives have imposed a definite and recurring
pattern upon the behavior of bank credit and de­
posits, as is indicated in the accompanying chart. The
Sixth War Loan Drive brought private and local govern­
ment demand deposits in the Twelfth District down about
260 million dollars or 3 percent from their pre-drive high.
Both time deposits and currency in circulation were
higher after the drive than before, although the increase
in currency was smaller than might have been expected
in relation to the usual pre-Christmas rise. Bank credit,
in the form of loans to purchase securities and in the form
of Government security holdings, again rose during the
sixth drive.

W

a r

M E M B E R B A N K D E P O S IT S A N D R E L A T E D IT E M S
Twelfth District

Data for reporting banks having 84 percent of total deposits, except in­
terbank, of all Twelfth District member banks on June 30, 1944. W ed ­
nesday figures, December 29, 1943 to December 27, 1944.
Government securities include direct and guaranteed issues. Demand
deposits (adjusted) exclude U . S. Government and interbank deposits
and collection items. Government deposits include a small amount of
other balances in addition to war loan accounts. Loans for purchasing
or carrying U . S. Government securities do not include loans of branches
outside major cities of some reporting banks, but that amount is not
appreciable.

During each loan drive, there was a shift from private
and local government demand deposits to Treasury war
loan deposit accounts at commercial banks. In turn, calls
were made by the Treasury upon those accounts as funds
were needed, so that there was a gradual return of bal­
ances to private hands between drives. The loan drives
had considerably less effect upon time deposits and
currency in circulation than upon demand deposit's. At the
most, there was no more than a slowing up or temporary
cessation of their growth during drives. The loan drives
involve more, however, than a simple circuit between the




Treasury and others over which a portion of the previ­
ously existing money supply travels. During each circuit
of funds borrowed through war loans, newly created
dollars have been injected into the money flow.
To the extent that security purchases from the Treas­
ury during loan drives are made, directly or indirectly,
with new funds obtained from the banking system, the net
result is an increase in deposits. In the Twelfth District,
war loan deposit accounts have risen much more than
other deposits have declined during loan drives. This is
the result both of the accompanying increase in bank loans
and investments and of the continuing shift of funds to
the District from elsewhere in the nation through Treas­
ury expenditure.
Although direct subscriptions by commercial banks
were severely limited in the three loan drives held in
1944, not all purchases were made without expansion of
bank credit. Bank loans for the purchase of Government
securities rose considerably in each loan drive. Bank
holdings of Government securities also increased as banks
purchased securities in the market from other holders,
many of whom in turn subscribed for new securities.1
Limited direct subscriptions for new securities also were
made by commercial banks having savings accounts.
Total member bank reserves are little affected during
loan drives, but the ability of member banks to expand
credit is furthered by the shift of funds from deposits
subject to reserve to war loan deposit accounts, which re­
quire no reserve. It is evident that bank holdings of Gov­
ernments have increased substantially during the loan
drives. If banks were not able to credit the proceeds of
the sales of Government securities to war loan accounts
but had to transfer all such funds immediately to the
Treasurer's account in the Reserve Bank, wide fluctua­
tions in reserves would occur. Reserves, like deposits,
would be drawn upon heavily at the time of a drive and
1 Banks also may repurchase Treasury bills from the Reserve Bank. This has
occurred to some extent during- the drives, but does not affect deposits.
Sales by non-bank holders of Treasury bills to the Reserve Bank, either
directly or through commercial banks, which have occurred occasionally
at such times, do increase both deposits and reserves, however.

Banking and Credit—
Averages of Wednesday figures
(millions of dollars)
r

Condition items of weekly reporting
Nov.
member banks
983
Total l o a n s ...................................................
C om ’l., ind., & agric. loans............
503
Loans to finance transactions in :
40
U . S. Government securities. . .
Other s e cu ritie s................................
51
295
Real estate l o a n s ..................................
94
A ll other loans ....................................
Total investments .................................... 4,557
U . S. Government securities.......... 4,211
346
A ll other s e cu ritie s.............................
Adjusted demand deposits ................. 3,086
Time d e p o s its .............................................. 1,626
United States G ov’t, deposits............
464
Coin and currency in circulation
Total (changes o n ly ).............................
Fed. Res. Notes of F . R. B. of S. F. 2,639
Member bank reserves.................
1,687

_

■1044
I Vtt
Oct.
+
+
—
—

2
8

4 - 14
+ 25
—
+

_
—

+ 37
— 195

12 >
1 f
0
0
- 12
3
9
+210
+ 75
-3 4 4

+
+

98
92

+ 163
+ 155

+
+

—(— 85

+ 127

+

+
+
+
+

4
2
0
0
36
27
9
148

-Change from ---------- s
1943
Sept.
N ov.

—

—
—

+

t

+
+
—

69
30
3
24
12
654
624
30
540
324
489
812
802
312

December 1944

M O N T H L Y REVIEW

restored between drives, and it would be difficult for
banks to meet reserve requirements during loan drives.
As funds in war loan deposit accounts are disbursed by
the Treasury and appear in deposits subject to reserve,
required reserves again increase. If banks in general
should be unwilling or unable to allow excess reserves to
fall below the pre-drive level, it would be necessary for
them to restrict credit and thus shrink deposits to levels
existing before the drive, unless additional reserves were
obtained.
Although excess reserves were low before 1944 and
there was no appreciable decline in them during the year,
Twelfth District banks were able to retain between drives
most of their increases in Government security holdings.
(Loans for the purchase of Governments declined after
each drive, although this apparently was offset to some
extent by increases in bank holdings of Governments.)

69

Additional reserves came primarily from the shift of
funds to the District from elsewhere in the country.
In the nation as a whole, the Reserve System supplied
additional reserves over the year by the purchase of Gov­
ernment securities. This was done to meet the drain upon
reserves caused by the continuing demand for currency
and, to a much lesser extent, to enable banks to meet re­
serve requirements resulting from the deposit expansion
associated with their increased Government security
holdings. In supplying reserves, the System attempts not
to encourage an increase in bank holdings of Government
securities greater than necessary to meet Treasury needs.
The fact remains, however, that the gap between taxes
and expenditures must be filled. It must be done by the
banking system to the extent that non-bank investors fail
to purchase and retain enough Government securities to
accomplish it.

Agricultural Goals for 1945
arm

production goals for field and seed crops, for live­

F stock and livestock products including poultry, and for

vegetables for canning have again been established by the
State U.S.D.A. War Boards. For both crops and live­
stock, another high level production year is requested.
Some individual crop and livestock adjustments are
needed, but the total program should just about equal
that of 1944.
The 1945 goals have been set at a time wrhen future
food requirements of the armed forces are difficult to esti­
mate with accuracy, since the war in Europe might end be­
fore another harvest season is at hand. It is equally diffi­
cult to forecast the amount of food that will be needed for
European relief. The War Food Administrator believes,
however, that this country must be assured of enough
food for our armed forces under all conditions, for our
civilian population, and for foreign relief needs. W e can­
not risk the possibility of a shortage.
Wartime Increase in Output

New production records have been set in each of the
three war years. Output in 1944 was about a third higher
than the 1935-39 average. The increase in agricultural
production has been induced in large part by higher
prices. It is estimated, however, that more than a third
of the increase in crop production during the past three
seasons was due to the generally favorable growing and
harvesting weather. W'ith only average growing condi­
tions in 1945, a total acreage of crops equal to that of
1944 could reasonably be expected to result in a volume
of production about 10 percent less, or about equal to
that of 1943. For this reason the 1945 goals are designed
to provide, under average conditions, a volume of pro­
duction about 5 to 10 percent below that of 1944, but still
25 percent above the prewar level.
The wartime increase in output has been brought about,
not so much by expanding acreage, as by increasing
yields per acre and per animal. It has taken place in the




face of a decline in agricultural employment, and in spite
of a larger proportion of unskilled and inexperienced
agricultural workers. Increased production is due, in ad­
dition to favorable weather, to longer hours of work,
superior varieties of crops, a shift to more intensive crops,
improved seed selections and breeding practices, more
and better use of fertilizer, the cumulative effect of the
use of legumes and soil conservation measures in recent
years, and the more effective use of available tractors and
other machinery in farm operations. The increase in live­
stock products has been accompanied by heavy drafts
upon reserve grain supplies, which are now at low levels.
The production facilities outlook is more favorable than
it was last year. The supply of farm machinery will be as
plentiful, or possibly somewhat more plentiful than it
was a year ago, but farmers will be handicapped by a
shortage of light trucks. Sufficient gasoline is expected
to be available to carry out 1945 production goals. Some
deterioration in the fertilizer supply is likely, but the rela­
tively generous use of fertilizers during recent growing
seasons will offset the ill effects of this situation to a con­
siderable extent. The quantitative supply of farm labor
is expected to be about the same in 1945 as it was this
year. More prisoners of war should be available for farm
work, and the agricultural labor supply will again be
augmented by Mexican nationals under arrangements be­
tween this country and the Mexican Government. In
some areas specializing in particular crops, such as sugar
beets and fruit, labor supply problems will continue to be
present.
Specific Goals— Twelfth District

Specific production goals for each of the states in the
Twelfth District are shown in the accompanying table.
They are intended to indicate the acreage or production
necessary to fulfill the District’s share of expected mili­
tary, export, lend-lease and domestic civilian require­
ments, but they should not be interpreted as forecasts. In

70

December 1944

FEDERAL RESERVE BANK OF SAN FRANCISCO

Increases in some items are asked for but they are
relatively less sharp than the decreases. More flaxseed
and sugar beet acreage is requested but, unless supple­
mentary programs are approved, it is unlikely that the
goals will be reached because other less risky competing
crops would be equally profitable. The sharpest increase
in the livestock classification is in pig production. The
slaughter of hogs requested a year ago was overdone and
it is desirable now that the pig population be restored to
normal.

fact, there is considerable evidence indicating that some
of these goals will be exceeded and others will not be
achieved.
The principal changes from 1944 are in dry peas, cot­
ton, and hens on farms, for all of which substantial reduc­
tions are asked. A much smaller production of dry peas
will meet national requirements in 1945, therefore a
smaller acreage is requested. In view of the national
cotton surplus it is thought that 38,000 acres of Califor­
nia cotton land could well be diverted to the production
of alfalfa and sugar beets. There was a surplus of early
potatoes last year and a decreased production is re­
quested in California, but, in view of the support price
making potato production more profitable than many of
the alternative crops, it is likely that the goal will be ex­
ceeded.

1945
Field Crops
1945 planting; goals compared
with 1944 acreages
(thousands of acres)
B arley................................................
C orn...................................................
H ay, tam e.......................................
O a ts...................................................

Important increases in feed crop acreage and in alfalfa
seed production are desired because of the need to bring
the West closer to self-sufficiency in feed supplies. The
pressure of the Pacific War upon westbound transporta­
tion may make it difficult to ship feed west during the
coming year.

F a r m G o a l s — T w e l f t h D is t r ic t

t— Twelfth District—
Year

Ariz.

Calif.

Idaho

Nev.

Ore.

Utah

1944
1945
1944
1945

130

1,730
1,700
67
75

353
350
32
32

24
24

225
225

4
4

150
150
26
26

1.851
1.852

1,019
1,050

193
195

534
535

242
240

13
13

9

6
6

43
50
859
900
455
465
31
25

1944
1945
1944
1945

120
40
40
324
310
34
35

R y e .....................................................

1944
1945

Sorghums, grain...........................

1944
1945
1944
1945

69
60

102

35
26

572
600

1,048
1,100

Beans, d ry ................................................

1944
1945

16
15

411
400

154
159

Peas, d ry ................................................

1944
1945

Potatoes, Irish ......................................

1944
1945
1944
1945
1944
1945
1944
1945

W h e a t.......................................................

R ice............................................................
Sugar beets..............................................
C otton........................................................
Flaxseed...................................................
Alfalfa seed...........................................
Other cover crop and legume seeds

1944
1945
1944
1945
1944
1945

10

—
—
6
7

_
—
—
—
147
147
20
20
36
37

—
—

—

—

W ash.

Total

228
275
29
31
1,004
1,010

2,840
2,844
241
258
5,756
5,827

56
55
9
5

168
295

1,502
1,638

15
20

296
300

2,403
2,375

70
66
171
160
5,363
5,373

12
8

4
4

506
510

100
22
22

230
140

—
—
—
—

102
95
246
245
77
125
303
265
170
180
20
25
40
41

169
169

3
3

—
—

_
—
51
70

_
—
1
1
29
60
33
54

_
—
_
—
_
—
_
—
—
2
—
—

987
950
2
2

_
—

351
195

_
—

18
18

_
—

47
50

14
17

34
45

13
17

51
30
46
46

—
—
2
2
5
10
281
326

—
—
—
—

_
—

599
588
632
365
392
388
246
245
189
274
450
412

1945 goal
as % of
1944
100
107
101
109
94

100
98
58
99
100
145

30
43

—
—
—
1
—
—

—

16
17

369
438

119

515
500
2,360
2,300
14
14

956
929
500
500
37
37

7,323
7,212

98

2,620
2,709

11,100
11,100

—

92

193
204
120
177

148

106

Livestock and Livestock Products
1945 goals dompared with 1944
population and production
(in thousands)
All cattle and calves, Dec. 31. . . .

1944
1945
1944
1945

900
877
700
700

2,540
2,538
2,800
2,800

926
886
1,540
1,473

1944
1945
1944
1945

5
5
723
748

67
75
19,821
21,000

50
53
4,482
4,258

1944
1945
1945

656
518
471

16,261
14,297
14,000

2,880
2,333

E g g production (d o ze n s).................

1944
1945

—

M ilk cows, average num ber............

1944
1945
1944
1945

Sheep and lambs, Dec. 3 1 ...............
Sows to farrow, spring....................
Chickens raised......................................
H ens on farms, Jan. 1 ......................
Hens on farms, M ar. 1 ....................

M ilk production (p o u n d s)...............

—

47
48
252.000
260.000

175,000
158,000
755
760
5.436.000
5.525.000

—
—
—

248
250
1.404.000
1.432.000

414
410
670
662
4
3
436
428
324
262
262
3,300
2,730

1,072
1,072
1,220
1,220
33
32
4,362
4,362
3,944
3,440
3,096
—

19
18

—
262
262

107.000
107.000

1.436.000
1.450.000

2,774
2,247

—
—

—

—

—

—

—
114
116
667.000
696.000

—
352
352
2.150.000
2.166.000

9,790
9,655
210
219
43,544
44,605
26,839
23,097

1,797
1,806
11.452.000
11.636.000

99
104
102
86

101

102

N o te : District totals for 1945 include all announced state goals, and for 1944, only those data for states for which 1945 goals were announced.
Acreage goals for tomatoes, green peas, and snap beans to be used for processing in 1945 have been announced only for California. These goals call
for tomato acreage to remain unchanged at 130,000 acres, and green pea and snap bean acreage to be increased from 4,800 to 5,200 acres and from
1,100 to 1,200 acres respectively.




70 A

FEDERAL RESERVE BANK OF SAN FRANCISCO

December 1944

INDUSTRIAL PRODUCTION

Summary of National Business Conditions
Released December 26, 1944— Board of Governors of the Federal Reserve System

utput

*

at factories and mines showed little change from October to November. Retail

O trade expanded further to new record levels.

I n d u s t r i a l P r o d u c t io n

Federal Reserve indexes. Groups are expressed
in terms of points in the total index. Monthly fig­
ures, latest shown are for November.

DEPARTMENT STORE SA LES AND STOCKS

Industrial output in November and the early part of December was maintained at ap­
proximately the same level that had prevailed during the previous four months. Produc­
tion of durable goods declined slightly in November, while output of other manufactured
goods, especially war supplies, increased somewhat further and mineral production was
maintained in large volume. Output of critical war equipment was larger in November
than in October but was still behind schedule, according to the W ar Production Board.
Activity in the durable goods industries, particularly machinery, transportation equip­
ment, and lumber, continued to be limited in part by manpower shortages. Employment
in the transportation equipment industries has declined by about one-fifth during the past
twelve months, but total output of aircraft, ships, and combat and motor vehicles has de­
clined by a much smaller amount owing to greater efficiency.
In most nondurable goods industries, production was somewhat greater in November
than in the previous month. Activity at explosive and small-arms ammunition plants in­
creased, reflecting enlarged war production schedules, and output in most other branches
of the chemical industry also expanded, reaching levels above those of a year ago. Produc­
tion in the petroleum refining and rubber industries, chiefly for war uses, increased some­
what in November.
Output of manufactured foods showed less decline than is usual for this season and was
as large as in November 1943. In the textile industry, output at woolen and worsted mills
continued to advance in October from the reduced level of operations prevailing during
the summer. Cotton consumption in November was above October and rayon deliveries
were at a new record level.

Federal Reserve indexes. Monthly figures, latest
shown are for November.

MEMBER BANKS IN LEADING CITIES

Mineral production was maintained in November. Coal output was one-fifth larger than
in November 1943 when operations were sharply reduced by a work stoppage. In the
early part of December, however, coal production was nearly 10 percent less than in the
same period last year.
D is t r ib u t io n

Value of department store sales in November was 14 percent above the exceptionally
high level last year, about the same year-to-year increase which prevailed in the previous
four months. In the first half of December, sales were about 20 percent larger than last
year. All Federal Reserve Districts have shown large increases over last year in preChristmas sales.
Railroad freight carloadings, adjusted for seasonal changes, were maintained at a high
level in November and the first two weeks of December. Shipments of most classes of
freight, however, were not quite as great as the exceptionally large movement of freight
during the same period last year.
C o m m o d i t y P r ic e s

Demand deposits (adjusted) exclude U . S. G o v ­
ernment and interbank deposits and collection
items. Government securities include direct and
guaranteed issues. W e d n e s d a y figures, latest
shown are for December 13.

Changes in wholesale prices of agricultural and industrial products were mostly up­
ward in November and the early part of December. Retail prices of foods and various
other commodities were slightly higher in November than in October. During the past
year there has been a slight upward tendency in prices of most commodities, both in
wholesale and retail markets.
B a n k C r e d it

GOVERNMENT SECURITY HOLDINGS OF BANKS IN LEADING CITIES

1939

1940

1941

1942

1943

1944

Excludes guaranteed securities. Data not available
prior to February 8, 1939; certificates first reported
on April 15, 1942. Wednesday figures, latest show n
are for December 13.




Banking developments during the four weeks ended December 13 were largely deter­
mined by the Sixth W ar Loan Drive. Government deposits at weekly reporting banks
in 101 cities increased by approximately 8 billion dollars while adjusted demand deposits
of individuals and business were drawn down about 2.6 billions in payment for securities
purchased. The reporting banks added 3.7 billion dollars to their holdings of Government
securities and increased their loans by 1.7 billion.
As a result of the transfer of deposits of individuals and businesses to war loan ac­
counts, reserves required by member banks declined about 700 million dollars from the
beginning of the drive through mid-December. In addition, reserve funds were supplied
to the banking system through the purchase by the Federal Reserve banks of 640 million
dollars of Government securities. The additional reserves were used in part to reduce
member bank borrowings at the Reserve banks, which had risen to nearly 600 million
dollars in the latter part of November, and to meet the demand for currency. This de­
mand, though slackened somewhat by the war loan drive, amounted to 450 million dollars
for the four weeks ended December 13. Excess reserves increased by 300 million dollars,
principally at country banks.