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MONTHLY REVIEW B U S IN E S S C O N D IT IO N S IN T H E T W E L F T H F E D E R A L R E SE R V E D IS T R IC T Federal Reserve Bank of San Francisco S u m m a ry During the spring and early summer of 1937 industrial output and construction in the Twelfth Federal Reserve District reached the highest levels of recent years. This expansion was followed by substantial declines, however, and business activity generally was considerably lower in December 1937 than in December 1936. Expansion in residential building, which had begun in mid-1934 and extended through the spring of 1937, was checked in May, and the amount of new construction undertaken de clined almost continuously during the remainder of the year. The increase in industrial output in the first part of the year resulted to a considerable extent from advance buying by fabricators and distributors in anticipation of increases in commodity prices. Commodity prices declined considerably after April, however, and by mid-year or dering by processors, wholesalers, and retailers had been sharply curtailed, since their heavy buying earlier in the year had covered requirements for a much longer than usual period. Production of district industries was well maintained throughout the spring and early summer to work off unfilled orders that had accumulated, but in July and August output began to decline, the reduction be coming widespread and severe during the remainder of the year. Retail trade continued relatively active during the closing months of the year, with the result that yearend inventories were considerably below the levels to which they had increased in September. Wholesalers also reported considerable decrease in inventories during the last quarter of 1937. The district’s comparatively large agricultural income was an important factor sustaining retail trade despite sharp reductions in wage earner in come. In addition, the Federal Government continued to spend more than it collected in this district, although the excess of local expenditures over collections was much smaller than in 1936. I n d u str y Value of residential building in the Twelfth District reached a post-depression peak in March and April 1937, when permits exceeded any other monthly totals since 1929. After April, new residential building declined al most continuously and in December the seasonally ad justed index was 21 percent of the 1923-1925 average, compared with the spring peak of 45 and an average of 52 in 1929. To a considerable extent, the recent decline appears to have been a result of the rapidity with which costs of labor and materials, as well as other items enter ing into the final selling price of houses, were advanced during the winter and early spring of 1937. Compre hensive indexes of building costs in the residential 'field have not been compiled, but available information indi cates that during the spring peak costs were close to 1929 February 1,1938 levels. Prices of certain materials, such as lumber and clay products, have declined since spring, but wage rates have shown little tendency to change during the period. The value of permits for private nonresidential build ing also declined during the second half of 1937, but the reduction was moderate. Contracts awarded for heavy engineering construction, which fluctuate widely from month to month, were considerably lower in 1937 than in 1936. The decrease in engineering construction did not represent a general decline during 1937 so much as the awarding of several unusually large contracts in the earlier year, such as those for the Los Angeles Metro politan Water District and various reclamation projects. The largest project for which contracts were let in 1937 was the Ruby Dam, which is being constructed by the City of Seattle on the Skagit River. 19 29 19 30 1931 1932 1 9 33 1934 19 35 1936 1937 R E S I D E N T I A L B U I L D I N G P E R M IT S Index of value of permits issued in 18 district cities, adjusted for seasonal variation. (1923-1925 average=100) By months, September 1929 to December 1937. Changes in building and construction, both in the Twelfth District and in other sections of the United States, directly affected lumbering, which is the most important nonagricultural industry in this district. E x panding building activity in the first quarter of the year, supplemented by some special factors such as labor dis putes affecting the lumber industry and price advances, resulted in considerable accumulations of orders at dis trict mills, despite greatly increased production. In addi tion to strong domestic demand, the export market was active early in the year, lumber shipments to the Orient attaining relatively high levels in May and June. New orders began to decline late in the spring, however, and as the large volume of unfilled orders that had accumu lated during the preceding winter was worked off, mills generally curtailed their operations or shut down com pletely, particularly in the last quarter of the year. Strikes added to the resulting unemployment, and consequent de clines in wage earner income were reflected in some con traction in the volume of general retail trade. Mill inven February 1, 1938 FEDERAL RESERVE B A N K OF SAN FRANCISCO tories of lumber, which were at a high level during the maritime strike early in 1937, were reduced in the Doug las fir area and brought into a more normal relationship with sales during the second half o f the year. Stocks in the western pine area, however, increased somewhat more than seasonally after June, and on December 31 were 23 percent higher than a year earlier. Including the redwood area o f California, aggregate stocks held by mills at the end of 1937 were 5 percent larger than on December 31, 1936. E s t im a t e d V o l u m e of I n d u s t r ia l O u t p u t T w e l f t h D is t r ic t (Expressed as percentages of 1929 output) 1929 L u m b e r .......................................................... .....100 Refined o i l s ................................................... .....100 M otion pictures ( c o s t ) ............................. .....100 Smelting and refining.....................................100 P a p e r ............................................................... .....100 P u l p ................................................................. .....100 Automobile a sse m b lie s............................... 100 Rubber t i r e s ................................................ .... 100 Aircraft (value) ......................................... .....100 S t e e l................................................................. .... 100 Cement .......................................................... .... 100 Canned fruit .............................................. .... 100 Canned v e g eta b les.................................... .....100 Canned f i s h ................................................... .....100 M eat ............................................................... .... 100 S u g a r ............................................................... .... 100 Flour ............................................................... .... 100 Butter ................................................................. 100 C h e e s e ................................................................. 100 Glass containers ....................................... .... 100 W o o l con su m ption ......................................... 100 1933 43 66 76 31 87 99 48 58 .. 63 49 93 69 82 111 114 84 112 127 111 98 1935 56 73 128 46 108 133 92 75 318 85 60 103 117 95 100 102 98 105 135 139 151 1936 73 80 138 65 120 154 129 125 331 114 107 110 143 119 114 103 94 105 143 173 122 1937 76 85 174 89 135 200 135 551 119 102 124 149 112 117 98 99 110 157 210 114 Output of cement, which was at high levels last spring, also declined in the second half of 1937 although not so rapidly as lumber production. Demand for cement was more fully maintained in the Pacific Northwest than in California and in December 1937 production in that section was moderately above the high levels of Decem ber 1936. In the district as a whole, however, output tended to reflect the decline in building and construction operations, and in the last quarter of the year was about 20 percent lower than in the last quarter of 1936 when output was larger than in any comparable three-month period. During the first half of 1937, California steel mills were operating at capacity, large backlogs having been accumulated prior to April 1 when a general price in crease went into effect. After that date, new business de clined, and by September the volume of unfilled orders was lower than in the comparable month o f 1936. Not withstanding the reduction in operations in the second half, output o f steel ingots in 1937 was higher than in any year on record. Stocks o f iron and steel held by fab ricators were not excessive at the year’s end, according to available information, although considerable reduction in output of fabricators’ products occurred in the latter part of 1937. Domestic and foreign demand for refined petroleum products was well maintained throughout 1937. The high level o f refinery operations was reduced moderately in November and December but production of crude oil in creased slightly further. Inventories of crude oil showed only minor fluctuations in the latter part of 1937 and at the end of December were 11 percent smaller than a year ago. Gasoline inventories increased substantially during the fall of 1937, however, reflecting in part the seasonal decline in consumption, and at the end of the year were considerably larger than twelve months earlier. Measured by the cost of films produced, operations in the motion picture industry were at record levels in 1937, being 20 to 30 percent higher than in 1936. Trade sources indicate, however, that declines in box office receipts dur ing the fall months were followed by curtailment in pro duction of motion pictures late in the year. While the productive capacity of district pulp mills has been expanded almost continuously since 1925, par ticularly large gains occurred during the past two years. Daily capacity of mills in the three Pacific Coast states, which was between 3000 and 4000 tons in 1929 and in excess of 5000 tons in 1936, increased further in 1937. Output for the year was the highest on record, and ap proximately twice as large as in 1929. Most district aircraft manufacturing concerns operated at capacity throughout 1937 and at the end of the year unfilled orders were still sufficient to assure capacity out put for months ahead. Near record sales of new automobiles in the Twelfth District during 1937 were reflected in a high level of operations at district automobile assembly plants, where most of the cars sold in this region are produced. Sharp curtailment in sales of both new and used automobiles in the closing months of the year, owing partly to reduced consumer income, was accompanied by reductions in output. In the rubber tire and tube industry output was also at record levels early in 1937 but in the latter part of the year production declined considerably. Reflecting the high rate of activity in the spring and summer, produc tion of tires and tubes for the year as a whole was ap proximately the same as in 1936, the previous record year. Furniture manufacturers were operating on a part time basis at the year’s end, with new orders limited and stocks of finished goods considerably above normal. Earlier in the year output and employment were reported to be substantially higher than in 1936, but a decline in retail sales of furniture during the last third of the year was preceded and accompanied by marked curtailment of purchases by retail stores. As a result, accumulations of manufacturers’ stocks of finished furniture occurred at both California and Pacific Northwest factories after the middle of 1937. Despite marked curtailment of output Production and Employment— Index numbers, 1923*1925 average=100 Industrial Production Manufactures (volume) Lumber*............................ Refined oils*...................... Cement* ............................ Meat* ................................ Wheat flour* .................... Minerals (volume) Petroleum* ........................ Lead (U. S .)* t.................. Silver (U. S .)* t................ Construction (value) Urban residential building permits in 18 cities*.. . . Public works contracts*.. Miscellaneous Electric power production* With Seasonal ^Adjustment-\ f—1937—s 1936 Dec.Nov.Dec. Without Seasonal /^Adjustments r-1937—N1936 Dec.Nov.Dec. 58 64 79 — — — 114 107 150 115 116 126 106 107 89 46 63 61 169 168 155 84 107 111 — — — 106 118 90 83 163 109 116 114 79 154 114 112 109 .. 79 80 .. 119 113 107 106 88 . . 82 81 . . 128 114 99 .. .. 89 68 99 21 39 — 17 23 31 149 109 186 33 30 132 175 206 206 192 195 195 182 200 182 — — — 22 — — Annual Average 1937 1936 * Daily average, t Prepared by Board of Governors of the Federal Reserve System. Series on employment and pay rolls, usually published in this table, are in process of revision. February 1, 1938 7 M O N T H L Y R EVIEW OF BUSINESS CONDITIONS in the last four months of the year, stocks at the end of December were generally larger than in September 1937 or December 1936. In the processed food industries, production during 1937 was larger than in other recent years, and factories supplying containers for processed foods, such as tin cans and glass containers, were more active during 1937 than in any previous year. Record or near record packs of canned fruits, vege tables, and fish were reported. Sales of these products by canners were well maintained in the first half of the year, and comparatively small amounts of preceding packs were being carried by the canners when 1937 output came onto the market late in the summer. Partly because re tailers and jobbers had purchased heavily earlier in the year, sales of canned goods by packers were slow during the closing months of 1937, and unsold stocks were con siderably larger on January 1, 1938 than at the beginning of other recent years. Prices of both canned fruits and canned fish have remained firm, despite inactive sales in the past few months. Total volume of livestock slaughter was greater in 1937 than in 1936, but a downward tendency was appar ent during much of the year. Retail meat prices advanced in the larger cities until mid-September and, although considerable decline occurred thereafter, prices averaged about 8 percent higher in mid-December than a year earlier. Flour production at district mills fluctuated widely during 1937 but totaled about 5 percent more than in 1936 and was the largest since 1929. Millers’ prices for flour declined from April to the end of the year, partly owing to reduced wheat quotations and to decreased orders from both domestic and foreign customers. Stocks of flour held by district mills were substantially lower at the end of 1937 than a year before when shipments were held up by the maritime strike, but were slightly higher than during the summer of 1937. Production of butter and cheese increased moderately during 1937, while aggregate output of cane and beet sugar declined. Factory employment and pay rolls continued to in crease during the first four months of 1937 and remained rolls declined even more markedly, reflecting sharply cur tailed working hours as well as lay-offs. Despite these changes, employment in the year as a whole averaged 7 percent and pay rolls 15 percent higher than in 1936. While average industrial employment and pay rolls have increased in each of the past five years, in 1937 they were still moderately below 1929 levels. In the lumber indus try, which has accounted for approximately one-fifth of total district manufacturing employment and pay rolls in recent years, particularly severe declines occurred in the last quarter of 1937. As a result employment in that industry for the year averaged only slightly higher than in 1936, although pay rolls increased 11 percent. M in in g During the first few months of 1937 mine production of copper, lead, and zinc was stimulated by generally ris ing prices which approached 1929 levels. Gold produc tion advanced for the fifth successive year and output of silver was also increased to record levels, a large propor tion of the total amount recovered being a by-product of ores mined chiefly for their content of copper and gold. Most of these increases resulted from expanded activity at working mines, but a considerable number of idle properties were reopened and some new properties were M i n e P r o d u c t io n o f N o n f e r r o u s M e t a l s T w e l f t h D is t r ic t (in thousands) /-Pre-depression high-^ Year Production Gold (fine ou n ces)...........................1852 Silver (fine ou n ces)................... .... 1923 Copper ( t o n s ) .................................... 1929 Lead ( t o n s ) .................................... .... 1927 Zinc (tons) .................................... .....1929 3,933 48,652 665 322 108 r-Production-> 1936 1937 2,063 40,246 414 184 107 2,268 48,911 575 217 123 developed during the year. Following declines in market prices of nonprecious metals after April and marked de creases in demand during September and the following three months, output of mines producing copper, lead, and zinc as principal products was curtailed. On Decem ber 31, 1937 spot prices of these metals were from 33 to 40 percent lower than the spring peaks and no higher than in the fall of 1936. PER CENT A INDUSTRIAL EMPLOYMENT AND PAYROLLS-California Indexes of number employed and payrolls, adjusted for seasonal variation. (1923-1925 average=100) By months, January 1929 to December 1937. at high levels through August. A considerable reduction in the number of wage earners employed at district mills and factories occurred after that month and total pay g r ic u l t u r e Estimated cash income of farmers and livestock grow ers in the Twelfth District was 10 percent larger in 1937 than in 1936 and, with the exception of 1928 and 1929, exceeded that of any year since 1920. Total 1937 income was about $1,185,507,000. Receipts from crops amounted to $692,325,000, income from livestock and livestock products was $474,400,000, and benefit payments to growers under the Federal Government soil conservation program totaled $18,782,000. Complete data are not available on production costs but estimates indicate that net farm income was somewhat higher than in 1936. Weather conditions affecting agricultural production were favorable throughout the district during 1937. Early in the year unseasonably cold weather and heavy rainfall damaged citrus crops in California and Arizona and de layed crop growth throughout the entire district, but this poor early growing period was followed by almost ideal conditions for crop development. Winter snows and 8 February 1, 1938 FEDERAL RESERVE B A N K OF SAN FRANCISCO spring rains furnished ample soil moisture for dry land crops and for pastures and livestock ranges and provided adequate water for irrigation. Mild temperatures during summer and fall months encouraged crop growth, and excellent yields were obtained. Late fall rains caused some damage to rice and delayed the harvest of beans in California. On the other hand, these widespread rains aided the seeding and germination of fall sown grains and started the growth of new feed on livestock ranges. The volume of crop production in the Twelfth District reached record proportions during 1937, owing to in creased acreage of bearing fruit trees, an expansion in acreage planted to annual crops, and excellent yields. Record crops of almonds, apricots, beans, carrots, cauli flower, cotton, grapes, potatoes, and walnuts were har vested, while hops, lettuce, peas, pears, prunes, straw berries, sugar beets, and wheat were produced in near record volume. Output of citrus fruits was 8 percent smaller than in 1936. This was the most important de crease in crop production occurring in the district last year. Prices paid farmers and livestock growers for their products reached a relatively high level during the spring of 1937. Moderate declines in quotations took place dur ing the summer months as large crops became assured in this and other sections, but through August the com paratively high prices were the major factor producing substantially higher income than in corresponding months of 1936. In the last four months of the year, however, marked reductions in selling prices of district agricul tural products occurred as general business activity de- dined severely, and in November and December farm income was actually lower than in corresponding months of 1936. Notwithstanding the precipitous declines in these months, agricultural prices in the Twelfth District averaged somewhat higher in 1937 than in 1936, and this advance combined with the record volume of production accounts for the 10 percent gain over 1936 in total farm cash income. C rop P r o d u c t io n a n d C a s h I n c o m e Cash income of livestock growers and producers of related products including milk and eggs was 12 percent larger in 1937 than in 1936. There was considerable de cline in livestock prices during the last third of the year, but the average for 1937 was well above that for 1936. Higher average prices more than offset the effects of a smaller volume of marketings during 1937, resulting in the 12 percent gain in income from sales of livestock and livestock products. T w e l f t h D is t r ic t (In thousands) 1928-1932 Average Grains 40,570 Barley (bu.) ................. 24,648 Oats (bu.) ................... 108,874 W heat (bu.) ................. Field Crops 325 Alfalfa seed (bu.) 4,944 Beans (bags) ............... 204 Clover seed (bu.) 328 Cotton (bales) ............ 146 Cotton seed (tons) . . . 11*844 Tam e hay (tons) 28,011 H ops (lbs.) ................. 45,367 Potatoes (bu.) ............ 7,442 Rice (bu .) .................... 1,930 Sugar beets (tons) . . . Fruits and Nuts 12 Alm onds (tons) .......... 55,007 Apples (bu.) ................. . 227 Apricots (tons) .......... 50 Cherries ( t o n s ) ............ 1,935 Grapes ( t o n s ) ............... 26,120 Peaches (bu .) .............. 16,475 Pears ( b u . ) ................... 64 Plums (tons) ............... 226 Prunes ( t o n s ) ............... 37 W alnu ts (tons) .......... Citrus Fruits* 1,617 Grapefruit (boxes) . . . 7,208 Lemons ( b o x e s ) .......... 33,022 Oranges (boxes) . . . . Truck Crops 85 Asparagus (tons) . . . 20 Snap beans (tons) . . . 11,600 Cantaloupes (crates) . . 5,459 Carrots (bu.) ............... Cauliflower (crates) . 4,710 3,005 Celery ( c r a t e s ) ............ Lettuce ( c r a t e s ) .......... 15,713 2,988 Onions (sacks) .......... 75 Green peas (tons) 2,391 Strawberries (cra tes). 298 Tomatoes (tons) . . . . Production ■------------1937 1936 $18,770 $13,780 4,841 5,091 70,690 89,065 41,444 30,445 112,571 41,555 27,939 121,141 225 5,506 170 633 281 11,948 25,156 52,897 8,566 3,094 351 7,353 311 990 440 11,693 44,399 66,293 10,150 2,981 2,145 21,728 2,025 35,890 8,165 20,335 6,910 38,595 3,700 19,219 4,335 22,547 4,925 34,025 8,375 25,435 7,440 41,420 5,300 18,235 8 44,752 248 62 1,723 24,090 19,152 64 184 43 17 50,150 281 50 2,417 24,453 19,269 63 247 59 3,055 26,895 9,312 4,710 32,820 15,773 11,914 1,917 14,371 9,407 4,675 35,375 10,116 6,380 43,235 20,464 10,816 2,268 14,187 10,447 4,067 7,787 33,049 2,950 8,102 30,063 4,035 24,529 52,700 3,250 25,521 56,400 98 41 7,916 9,906 4,752 3,971 19,188 3,241 154 2,670 605 87 49 8,775 10,091 5,648 4,333 19,033 3,692 159 2,878 615 9,856 2,762 8,912 6,088 3,333 7,465 27,689 2,129 10,959 5,832 11,035 9,506 3,192 10,955 6,502 3,721 7,080 31,575 3,984 11,383 8,945 9,964 *Crop year ends October 31 of years shown. Source: United States Department of Agriculture. ^ C a s h Iincome-s 1937 1936 M IL L I O N S O F D O L L A R S C A S H F A R M I N C O M E -T w e lf th District Annual totals (including Federal payments). T rade Following upon a four-year period of expansion in consumer demand and advancing prices, the value of wholesale and retail trade attained post-depression hig-hs during the winter of 1936-1937. Retail trade ceased to ex pand after the spring of 1937, but, with few exceptions, was comparatively well maintained during the remainder of the year, particularly in agricultural areas. Pronounced declines were reported late in the year, however, by re tailers of lumber and building materials and by concerns handling the so-called durable consumer goods lines, such as radios, furniture, and automobiles. Value of district department store sales in December 1937 was 3 percent lower than in December 1936 but the full seasonal expansion from November was recorded. Reductions in sales of furniture and housefurnishing goods, which account roughly for one-sixth of aggregate sales, were an important factor in the year-period decline. Department store inventories increased considerably on a seasonally adjusted basis from January through Sep tember and, although there was a sharply greater than seasonal reduction in December, stocks were 4 percent higher at the close of 1937 than a year earlier. During the first eight months of 1937 furniture store sales continued the sharp expansion in evidence since early 1935. In September, however, sales dropped contraseasonally to the lowest level in nearly a year and in the last quarter declined substantially further, being 8 percent lower than in the comparable period in 1936. Stocks of furniture retailers continued to increase until the end of October when they were 22 percent higher than in October 1936. Reductions during the last two PERCENT 1929 PERCENT 1930 1931 1932 1933 1934 1935 1936 1937 R E T A I L T R A D E — Twelfth District Indexes of value of sales and stocks, adjusted for seasonal variation. Department stores, 1923-1925 average=100; furniture stores, 1929 average—100. By months, January 1929 to December 1937. months of the year were comparatively small, with the result that inventories were 14 percent larger at the end of December than a year earlier, whereas sales during December were 14 percent lower than a year before. Although the upward recovery movement in sales of new automobiles was checked during the early spring months of 1937, the number of new passenger and com mercial units sold in the district during the year was only 4 percent lower than in 1936. Sales tendencies during the fourth quarter were obscured to some extent by changes in manufacturers’ assembly schedules, but in December the number of new passenger cars sold was only half as large as in December a year ago. Sales of district wholesalers declined considerably dur ing the second half of 1937. In the preceding winter and spring months their customers had covered future re quirements to a much greater extent than usual and, with prices tending to fall after mid-year, purchases of most retail stores were restricted to a minimum. Stocks held by wholesalers increased through the summer and at the end of September were relatively heavy in most lines of trade. Considerable reduction in inventories of wholesalers had been effected by the year end but at that time stocks were generally as large as at the end of 1936 while sales were at a moderately lower level. 9 MONTHLY REVIEW OF BUSINESS CONDITIONS * February 1, 1938 Reflecting the slackening in industrial activity, district railway freight traffic declined sharply during the last half of 1937. Curtailed log and lumber shipments ac counted for a large proportion of the decline. During No vember and December total loadings increased moderate ly, however, owing principally to an upturn in shipments of assorted merchandise which were approximately the same in December 1937 as in December 1936. C r e d it Banking developments in the Twelfth District during 1937 differed considerably from those of the preceding several years. Investments of member banks, which had expanded substantially from 1933 to the end of 1936, de clined during 1937, much of the reduction taking place in the spring. Total loans expanded by an amount greater than in 1935 or 1936. After increasing substantially in other recent years, deposits increased only slightly in 1937, an actual decrease taking place in demand accounts which constitute the principal purchasing medium of the general public. Reserve balances of member banks in creased further, but excess reserves were considerably lower at the end than at the beginning of the year. In terest rates on loans reported by district city banks re mained practically unchanged at the unusually low levels to which they had been reduced by late 1936. Disbursements of the United States Treasury in the Twelfth District continued to exceed local collections by a substantial amount in 1937, the net excess totaling $157,000,000. This amount was considerably smaller, however, than the total of $453,000,000 in the preceding vear or the average of $215,000,000 in the four years 1932-1935. Notwithstanding the reduction, net United States Treasury disbursements continued to be the prin cipal factor in the increase of district member bank re serve balances in 1937. The tendency of Treasury pay ments to increase local banking funds was partially offset, Distribution and Trade— Index numbers, 1923-1925 average^lOO Retail Trade Department store sales (value)* Twelfth D istrict................... , California ............................... Los A n g e l e s ...................... Bay R e g io n ........................ San Francisco ................. Oakland ............................. Pacific N orthw est................. S e a t tle .................................. Spokane ............................... Salt Lake C ity ........................ Department store stocks (value) f . . . Furniture store sales (value) Automobile sales (num ber)* Passenger ........................... Commercial ...................... Carloadingsi (number)* With Seasonal ^-Adiustment-> ,— 1937— ., 1936 D ec.N ov.D ec. 97 103 93 110 106 125 75 83 57 83 96 103 97 108 107 111 73 80 56 73 100 108 102 113 109 124 76 85 60 79 ,— 1937 — N1936 D ec.N ov.D ec. Annual Average 1937 1936 165 175 154 193 183 228 129 149 95 158 97 93 103 99 98 93 108 105 105 103 118 115 75 72 84 79 61 60 79 74 102 109 101 115 116 116 75 84 53 80 171 183 168 197 189 226 131 152 99 152 82 61 71 65 83 120 86 83 69 73 66 64 73 80 83 105 95 99 177 90 97 177 146 120 187 — — — — — — — — — 85 81 81 Merchandise and m isc.. . 104 99 113 O t h e r .................................... 60 57 85 Intercoastal Traffic (volume) Total ......................................... 52 59 0 41 0 Eastbound ........................ 44 92 114 0 W estbound ........................ *Daily average. Without Seasonal |At end of month. 68 85 48 81 101 98 92 59 67 50 61 38 48 87 104 $1929 average = 100. 0 0 0 132 137 125 130 212 216 90 102 75 85 97 70 63 47 116 65 55 98 10 FEDERAL RESERVE B A N K OF SAN FRANCISCO however, by net transfers of funds to other regions in settlement of commercial and financial transactions. The net outflow because of such interdistrict transfers was $90,218,000 during 1937. Other factors affecting bank reserves, such as demand for currency, showed little net change, and member bank balances with the Federal Re serve Bank of San Francisco increased $70,349,000 in 1937 compared with an increase of $191,321,000 in 1936. While member bank reserve balances increased fur ther during the year, excess reserves, which may be used by banks in making additional loans and investments, declined approximately $50,000,000 to a daily average of $70,300,000 during December 1937. This reduction, in the face of further growth in total member bank reserve balances and little or no change in the deposit total against which reserves must be maintained, reflects an increase of 33 Ys percent in legal reserve requirements early in the year, in accordance with action taken by the Board of Governors of the Federal Reserve System. The increase, half of which became effective on March 1 and half on May 1, absorbed approximately $120,000,000 of excess reserves in the Twelfth District. While most member banks in the district had adequate excess funds with which to meet these additions to their required reserves, a number found it necessary to make minor adjustments. Funds in excess o f operating requirements were with drawn by country banks from their balances with city correspondents in this and other districts, while local city banks also drew upon idle balances with correspondents outside the district. Some banks disposed of earning as sets to meet the increased reserve requirements, but the sharp decline in securities holdings during the spring February 1, 1938 months appears to have represented primarily efforts to take advantage of a possible change in status of the bond market. Discount facilities of the Federal Reserve Bank of San Francisco were also utilized to a minor extent, the maximum advances to member banks outstanding on any one day amounting to $2,909,000 on May 4. Total deposits of district member banks, which had increased substantially during recent years, showed but M IL L IO N S O F D O L L A R S C O N D I T I O N O F A L L M E M B E R B A N K S -T w e lft h District Call report data; December 31, 1937 figures preliminary. Condition o f Reporting Member Banks T w e lf t h D is t r ic t (in millions of dollars) Assets Loans and investments— total. . . Loans— total ................................... Commercial, industrial, and agri cultural loans : On securities................................. Otherwise secured and unsecured ................................. Open market paper........................ Loans to brokers and dealers in securities ..................................... Other loans for purchasing or carrying securities .................... Real estate loans............................. Loans to ban ks............................... Other loans : On s e cu ritie s ............................... Otherwise secured and unsecured ................................. U . S. Government direct obligations ................................... Obligations fully guaranteed by U . S. G overnm ent................ Other securities ............................. Reserve with Federal Reserve Bank ............................................ Cash in va u lt................................... Balances with domestic b a n k s.. Other assets— n e t ........................... Jan. 26 1938 Dec. 29 1937 Dec. 30 1936 Dec. 31 1935 $2,111 1,033 $2,141 1,049 $2,202 979 $2,156 938 40 41 * * 324 40 336 37 * * * * 17 16 24 13 57 372 3 60 373 3 * 369 * 368 1 1 76 78 * * 104 105 * * 661 676 712 728 129 288 125 291 153 358 135 355 330 20 220 207 319 23 193 201 290 22 239 234 183 19 196 231 887 1,032 60 881 1,038 62 924 1,021 68 778 1,041 103 243 13 0 323 330 240 13 0 319 324 290 13 0 352 319 257 10 0 279 317 Liabilities Demand deposits— adjusted ......... Tim e deposits ................................. U . S. Government deposits......... Inter-bank deposits : Dom estic banks.......................... Foreign ban ks............................. Borrowings ..................................... Other liabilities ............................. Capital account ............................. * Comparable figures not available. little net gain during 1937, a moderate decline in demand deposits being slightly more than offset by some further expansion in time accounts. Two factors were principally influential in interrupting the growth of total deposits, first, the smaller net Treasury disbursements in the dis trict and second, the absence of any material change in earning assets over the year period. To a considerable extent, funds disbursed by the Treasury are received by individuals and firms and are ultimately deposited in banks, thus adding to district deposit volume. Collections by the Treasury are usually received in the form of checks drawn upon deposit accounts and consequently tend to reduce the deposit volume. When disbursements exceed collections, as has been the case in recent years in the Twelfth District, the Treasury transfers to this re gion funds obtained from tax receipts and the sale of securities in other districts, and a net increase in local deposits tends to take place. As has been indicated in a foregoing paragraph, this factor was much less import ant in 1937 than in any other recent year. The expansion in deposits from 1933 through 1936 was also attributable in considerable part to the increase in total loans and investments during those years. Banks extend loans by crediting the deposit accounts of bor rowers, and purchases of securities from the general pub lic and from agencies issuing new securities, including the United States Government, are made in substantially the same manner. In 1937, there was practically no change February 1, 1938 M O N T H L Y REVIEW OF BUSINESS CONDITIONS in total loans and investments of Twelfth District mem ber banks, whereas in the preceding three years large in creases had taken place. Owing largely to the lack of change in earning assets of banks and to the compara tively small net Treasury disbursements during 1937, total deposits increased only slightly. While earning assets remained relatively stable in total during 1937, the composition of that total changed con siderably. Investments, which have accounted for much of the substantial increase in earning assets in recent years, declined $174,300,000. This decline was slightly more than offset, however, by an increase of $190,100,000 in loans, and on December 31, 1937 loans amounted to 51.4 percent of total earning assets of district member banks compared with 46.3 percent a year earlier. Invest ments in Government obligations declined $61,300,000 during the year and holdings of other securities were re duced $113,013,000. Loans in the “ all other” classifica tion, which consist principally of advances for commer cial, industrial, and agricultural purposes, but also con sist of a variety of other types of advances including personal instalment loans, increased $118,400,000 com pared with an expansion of $107,100,000 in 1936. Loans secured by real estate advanced $46,600,000. As in the preceding year, almost the entire expansion was reported by banks outside the leading cities and came largely in advances secured by urban property, loans on farm land increasing only $1,800,000. Loans on securities increased $20,500,000 in 1937. Loans to brokers and dealers in securities, included in the total of loans on securities, de clined $12,000,000. This reduction in brokers’ borrow 11 ings from local banks accompanied the severe recession in prices of stocks during the late summer and early fall. S e c u r it ie s M a r k e t s Prices of shares traded on Pacific Coast stock ex changes, which increased 30 percent in 1936, advanced further in early 1937. Turnover attained a post-depres sion peak in late January and the first week of February, but in the following months a marked decline in activity occurred and was accompanied by a moderate recession in prices. After mid-August a sharp decline in prices took place and further decreases occurred during the re maining months of the year with the result that average prices of Pacific Coast stocks were about 40 percent lower in December 1937 than in December 1936. Except for brief periods of active trading, particularly on days of unusually sharp price declines, daily average turnover was at low levels in the closing months of the year. Changes in loans by brokers to their customers to finance the purchase of securities on local and eastern ex changes corresponded roughly with changes in securities prices. An expansion of nearly 20 percent in the first three months of 1937 was followed by irregular fluctua tions until September. Considerable declines occurred in the last four months of the year and at the end of De cember loans by brokers were approximately 23 percent lower than a year earlier. Brokers also liquidated a por tion of their indebtedness, a net reduction of 21 percent in borrowings from banks being reported over the year period by local firms and local branches of firms having their head offices outside the district. 12 FEDERAL RESERVE B A N K OF SAN FRANCISCO February 1, 1938 S u m m a ry o f N a tio n a l B u s in e s s C o n d it io n s Prepared by the Board of Governors of the Federal Reserve System output declined further in December and, according to preliminary reports, showed little change in the first three weeks of January. Prices of raw materials, which had declined sharply in October and November, have been main tained since that time. I n d u str ia l P r o d u c t io n IN D U S T R IA L P R O D U C T IO N Index of physical volume of production, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1934 to December 1937. Volume of industrial production declined further in December and the Board’s seasonally adjusted index was at 84 percent of the 1923-1925 average as compared with 89 in November. The decline reflected chiefly a continued sharp curtailment of activity in the durable goods industries. Steel ingot production averaged about 26 percent of capacity, output of automobiles and plate glass was reduced con siderably, and production of lumber and cement also declined. Total output of non durable goods declined seasonally. There was a sharp decrease in output at silk mills, and cotton consumption declined further. At woolen mills and shoe factories, however, output was maintained, following a considerable period of sharp decline. Activity at sugar refineries increased further. Mineral production in December, as in other recent months, was at a high level. Output of crude petroleum and bituminous coal declined seasonally, while anthracite production increased some what. In the first three weeks of January output of steel and automobiles increased somewhat from the extreme low levels reached in the latter part of December. Value of construction contracts awarded in December continued in about the same volume as in the preceding three months. During this period there was a decline in awards for privately-financed projects, reflecting in large part further reductions in residential building, while publicly-financed work increased. E m ploym ent 1934 1935 1936 FA CTO R Y EM P LO YM E N T A N D PAYROLLS Indexes of number employed and payrolls, without ad justment for seasonal variation, 1923 -1925 average = 100. By months, January 1934 to December 1937. Indexes compiled by the United States Bureau of Labor Statistics. Factory employment and pay rolls showed further declines between the middle of November and the middle of December, and employment at mines, on the rail roads, and in the construction industry also continued to decrease. The decline in the number employed at factories was larger than in earlier months in industries producing durable goods, and was particularly marked in the steel, machinery, and automobile industries. For the nondurable goods industries as a group, the decline in December was about the same as in each of the previous three months, after allowance for seasonal changes. There was some increase in employment at shoe factories and little change at plants producing tobacco products, while most other industries in this group showed further decreases. D is t r ib u t io n Department store sales increased in December by about the usual seasonal amount, and the Board’s adjusted index was 90 percent of the 1923-1925 average as compared with 91 percent in November and an average of 93 percent in the first ten months of the year. Mail order business and sales at variety stores showed somewhat more than the seasonal increase, while sales of automobiles declined substantially. Preliminary reports indicate that in the first half of January sales at department stores were at about the same level as a year ago. Railroad freight carloadings continued to decline in December, and in that month were 18 percent lower than the average for the first half of the year, mak ing allowance for usual seasonal change. C o m m o d i t y P r ic e s 1934 1935 1936 1937 1938 W H O L E S A L E P R IC E S Indexes compiled by the United States Bureau of Labor Statistics, 1926=100. By weeks, 1934 to week ending January 15, 1938. Wholesale prices of basic commodities, after declining sharply in the autumn, showed little change in December and the first three weeks of January. Grains, cotton, print cloths, steel scrap, and bituminous coal increased somewhat, while leather, rayon, and woodpulp prices were reduced. Prices of a wide variety of finished industrial products showed further declines, and livestock products con tinued to decrease sharply. ^ _ Bank C r e d it Excess reserves of member banks increased in the four weeks ending January 19 from $1,010,000,000 to $1,370,000,000 and were larger than at any time since May 1. The post-holiday decline in money in circulation, which accounted for this growth of excess reserves, was larger than the increase that occurred before Christmas. The volume of loans at reporting member banks in 101 leading cities declined sharply in the five weeks ending January 19, while their holdings of investments showed little net change. Declines occurred in loans to security brokers and dealers and in commercial loans, which decreased both in New York City and in othet leading cities. Interbank balances were built up during the period, while othet deposits decreased somewhat, reflecting largely the repayment of bank loans, partly offset by a return flow of currency from circulation. M o n e y R a t e s a n d B o n d Y ie l d s E X C E S S R ESER VES O F M E M B E R B AN K S Wednesday figures of estimated excess reserves for all member banks and for selected New Y ork City banks, January 3, 1934, to January 19, 1938. The average rate on new issues of 91-day Treasury bills continued in January at less than of 1 percent, and yields on Treasury notes and bonds declined to new low levels for recent months. Yields on the highest grade corporate bonds also declined somewhat, while those on the lower grade railroad issues rose.
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