Full text of Economic Review (Federal Reserve Bank of San Francisco) : February 1, 1939

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MONTHLY REVIEW
B U S IN E S S

C O N D IT IO N S

T H E

T W E L F T H

FE D E R A L

R E SE R V E

Federal Reserve Bank of San Francisco

D IS T R IC T

February 1, 1939

marked decline in business during the latter part of seasonal amount or more. The number of factory work
A
1937
was followed by moderate further decreases ers
in increased considerably in the last quarter of the year,
the first half of 1938, but this decline was succeeded in the seasonally adjusted index for December advancing
the second half of the year by considerable expansion in
production and trade. Timing of these movements in the
Twelfth Federal Reserve District corresponded generally
with changes recorded for the United States as a whole,
but the extent of the downward movement after mid-1937
and of the recovery in the second half of 1938 appears
to have been distinctly more moderate in this district.
At the year end, however, output of several important
local industries was somewhat higher than at the close
of 1937 and, allowing for seasonal factors, production
generally was being maintained at the highest levels of the
year or continuing to expand.
At the beginning of 1938, district industrial production
was decreasing, employment and payrolls were declining,
new orders for goods were generally at depressed levels,
profits were contracting and in some cases disappearing
entirely, agricultural and industrial prices were declining,
and many firms were confronted with inventories that
were burdensome in relation to their current or prospec
tive sales volume. Under these conditions, business men
generally attempted to reduce inventories and curtail op
erating expenses. Their efforts to liquidate inventories
were aided by a fairly well sustained volume of consumer
buying, and by mid-year stocks of retailers, wholesalers,
and manufacturers generally had been reduced to satis
factory volumes. Reductions in operating expenses and
in inventories enabled business firms to repay a portion of
their loans at district banks.
In the meantime, an important recovery had appeared
in residential building activity, which had declined about
40 percent from April to December 1937. An upturn took
place in this major industry in January 1938, and was
followed after March by a sharp expansion.
The marked increase in building during the spring
months, both locally and in other parts of the United
States, resulted in an increased demand for various build
ing materials, and thus helped solve the inventory prob
lems of many dealers and producers. In the lumber in
dustry, this increased demand was promptly reflected in a
higher volume of production, since inventories had been
reduced to comparatively low levels by early spring. In
some other materials industries the production increase
became apparent more slowly, but by mid-year output of
cement, steel, and common brick was also increasing.
The recovery of private building with its effects on
other industries, together with the reduction of invento
ries and other factors such as some anticipation of the
Federal spending program announced in April and the
relatively well maintained level of consumer income, con
tributed to a more general expansion of trade and indus
try during the last half of the year. A fairly brisk expan
sion in sales of new automobiles took place during the
last quarter of the year, and November and December
volume of retail trade generally increased by the full

sharply to the same level as in January 1938, the highest
point of the year. A considerable rise in factory payrolls
also took place, the adjusted index advancing to a level
PER CENT

FA C T O R Y E M P L O Y M E N T A N D PAYROLLS
Pacific Coast States
Indexes of number employed and payrolls, adjusted for seasonal variaation, 1923-1925 average— 100. By months, January 1929 to Decem
ber 1938. (Fruit and vegetable canning industry excluded)

2 percent higher than in December 1937. Business profits
appear to have improved, although information on this
subject is scant. Agricultural income did not improve,
but the drastic declines that had taken place earlier in the
year did not continue after late summer.
B u il d in g

Outstanding in the recovery movement of this district
during 1938 was the increase in building activity. The
most marked expansion took place in residential building,
but considerable increases were also recorded in private
nonresidential construction and in public works.
Rapid expansion in residential building during 1938
contrasted sharply with a decline of about 40 percent, af
ter allowance for seasonal factors, between April and De
cember 1937. The upturn which took place in January
1938 was followed by further gains during the spring and
early summer months, and the adjusted index rose in July
to 50 percent of the 1923-1925 average, a high point since
1929. During the remainder of the year residential build
ing was maintained at about the July level, and in Decem
ber the adjusted index was 53. For the year as a whole,
value of residential building permits in the Twelfth Dis
trict was 17 percent larger than in 1937.
The bulk of residential building in this region is done by
operative builders, whose programs depend mainly upon
the prospects for profitable sale of the houses they build.
Their sales prospects are governed by various factors such
as the supply of housing, general business conditions and
the level of consumer incomes, and the relationship be
tween rent and overall monthly payments for purchase of
a house. The decline in new building late in 1937 reflected
the slow sale of houses, some builders finding it necessary

FEDERAL RESERVE B A N K OF SAN FRANCISCO

to carry unsold houses over into 1938. Most of those
houses had been sold by February or March, however, and
construction of additional houses was commenced rapidly.
This expansion appeared throughout the district, with
the bulk of the dollar increase coming in southern Cali
fornia and the San Francisco Bay region. Houses con
tinued to sell well throughout the remainder of 1938, and
at the year-end builders generally were proceeding with
active construction programs. Preliminary figures for
January 1939 indicate a further advance in the seasonally
adjusted index for that month.
PER CENT

private interests during 1938 and construction on one in
Seattle was started in July, while another in Los Angeles
reached the construction stage in January 1939. Several
low cost public housing projects were also under discus
sion in the latter part of 1938, but none had reached the
construction stage by the year end, according to available
information.
Nonresidential building for which permits were taken
showed a smaller dollar gain during 1938 than residential
building, but the percentage increase was considerably
larger. Value of nonresidential permits, which fluctuates
irregularly from month to month, advanced from about
$84,000,000 in 1937 to $104,000,000 in 1938. Available
information indicates that the increase reflected almost
entirely expansion in privately financed building. Value
of permits for public buildings totaled about the same as
in 1937, but was considerably larger in the second than
in the first half of 1938.
Value of contracts awarded in 1938 for construction
projects not covered by building permits data was more
than double the 1937 total. By far the largest increase took
place in flood control, irrigation, and power projects. A
contract for completion of Grand Coulee Dam in Wash
ington, amounting to $34,500,000, was awarded in Febru
ary, and a contract for Shasta Dam and power plant in
northern California, involving $36,000,000, was awarded
in July. After excluding these two exceptionally large
projects, the value of heavy engineering construction for
which contracts were awarded in 1938 increased approxi
mately $138,000,000 or 75 percent. Awards for street and
road construction expanded $47,000,000 to a total of
$91,000,000 for the year.
Residential building costs advanced somewhat during
the first half of 1938, but, as the record shows, the ad
vance was not so rapid as to prevent widespread recovery
in the industry.
B u il d in g

R E S I D E N T I A L B U I L D I N G P E R M I T S —T w e lf th D i s t r i c t
Indexes of value of permits, adjusted for seasonal variation, 1923-1925
average=100. By months, September 1929 to December 1938.

Liberalization of the National Housing Act by Con
gress, effective February 3, 1938, and a considerable un
derlying demand for houses were important factors con
tributing to the expansion in residential building last year.
Amendments to the law reduced the overall monthly pay
ment required to carry an insured mortgage and lowered
the down payment required of buyers of lower priced
homes, particularly those appraised at less than $6,000.
Most o f the new houses built during 1938 sold for $6,000
or less. Production and sale of higher priced houses was
relatively slow. Reflecting the use of Federal Housing
Administration insured mortgages, an expansion in loans
on real estate was recorded during the year for Twelfth
District banks. This was the-only general class of loans of
those banks to increase during 1938.
Several large scale rental projects were planned by

February 1, 1939

M a t e r ia l s

I n d u s t r ie s

Despite the larger volume of building and construction
started during 1938, output of the principal building ma
terials was lower than in 1937. This is explained partly
by the fact that some of the 1938 demand for materials
was met by use of inventories that were accumulated by
producers in 1937. Perhaps more important is the fact
that on many jobs started late in 1938— especially large
scale projects— the bulk of work was carried over to 1939,
and actual construction had required delivery of only a
small part of their supplies by the year end. Although to
tal output of building materials was considerably smaller
in 1938 than in 1937, there was a definite upward ten
dency in production during most of 1938.
Expansion in output of lumber during 1938 was more
marked than in other building materials. Indicative of
this expansion was the advance in this bank’s season
ally adjusted index of lumber production from 55 percent
of the 1923-1925 average in January to 63 in June and to
80 in December. This increased output went almost en
tirely to meet a growth in actual consumption of lumber
in the domestic market. Stocks held by distributors were
considerably reduced during the first half of the year, and
trade reports indicate that they have been maintained at
satisfactory levels in relation to current sales since that
time. Gross mill stocks were likewise reduced and at the
end of December 1938 were 8 percent lower than a year

February 1, 1939

M O N T H L Y R EVIEW OF BUSINESS CONDITIONS

earlier. This decrease reflected a 10 percent decline at mills
in the Douglas fir region, and a 7 percent decline in the
western pine and redwood areas combined. At the same
time aggregate unfilled orders held by district mills were
24 percent larger than on December 31, 1937. Lumber
prices, which had declined sharply in the second half of
1937, became firmer during the fall of 1938. Employ
ment and payrolls in the lumber industry turned upward
PER CENT

and output in the last six months of 1938 was consider
ably higher than in the first half. The construction indus
try was the principal source of the revived demand for
steel, although miscellaneous buying also expanded.
O th er

M a n u f a c t u r in g

With several important exceptions, the general ten
dency of production in most district industries during 1938
was to decline somewhat in the first half of the year, but
to resist further declines or to increase in the second half.
The important exceptions to this general pattern were the
petroleum, fruit and vegetable canning, aircraft, and pulp
and paper industries.
E stimated V olume of I ndustrial O utput
T welfth D istrict
(Expressed as percentages of 1929 output)
1929
100
100
100

Refined oils ...........................
M otion pictures (cost) . . .
. .
L U M B E R P R O D U C T I O N — Twelfth District
Index of daily average output, adjusted for seasonal
variation, 1923-1925 average=100.

sharply in February 1938 and continued to increase al
most without interruption until September. Part of the
rise early in the year was seasonal in nature. From Sep
tember through December small reductions in employ
ment at lumber and sawmills took place, but the decreases
were less than is customary at that time of the year. Re
flecting these changes, both employment and payrolls in
the lumber industry at the year end were higher than at
the close of 1937.
Output of cement in Pacific Coast states was 20 percent
smaller in 1938 than in 1937. A large part of the decline
came early in the year, and resulted from reduced activity
at public works projects which were completed or ap
proaching completion. More than half the district decline
took place in the Pacific Northwest, where a large propor
tion of output since December 1935 has gone into con
struction of Grand Coulee Dam. By the end of 1937, most
of the concrete for the low level dam had been poured,
and demand for additional cement for that project was
small during the first half of 1938. In the latter half of
the year, however, cement requirements for construction
on the high dam resulted in an expansion in shipments
from Washington cement plants which totaled more than
in the corresponding 1937 period. Requirements for
cement, and consequently production, were also increased
during the second half of 1938 by work on other public
projects and by the increase in residential building, and
as a result output averaged considerably higher in that
period than earlier in the year.
After four months of substantially curtailed activity,
operations at district brick plants expanded in May 1938.
Production continued to advance through August to levels
which were well maintained during the remaining months
of the year. Total output in 1938 is estimated to have been
about as large as in 1937.
Demand for construction steel was at extremely low
levels late in 1937 and early in 1938, and contributed to a
reduction in output of steel ingots at local plants. New
orders for steel turned upward about mid-year, however,

Automobile assemblies. . . .
Rubber tires.............................
Aircraft ( v a l u e ) ...................
..
. .
.,

Butter

..
....................................... , .

Glass containers...................
W ooden boxes........................
W ool consumption............... , .
G o l d ...........................................
r Revised.

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

1933
43
59
66
76
87
99
48
58
63
49
111
114
84
112
127
111
64
98
94

1935
56
71
73
128
108
133
92
75
318
85
60
100
102
98
105
135
139
76
151
156

1936
73
73
80
138
120
154
129
125
700r
114
107
114
103
94
105
143
173
79
122
195

1937
76
82
85
174
130r
200
135
123
llOOr
112r
102
117
99r
98r
106r
150r
210
78
114
215

1938
61
86
82
169
110
136
76
#
86
83
117
106
96
111
165
170
77
102
222

*1938 output appears to have approximated that of 1937.

In the petroleum industry, output of crude oil advanced
continuously during 1937 and through February 1938. In
that month daily average production was higher than at
any time since 1930 and was considerably above consump
tion. Efforts to curtail production resulted in a decrease
of about 10 percent during the succeeding five months, but
little further reduction in output was effected until about
the year end. Despite the curtailment in output after Feb
ruary, inventories continued to increase through all of
1938 and on December 31 were 25 percent higher than a
year earlier. The increase in stocks came principally in
fuel oils, although in the second half of 1938 additions
were made to stocks of gasoline-bearing crude. Strenu
ous efforts to curtail production were resumed in Decem
ber and during the first three weeks of January 1939
daily crude oil output averaged 3 percent lower than in
December. Prices for crude and refined products were
unchanged throughout the year, except for a small decline
in fuel oil quotations.
Activity in the highly seasonal fruit and vegetable can
ning industry was considerably lower in 1938 than in
other recent years. This reflected primarily the influence
of large inventories carried over from 1937, with conse
quent depressing effects upon prices and upon the pros
pects for profitable sale of 1938 packs. Data for the Pa
cific Northwest are not yet available, but output of fruits
and vegetables in California, which accounted for about
70 percent of district output in 1937, declined approxi
mately a third in 1938. Sales by canners were somewhat
more active in the fall and early winter of 1938 than in
the comparable period of 1937, when sales by producers
and primary distributors were extremely slow.

February 1,1939

FEDERAL RESERVE B A N K OF SAN FRANCISCO

The 1938 pack of canned salmon in the Pacific North
west and Alaska, amounting to 7,300,000 cases, was some
what larger than the average of 7,005,000 cases for the
preceding ten years. The market for canned salmon was
active during the fall and early winter. As a result, deP roduction and Stocks of Canned F ruits and
V egetables— California
(in thousands of cases)
1937

A pricots ..............................................
Cherries ..............................................
Fruit c o c k t a ils ...................................
Fruits for salad...................................
Pears .....................................................
P e a c h e s ................................................
Other fruits ........................................
Asparagus ..........................................
String b e a n s ........................................
P e a s .......................................................
S p in a c h ................................................
Tom atoes ............................................
Tom ato p r o d u c ts .............................'.
Other v e g e ta b le s ...............................

5,553
240
3,221
1,255
1,499
13,248
572
2,073
587
282
2,198
3,045
5,404
894

fE n d of calendar year except as noted.

,■—Production-^
1938

1,547
294
1,988
769
1,626
9,822
411
1,796
330
245
1,040
1,994
3,419
656

Canners’ Stocks,
Sold and Unsold!
1937
1938

3,202
89
1,295*
441*
793
8,315

1,509
80
1,412
445
869
7,457

900

838

759
2,816
4,424

473
1,918
3,462

*As of June 1, 1938.

spite the large pack and the heavy carryover from 1937,
only moderately large unsold stocks amounting to 2,800,000 cases were held by canners at the end of the year. Un
sold stocks totaled 4,100,000 cases at the end of 1937.
In the district aircraft industry, activity during most of
1938 continued substantially at the high level attained in
1937 after several years of sharply expanding operations.
Deliveries, which lag considerably behind production,
were larger in value than in any previous year. Aggre
gate orders for new planes continued in large volume. An
increase in orders from abroad together with a well sus
tained volume of orders received from the United States
Government, the most important source of demand, was
sufficient to offset a sharp decline in orders from domestic
commercial airlines. Value of unfilled orders, adjusted to
exclude the value of motors which are purchased outside
the district, was about the same at the end of 1938 as a
year earlier, and was sufficient to maintain production at
the 1937-1938 level for upwards of a year. Expansion of
plant continued during 1938, but on a less extensive scale
than during the two preceding years. Despite well sus
tained output of planes during 1938, employment and pay
rolls declined substantially, owing to a marked increase in
operating efficiency at important plants.
District production of wood pulp declined sharply in
late 1937 and, despite a slight upward tendency during
most of 1938, output for the year as a whole was substan
tially lower than in 1937. This curtailment reflected a gen
eral reduction in demand for paper and paper products.
In addition, a substantial decline occurred in sales of dis
solving pulp for rayon manufacture, of which this district
is an important source of supply for both domestic and
world markets. Japanese purchases of this product prac
tically ceased early in 1938. Although shipments o f rayon
yarn for the domestic market recovered rapidly in the
summer to record levels, operations of rayon yarn produc
ers were not advanced materially until their large stock of
yarn had been reduced somewhat. Even in late 1938,
takings of rayon pulp had increased only slightly. Ship
ments to Japan were resumed in December after having
been entirely suspended from June through November.
Operations of district paper mills turned upward early in
1938 and tended to advance for some months, but avail

able data indicate a curtailment in activity during the lat
ter part of the year.
Activity in the motion picture industry was further cur
tailed in early 1938 as producers intensified their efforts
to reduce expenses. As theater attendance increased dur
ing the latter part of the year, however, operations in the
industry became more active. Total cost of films for 1938
as a whole is estimated to have been $165,000,000, a total
only 3 percent lower than in 1937.
In the majority of other industries for which data are
available, including flour milling, meat packing, and pro
duction of rubber tires and tubes, activity at the close of
the year was somewhat higher than the monthly average
for 1938 as a whole. Automobile assemblies were marked
ly higher in the last quarter than at any other time during
the year.
M in in g

With the exception of gold, district mine output of nonferrous metals was considerably less in 1938 than in the
preceding year. Prices of copper, lead, and zinc, which
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)
1929

1932

1936

1937

1938

Gold (fine o u n ce s)............. 1,060
Silver (fine o u n ce s).........40,728
Copper ( t o n s ) ....................
665
Lead ( t o n s )........................
317
Zinc ( t o n s ) ..........................
108

973
17,588
125
139
42

2,063
40,246
414
184
107

2,282
49,819
577
219
126

2,356
43,060
373
176
104

S o u rce : U. S. Bureau of Mines.

had declined sharply after March 1937, continued to de
crease until mid-1938, and mine operations were consider
ably curtailed. Active buying of copper and rising prices
after mid-June, however, stimulated an expansion in out-

Production and Employment—
Index numbers, 1923-1925
average=100

With
Seasonal
/^Adjustments
r— 1938—'\ 1937
D ec.N ov.D ec.

Without
Seasonal
/^Adjustments
t— 1938— V 1937
D ec.N ov .D ec.

—

.—

63 70 44
164 163 168
100 108 84

Industrial Production*
M anufactures (physical volum e)
80
Lumber .................................
—
Refined o i l s ..........................
Cement ................................. 135
114
W heat flour ........................ 115
Minerals (physical volume)
Petroleum ............................. —
57
Lead (U . S . ) t ....................
Silver (U . S . ) t ....................
Construction (value)
Residential Building Perm its!
Twelfth D istrict.............
53
Southern California. . 57
Northern C alifornia..
48
33
Oregon ........................
W ashington ...............
34
Intermountain states.
92
Public works con tracts. . . —
Miscellaneous
E lectric power production 207

108 114
120 115
105 106
—

—

66 87
51 104

—

115 116 106

Annual
Average
1938 1937

67
159
88
116
111

83
163
109
116
114

98 100 107
58 69 88
55 105

104 99
60 78
85 109

44 37
49 41
38 32
24 26
30 23
61 55
287 132

48
51
47
24
29
76

28
30
26
14
18
62

—

41 46 22
49 52 26
33 41 18
20 19
9
20 25 10
60 67 40
364 210 149

210 200

196 199 189

194 200

94 95 97
106 107 112
77 79 75
76 79 75

93 110
105 122
78 95
77 90

93 91 89
103 102 105
78 79 67
71 73 65

89 105
100 116
77 95
75 85

Factory Employment and Payrolls§

Employment
97 94 100
Pacific Coast ......................
California ........................ 109 105 116
O regon ............................
80 79 78
W ashington ....................
79 79 78
Payrolls
94 91 92
Pacific C oast........................
California ........................ 105 102 108
Oregon ............................. 84 78 72
W ashington ....................
74 73 67

*Daily average.
t Prepared by Board of Governors of the Federal Reserve System.
^Includes figures from 197 cities and L os Angeles County, unincorporated.
§ E xcluding fruit and vegetable canning.

February 1,1939

M O N T H L Y REVIEW OF BUSINESS CONDITIONS

put during the fall months. Prices of lead also increased
during the second half of 1938, but there was little or no
evidence of increased production. Reduced activity for
the year as a whole at copper, lead, and zinc properties
contributed to a lower level of silver production, since
much silver is recovered from ores mined principally for
those metals. Some gold is also recovered from other
ores, particularly copper, but any reduction in gold ob
tained from that source was more than offset by other in
creases, and total output, in ounces, advanced to the high
est point for any year since 1856.

months of 1937, but 30 percent lower than in the compar
able period of 1936.
Value of sales of district furniture stores declined
sharply in late 1937 and in the first quarter of 1938, and
the seasonally adjusted index in March was 27 percent
lower than in August 1937. Sales averaged somewhat
higher during the following six months, and increased
further in the last quarter of the year. Despite that in
crease, value of furniture store sales was 5 percent lower
in the last three months of 1938 than in the comparable
period of 1937.
PERCENT

PER- CENT

120

rade

District retail trade declined substantially during the
latter part of 1937, and the curtailment extended through
the first two months of 1938. The level of consumer ex
penditures appears to have been comparatively stable dur
ing the several succeeding months. In the late fall and
early winter, however, the value of retail trade expanded
to levels which, in December, were approximately equal to
those of a year ago. Initially, the decline in retail trade
was more pronounced in the durable and higher unit cost
consumer goods, including building materials, automo
biles, household appliances, furniture, and the like, but
subsequently it extended to sales of the miscellaneous
goods carried by department stores. During the latter
part of 1938, gains in sales of both durable and non
durable goods were recorded.
Sales of new automobiles contracted sharply in late
1937 and the first quarter of 1938, and during the months
of March through July were less than half as large as in
the comparable months of 1937. Sales were better main
tained in August and September, however, than is cus
tomary at that season of the year, and a marked expansion
took place during the final quarter. In November and De
cember, the number of new passenger cars sold in the
district was about 10 percent larger than in the last two

120

r.A«tm IMF rr\w<ïi luoTinw®
N ^ /v

-y

A a/ \

—

AUTOMOBILE SALES0
\

J
1

DRUG STORE
SALES

r , / \

-J

GROCERY STORE: SALES
y

>r---- ------- '

LUMBEf BUILDING
MATERIALS, HARDWARE, ETC.,
\
SALES

J V
r

------- DEPARTMENT SI rORE SALES0

v ~ _ .

' ■—

\
- ................. '

r ^

Q
" V ....

1—

■

)

APPAREL STOPIE SALES0

FURNITURE STORE SALES0

V^ - ^A

Distribution and Trade—
Index numbers, 1923-1925
average=100
Retail Trade
Department
store sales (value)*
Twelfth D istrict...................
California ...............................
Los A n g e l e s ......................
Bay Region ......................
San Francisco .................
Oakland .............................
Pacific N orthw est.................
Seattle ..................................
Salt Lake C ity ......................
Department
store stocks (value) f . . .
Furniture
store sales (valu e)* $ . . .
Furniture
store stocks (value) t $ . .
Automobile sales (num ber)*
Total .........................................
Passenger ..........................
Commercial ......................
Carloadings (num ber)*
Total ..............................................
Merchandise and m isc.. . .
O t h e r .........................................
Intercoastal Traffic (volume)
Total ..............................................
Eastbound .............................
Westbound .............................

* Daily average.

RESTAURANT:SALES

With
Seasonal
/-Adjustment-^
/— 1938—<, 1937
D ec.N ov.D ec.

Without
Seasonal
Adjustment—
1938 —V1937
D ec.N ov.D ec.

Annual
Average
1938 1937

158
172
154
188
177
224
129
152
155

90
96
90
99
94
111
72
80
78

95
101
93
107
102
123
75
85
81

96
103
98
108
106
116
75
84
74

99
103
93
110
106
125
75
83
83

104
65

102
109
102
116
115
122
77
88
81

165
175
154
193
183
228
129
149
158

97
103
98
108
105
118
75
84
79

81 104

—

—
—

112
111
124

95
106
81

85 85
99 105
68 60

76
86
64

85
98
70

68
85
48

79 90
90 102
65
75

62
50
105

58
49
90

52
41
92

58
47
99

60
53
83

50
38
87

54 63
45 47
84 116

f At end of month.

95 94
96 89
87 147

$1929 average — 100.

_/*\ A \ A

76 133
72 124
131 212

^
U.

h /\

■

/
J^

^ADJUSTED FORÍSEASONAL VARIATION
y
................... 1

R E T A I L T R A D E - Twelfth District
Indexes of sales, 1937 daily average=100. Value figures, except gaso
line consumption and automobile sales. By months,
January 1937 to December 1938.

At department stores, sales were well maintained
throughout 1937 but were sharply curtailed in the first
two months of 1938. Unusual stability characterized the
seasonally adjusted index during the succeeding six
months. The strike of department store employees in San
Francisco in September and October distorted the district
figures for that period. It is evident, however, that a dis
trict wide decline in value of department store sales oc
curred in September and that the decline was followed
by considerable expansion during the succeeding three
months to about the levels of a year earlier.
Grocery and drug store sales, as well as the consump
tion of gasoline, were comparatively unaffected by the
1937-1938 business decline. Value of sales by chain and
independent grocers and druggists in 1938 was approxi-

mately as high as in 1937, and gasoline consumption was
about the same.
Curtailment in retail sales, together with the unusually
large inventories held by retailers in many lines at the be
ginning of 1938, were factors contributing to the consid
erable reduction in wholesale trade in 1938 compared with
the preceding year. Particularly sharp declines were re
ported in wholesale sales of household furniture, plumb
ing and heating supplies, electrical goods, and hardware.
Sales of dry goods also declined sharply. Much of the re
duction of about 11 percent for the year as a whole was
accounted for in the first half when the value of sales of
reporting wholesalers in 20 lines of trade was about 17
percent lower than in the first half of 1937. Since the re
duction in wholesale trade was larger than the decrease in
retail sales, a decline in retailers’ inventories resulted. In
ventories of department stores, for example, were 7 per
cent lower in value on December 31, 1938 than a year
earlier. Inventories of wholesalers were likewise reduced
during 1938, and on December 31 showed a decline of 14
percent for the year period.
Reflecting the recession in production, building, and
trade, volume of railway freight traffic declined substan
tially from mid-1937 through April 1938. In that month,
the seasonally adjusted index had declined to 74 percent
of the 1923-1925 average from 96 in July 1937. Follow
ing this sharp decline, total loadings increased moderately
in the late summer and early fall months of 1938, almost
entirely because of expanding lumber shipments. In No
vember and December, loadings of merchandise and mis
cellaneous goods also advanced considerably and as a re
sult the adjusted index for December advanced to 95,
which compares with 85 in December 1937.
A

g r ic u l t u r e

District farm cash income was substantially lower in
1938 than in the preceding vear, declining to about $931,600,000 from $1,159,800,000 in 1937. During the preced
ing five years agricultural receipts had increased continu
ously, and in 1937 the total was somewhat larger than the
1925-1929 average. The 19 percent decrease in 1938, how
ever, resulted in farmers receiving less cash income than
in any year since 1935. Most of this decline reflected low
er prices on almost all agricultural products, since volume
of marketings was about the same as in 1937. Prices at
the farm moved irregularly with little net change during
1938 but, owing to sharp declines late in the preceding
year, averaged 20 percent lower than in 1937. The lower
level of prices partly reflected the unusually large sup
plies of most farm products during 1938. Output of crops
was about as large as the record production of 1937 and,
in addition, large amounts of agricultural products were
carried over from the preceding year. Reduced consumer
income was also a factor in the lower prices of agricul
tural commodities during 1938.
Cash receipts o f district farmers from the sale o f crops
amounted to $523,900,000 in 1938, a decline of 26 percent
from the total for the preceding year. Aggregate produc
tion of all district crops approximated the record output
of 1937 or was slightly larger, notwithstanding marked
reductions in some items including almonds, apricots, cot
ton and cottonseed, hops, and tomatoes. Production of
citrus fruits increased substantially and exceeded output
of any previous year. The pear and sugar beet crops were

February 1,1939

FEDERAL RESERVE B A N K OF SAN FRANCISCO

likewise the largest on record, while the bean, grape, po
tato, prune, rice, and wheat crops were of near-record
volume. Portions of several important district crops, in
cluding citrus fruits, potatoes, hops, peaches, prunes, and
walnuts, were left unharvested or were diverted into
other than regular commercial channels.
S ources of C a s h

F arm

I n c o m e — T w e l f t h D is t r ic t

(in thousands of dollars)
,----------------- 1937----------------- \
G ov’t
Farm
Livestock
PayCrops and Prods, ments
A r iz o n a ...................
30,731
21,869
1,193
California ............... 456,599
199,742
5,966
Idaho ......................
49,042
48,106
3,610
1,443
11,590
188
Nevada ...................
Oregon ...................
57,348
59,225
2,503
Utah ........................
13,146
31,432
994
W ashington ..........
96,179
65,631
3,246

,----------------- 1938----------------\
G ov’t
Farm
Livestock PayCrops and Prods, ments
31,812
19,162
2,554
317,788
179,223
12,241
37,131
39,832
3,161
1,159
10,012
129
46,659
51,276
2,499
13,372
25,494
1,930
75,963
58,340
1,878

Twelfth D istrict..

523,884

704,488

437,595

17,700

383,339

24,392

Source: United States Department of Agriculture.

Income from the production of livestock and related
products in 1938 totaled $383,300,000 compared with
$437,600,000 in the preceding year, a decline of but 13
percent. Aggregate volume of marketings of livestock
and livestock products was only slightly smaller than in
1937, most of the decline in income resulting from lower
P r o d u c t io n a n d F a r m V a l u e of C ro ps
T w e l f t h D is t r ic t
(in thousands)
,---------------- 1Production-

Average
1937
1927-1936
Grains
41,555
Barley ( b u .) ...................
39,868
Corn ( b u .) ........................
7,706
7,951
27,977
25,741
Oats ( b u .) ........................
124,429
W heat ( b u .) ................... 107,017
Field Crops
Alfalfa seed ( b u .) ..........
349
346
7,264
3,000
Beans (b a g s )....................
195
Clover seed ( b u .) ..........
287
352
Cotton (b a le s ).................
1,051
157
Cottonseed ( t o n s ) ..........
467
Tame hay ( t o n s )............
11,571
11,672
32,753
Hops ( l b s .) ......................
43,913
48,951
68,409
Potatoes ( b u .) .................
Rice ( b u .) ........................
7,812
9,108
2,892
Sugar beets (tons) . . . .
2,232
Fruits and N uts
Alm onds (t o n s ) ...............
11
20
Apples ( b u .) ...................
50,849
50,233
Apricots (t o n s ) ...............
222
311
51
53
Cherries ( t o n s )..............
Grapes* (t o n s ) ...............
1,929
2,454
631
450
Raisin ...........................
1,126
1,407
Table .............................
353
416
22,135
23,252
Peaches* ( b u .) ...............
C lin g s to n e ...................
14,564
15,418
F r eesto n e......................
7,571
7,834
16,287
18,616
124
Plumst (to n s ).................
127
225
256
Prunes ( t o n s ).................
41
60
W alnuts ( t o n s )...............
Citrus Fruitsf
2,710
2,168
Grapefruit ........................
7,487
7,579
O r a n g e s * ...........................
32,397
29,827
13.234
14,871
17,526
16,593
V a le n c ia s ......................
Truck Crops
122
Asparagus* (to n s ). . . .
114
8,727
7,070
Cantaloupes* (crates) . .
8,995
5,727
Carrots* ( b u .) .................
2.943
4,252
Celery (cra tes)...............
12,210
13,526
Lettuce* (cra tes)..........
73
134
Green peas (t o n s )..........
2,129
2,307
Strawberries (cra te s). .
260
546
Tomatoes* (t o n s )..........

1938
41,288
6,928
23,214
125,917

t— Farm Value—\
1937
1938
$25,380 $18,110
5,440
4,330
7,790
10,580
87,730
68,810

357
6,205
281
619
275
11,782
35,261
65,203
9,100
3,754

5,080
21,740
4,942
44,660
9,740
115,220
6,411
26,400
5,283
17,860

3,940
16,450
2,160
27,850
6,050
90,640
5,546
33,260
4,914
24,310

12
47,303
176
82
2,331
589
1,339
403
20,835
13,459
7,376
22,559
132
237
49

5,500
26,810
11,507
7,750
46,684
13,251
24,364
9,069
19,354
14,560
4,794
13,460
4,373
13,993
10,912

3,122
37,150
6.239
5,540
31,721
7,510
16,695
7,516
6,064
2,701
3,363
8,670
2,693
10,451
11,100

4,693
9,355
45,605
16,680
28,925

2,870
23,116
56,362
21,021
35,341

2,300
21,894
36,812
13,091
23,721

117
7,135
10,056
4,864
12,435
114
2,572
378

5,863
9,063
6,029
6,982
22,549
9,651
7,158
11,703

8,675
7,423
5,815
6,862
19,158
8,946
5,694
9,827

*California only.
$ Includes prunes used for fresh consumption and canning in the Pacific
Northwest.
tCrop year ends October 31 of years shown.

February 1, 1939

prices. Prices of poultry and eggs averaged about the
same as in the preceding year, while quotations for meat
animals and dairy products were moderately lower in 1938
than in 1937. W ool sold at prices averaging almost 40
percent lower than in 1937. While total income of the dis
trict livestock industry was 13 percent below that of 1937,
net income is estimated to have shown a considerably
smaller decline. Feed costs, which constitute a large pro
portion of the total cost of production, were much lower
than in the preceding year.
District farm receipts from the marketings of products
were augmented during 1938 by Government benefit pay
ments amounting to $24,400,000 compared with $17,700,000 in 1937. These payments were made under the Soil
Conservation and Agricultural Adjustment Administra
tion programs. While they constitute the only directly
measurable contribution of the Government to district
farm income, local agriculturalists received Federal aid in
various other ways during 1938. Non-recourse loans were
granted on wheat, cotton, and hops, and the effect of that
program was to establish minimum farm prices for these
crops. In the Pacific Northwest, exports of wheat were
encouraged late in the year under an arrangement where
by the Government absorbed the difference in price at
which grain was sold on world markets and the price at
which it was purchased from local growers. In addition,
large purchases of a number of farm products for relief
distribution have been made by the Federal Surplus Com
modities Corporation and have tended to relieve the threat
of further serious declines in prices of these products.
T o t a l C a s h F a r m I n c o m e 4*— T w e l f t h D i s t r i c t
(in thousands of dollars)

1929
68,030
649,750
115,980
18,720
113,840
58,150
183,320

Arizona . . . .
California . .
Idaho . . . .
Nevada . . . .
Oregon . . . .
Utah .........
W ashington
nn___ liiu
I welftn
D istrict. . 1,207,790

1932
23,410
334,460
41,220
5,850
46,360
25,160
79,170

1935
49,950
492,450
78,660
10,380
81,820
35,710
138,790

1936
43,590
549,960
87,570
11,310
87,630
40,700
135,720

1937
53,793
662,307
100,758
13,221
119,076
45,572
165,056

1938
53,528
509,252
80,124
11,300
100,434
40,796
136,181

555,630

887,760

956,480

1,159,783

931,615

^Including Government payments.
Source : United States Department of Agriculture.

As shown in the accompanying table, there were wide
variations in farm income received in the several states of
this district from 1937 to 1938.
Generally favorable weather conditions throughout the
year contributed to the large crop production and aided
the livestock industry in 1938. Losses of livestock and
crops from freezing temperatures and severe storms were
less than average and considerably smaller than in the
winter of 1936-1937. The snowpack in the higher eleva
tions was of near record proportions early in the year and
provided ample supplies of water in all sections of the dis
trict where irrigation is important. Rainfall during the
winter and spring months was also heavy. In fact, in some
areas wet soil conditions delayed plantings of winter and
spring sown crops, and floods damaged crops in a few lo
calities. Excellent weather generally prevailed during the
growing and maturing season. Fall rains were late and
only minor damage to late harvested crops was reported
by growers. The first freezing temperatures came at an
earlier date than usual, however, and reduced output of
late potatoes in the Pacific Northwest, and of citrus fruits
and of few truck crops in California. At the year-end* ad

M O N T H L Y R EVIEW OF BUSINESS CONDITIONS

ditional rain and snow was generally needed to germinate
fall sown crops, to replenish water for stock and to start
new feed on ranges throughout the district.
C r e d it

and

B a n k in g

Idle funds held by district member banks, which were
large at the end of 1937, expanded considerably further
during 1938. Reflecting this situation, bank credit was
available on terms at least as liberal as those prevailing in
1937. Despite the low cost of funds, demand for bank
credit from private borrowers contracted during the year.
Declines took place in total loans and in holdings of secur
ities of public utilities, railroads, and other corporations.
This reduction in the amount of bank credit in use by pri
vate borrowers was more than offset, however, by a sub
stantial increase in investments in United States Govern
ment obligations and by an expansion of more moderate
proportions in holdings of securities of states, counties,
municipalities, and other administrative areas. Adjusted
demand deposits, after declining considerably during 1937
and the first quarter of 1938, advanced to a level at the
close of the year approximately as high as the previous
record peak reported on December 31, 1936. Time ac
counts also increased, the expansion occurring almost en
tirely in savings deposits. The increase in savings depos
its, however, was more moderate than in other recent
years. Rates of interest paid on savings accounts by banks
in the principal cities were reduced further at the mid
year, and prevailing rates currently are 1 or 2 percent in
most cities.
Excess reserves of district member banks averaged
$77,196,000 in the first half of January 1938. This sum
was approximately 16 percent of the reserves which banks
were required to maintain against their outstanding de
posits. In succeeding months, excess reserves increased
to a peak of $166,990,000 in early November, but subse
quently declined to an average of $126,684,000 in the lat
ter part of December. In addition to the increase of idle
funds in the form of excess reserves, local member banks
also added substantially to their demand balances with
correspondents outside the district, particularly with those
located in New York City. For several years these bal
ances have been in excess of amounts necessary to provide
facilities for interbank transactions. To the extent that
this has been the case, district member banks have been in
a position to supplement their reserves at the Federal Re
serve Bank of San Francisco merely by withdrawing
funds from their correspondent balances in other dis
tricts. Consequently, like excess reserves, some portion of
these balances carried outside the district represents idle
funds of local member banks. Much of the expansion in
bankers' balances during 1938 was of that character, and
was the result of a preference by the banks to carry a
considerable portion of the funds for which they had no
current use with correspondents in other districts rather
than as excess reserves.
One important factor in the expansion of idle funds
held by district member banks was the reduction in re
serve requirements, effective April 16, 1938, made by the
Board of Governors of the Federal Reserve System. The
effect of this reduction was an immediate decrease of ap
proximately $63,000,000 in the amount of reserves which
local member banks were required to maintain against out
standing deposits and an increase of like amount in ex

February 1,1939

FEDERAL RESERVE B A N K OF SAN FRANCISCO

cess reserves. A second important factor consisted of
large United States Treasury disbursements in the dis
trict in excess of local collections. Funds disbursed by the
Treasury from its account with the Federal Reserve Bank
of San Francisco, whether for the maintenance of the or
dinary functions of Government, for relief, for public
works, for interest on that part of the Federal debt held
locally, or for any other purpose, are ultimately deposited
in local banks, and principally in local member banks. The
checks or warrants representing these disbursements are
in turn sent by the member banks to the Federal Reserve
Bank of San Francisco where they are credited to the re
serve accounts of the member banks and debited to the
Treasurer’s account. The resulting increase in member
bank reserve balances is offset, however, to the extent by
which the Treasury collects funds locally from taxes,
from the sale of new securities, from loan repayments and
the like. In recent years, disbursements of the Treasury
have been substantially larger than local collections and
have consequently added to district member bank reserve
balances. In 1938, net Treasury disbursements in the
Twelfth District amounted to $276,000,000. To meet this
large net excess, the Treasury transferred funds from
other districts, particularly from New York. Some of the
funds transferred into this district represented additions
to the Treasurer’s working balance resulting from the re
lease on April 14,1938 of gold accumulated in an inactive
account under the 4‘gold sterilization” program. Some of
the funds represented receipts from the customary large
sales of new Government securities in New York. The
heavy demand during 1938 for Government securities in
New York reflected partly the increases in the amount of
investment funds of banks and others owing to the inflow
of foreign capital.
MILLIONS OF DOLLARS

M E M B E R B A N K R E S E R V E S A N D R E L A T E D IT E M S
Twelfth District
Treasury operations show net United States Treasury payments into the
Twelfth District, which add to district bank reserves; Commercial
operations show net payments by Twelfth District banks and
their customers to other areas, which reduce district bank
reserves. Figures cumulated from June 30, 1933.

The increase in district member bank reserve balances
resulting from local operations o f the United States
Treasury was largely offset by a net outflow of funds aris
ing from interdistrict payments and transfers for the ac
counts of banks and their customers. This net movement

of funds to other districts, amounting to $239,800,000
during the year, was partly the outcome of local banks
adding to their balances with correspondents in other lec
tions of the country.
MILLIONS OF DOLLARS

1933

1934

1935

1936

1937

1938

L O A N S O F A L L M E M B E R B A N K S —Twelfth District
Call report data; December 31, 1938 figures preliminary.

With banks amply provided with idle loanable funds,
both in the form of excess reserves and of correspondent
balances, interest rates charged customers tended lower
during the year from the unprecedented low levels pre
vailing in 1937. Monthly reports received from district
city banks indicate slight declines in rates on representa
tive classes of loans, including prime commercial paper,
advances on securities, and loans on commodities secured
by warehouse receipts. A significant reduction in the cost
of insured mortgage loans on smaller residential proper
ties was brought about 011 February 3, 1938 by amend
ments to the statute creating the Federal Housing Admin
istration. Previously, in addition to interest at 5 percent
on an insured loan, the borrower paid a service charge of
*4 of 1 percent per annum on the unpaid principal and a
mortgage insurance premium charge of
of 1 percent
per annum on the original amount of the note during its
entire life. The amendments on February 3, 1938 elimi
nated the service charge and changed the method of as
sessing the insurance premium to apply only to the unpaid
balance. In addition, in the case of newly constructed
single family dwellings costing not over $6,000, the pre
mium was reduced to ]/\ of 1 percent per annum until July
1,1939.
The decrease in total loans was slight, amounting to but
$2,000,000 from a total of $1,871,000,000 on December
31, 1937. A considerable reduction occurred in the first
half of the year in advances for commercial, industrial,
and agricultural purposes, and almost no expansion took
place during the late summer and fall months. Some of
the decline in loans to business over the year period re
flected the liquidation of inventories of goods accumulated
in 1937. Slight declines in loans to brokers and to other
customers for the purpose of purchasing or carrying se
curities also took place, despite the rise in prices of cor
porate stocks to somewhat higher levels in late 1938 than
a year earlier. On the other hand, loans secured by real
estate expanded considerably.

M O N T H L Y

Supplement

R E V I E W

Federal Reserve Bank of San Francisco

February 1,1939

Summary of National Business Conditions
Prepared by the Board of Governors of the Federal Reserve System

of industrial production declined
little change in the first three weeks of
Wholesale commodity prices were steady.
further in December, and retail sales showed

o lu m e

seasonally in December and showed
January, when an increase is usual.
Employment and payrolls increased
more than the usual seasonal rise.

P r o d u c t io n

I N D U S T R I A 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 1938.

In December, volume of industrial production declined by about the usual sea
sonal amount and the Board’s adjusted index was at 104 percent of the 1923-1925
average, about the level reached in November following an exceptionally rapid ad
vance after the middle of the year. Changes in output in most lines in December
were largely seasonal. In the steel industry, however, production showed a greater
than seasonal decline, and averaged 54 percent of capacity in December as com
pared with 61 percent in November. Lumber production showed little change from
November to December, although usually there is a decline, and at textile mills and
shoe factories activity declined less than seasonally. A t meat-packing establish
ments there was a reduction in output.
Automobile production increased somewhat further in December. In the fourth
quarter of 1938 production and sales of the new model cars were in about the same
volume as in 1937. Dealers’ stocks of new cars increased seasonally in this period
but at the year end were much below the high level of a year earlier.

FACTO RY EM PLO YM ENT
Index of number employed, adjusted for seasonal var
iation, 1923-1925 average=100. By months,
January 1934 to December 1938.
’ ERCENT

Value of construction contract awards increased considerably from November
to December, according to F. W . Dodge Corporation figures for 37 eastern states.
The increase reflected principally a further rise in contracts awarded for Public
Works Administration projects, which accounted for most of the sharp increase in
awards that occurred in the last half of 1938. Contracts for private residential
building decreased less than seasonally in December, while other private construc
tion showed little change and remained at a low level.
E m ploym ent

PERCENT

Employment and payrolls rose further between the middle of November and the
middle of December. In most manufacturing lines the number employed continued
to increase, when allowance is made for the usual seasonal changes, and in the auto
mobile and machinery industries the rise was considerable. Employment and pay
rolls in trade increased more than is usual in the holiday season, and in the con
struction industry employment showed much less than the usual seasonal decline.
D is t r ib u t io n

Distribution of commodities increased more than seasonally in December.
Sales at department stores showed the usual sharp expansion prior to Christmas
and sales at variety stores and mail order sales showed a more than seasonal rise.

W H O L E S A L E P R IC E S
Index compiled by the United States Bureau of Labor
Statistics, 1926=100. By weeks, 1934 to week
ending January 14,1939.

Freight-car loadings declined seasonally from November to December, reflect
ing largely the customary decrease at this time of year in shipments of miscellane
ous freight.
Bank

C r e d it

As a result of the post-holiday return of money from circulation, together with
the Treasury disbursements from its balances with the Reserve banks, and gold
imports, excess reserves of member banks increased nearly $600,000,000 in the four
weeks ending January 18 to a new high level of $3,560,000,000. A large part of the
increase occurred at New York City banks.
Total loans and investments of reporting member banks in 101 leading cities,
which increased substantially in the first three weeks of December, declined in the
following four weeks. There was some decline in loans and a reduction in holdings
of United States Government obligations, reflecting in part distribution to the pub
lic of new securities purchased by banks in December. Deposits declined somewhat
in the latter part of December but increased in January.
M oney

E X C E S S RESER VES O F M E M B E R B A N K S
Wednesday figures of estimated excess reserves for all
member banks and for selected New York City
banks, January 3, 1934, to January 18,1939.

R ates a n d

B o n d Y ie l d s

Average yields on United States Government securities declined slightly in
December and the first three weeks of January. For three consecutive weeks the
entire new issue of 91-day Treasury bills sold on or slightly above a no-yield basis.
Commercial paper rates declined slightly in January, while other open-market
money rates continued unchanged.

Full text of Economic Review (Federal Reserve Bank of San Francisco) : February 1, 1939

FRASER