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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 Federal Reserve B a n k of S a n Francisco R e v ie w o f th e M o n th Industrial production and employment in the Twelfth Federal Reserve District declined further during Novem ber. Retail trade increased somewhat less than seasonally, but on the whole appears to have been relatively well maintained as in other recent months. The agricultural outlook was favored by greater than normal rainfall dur ing November and early December. Prices received for crops being marketed were well below mid-year quota tions, but agricultural income continued somewhat in excess of last year, owing to the larger volume of crops for sale. I ndustry During November business conditions in the Twelfth District continued to be dominated by the results of mal adjustments which had their origin primarily in develop ments of last winter and spring. By the fall of 1936 busi ness activity had recovered much of the depression losses, and industrial output was at a substantially higher level than at any time in the preceding six years. Drought con ditions, however, had reduced the output of many agri cultural products thereby increasing the costs of raw ma terials for a number of industries. Wage rates also ad vanced. Partly because of these increases in costs and partly because of the apparent strength in demand for most goods, prices of industrial products were also ad vanced. In the belief that increases in costs and prices would continue, a considerable amount of advance buying was done by fabricators and distributors including the larger retail outlets. Owing to this advance buying, an unusually large volume of unfilled orders was held by a number of industries, including the important lumber in dustry, during the spring of 1937. During the spring months, after having covered their requirements for a longer than customary period in the future, fabricators and distributors reduced their advance ordering, and with subsequent declines in commodity prices during the summer and autumn, most buying was limited to current requirements. For several months, how ever, production continued at the high levels of early spring, and not until unfilled orders had been reduced substantially was output of some major district indus tries curtailed. This curtailment, which became extensive in August and September, continued through the month of November. Accompanying this reduction in output, industrial employment and pay rolls have also declined. F E D E R A L R E SE R V E D IS T R IC T January 1,1938 Curtailment of production has been chiefly apparent in a reduction in the number of hours worked per week, al though the number of employees has also declined some what more than seasonally since the late summer. Par ticularly severe declines in output and employment have taken place in the Pacific Northwest where curtailment in the dominant lumber industry has been pronounced, but substantial decreases have also taken place in Cali fornia where industrial activity is widely diversified. In the lumber industry, with many mills curtailing their operations or closing down entirely, output was reduced in November to the lowest level since the strike of mill workers and loggers in 1935. Unfilled orders also con tinued to decrease, although the decrease was appreciably smaller than in other recent months. Stocks advanced slightly further and on November 30 were considerably larger in relation to the volume of orders received during the month than has been customary at this season. The marked increase in stocks of lumber during recent months has come at mills in the Western Pine Association area, where some rise in mill stocks is usual during the fall months. Despite continued reports of extremely low vacancy ratios, a further reduction in the value of residential building permits took place during November and this bank’s seasonally adjusted index declined to 22 percent of the 1923-1925 average. At that level the index was lower than in any month since February 1936. Private nonresidential construction, measured by the value of per mits issued or contracts awarded, also declined further during November, and awards for public buildings con tinued at the relatively low levels of recent months. Operations in the petroleum industry have not shown the tendency to decline during recent months that has been apparent in many industries. In fact, output of crude petroleum, which has been expanding almost continuously since January, increased further in November to a level 22 percent higher than in November 1936. Activity at refineries decreased in November, in part reflecting the seasonal reduction in consumption of gasoline and other refined products. Production of wheat flour was reduced further in N o vember, both domestic and foreign orders declining. Stocks of flour held by district mills are substantially lower than a year ago, when shipments were interrupted by the maritime strike, but have increased since the early summer. Livestock slaughter expanded moderately from 113 percent of the 1923-1925 average in October to 117 in November, a level approximately as high as in the comparable month last year. 2 FEDERAL RESERVE B A N K OF SAN FRANCISCO The 1937 tuna pack in southern California is estimated at slightly more than 3,000,000 cases, compared with the previous record production of 2,700,000 cases in 1936. Prices for tuna during 1937 averaged moderately above 1936 levels, and although a reduction was announced December 1, quotations at present are still slightly higher than a year ago. T rade Although value of department store trade in the dis trict as a whole increased by slightly less than the usual seasonal amount during November, sales were only 1 percent lower than the January-October monthly aver age, after adjustment for seasonal variation. In Califor nia, where consumer purchases in the past few months have been maintained at a relatively higher level than in other district states, seasonally adjusted sales were about the same as last spring and summer, and were somewhat higher than a year ago. Pacific Northwest firms reported a greater than seasonal decline in trade, sales for the month being lower than in November 1936. Aggregate sales of reporting concerns in Arizona, Idaho, and Utah declined contra-seasonally, but on a daily average basis were 5 percent higher than in November last year. In ventories of department stores increased slightly more than seasonally during November, but the adjusted index was 1 percent lower at the end of November than at the end of September. Furniture store sales adjusted for seasonal variation declined 2 percent in November, and were 7 percent lower than a year ago. Inventories were also reduced during the month but on November 30 were 12 percent higher than a year earlier. W H O L E S A L E T R A D E — Twelfth District Percentage changes in value of sales Monthly Sales t-----Compared With------ 1937 January . . February .. M arch April M a y ......... J u n e ......... July ......... A ugust .. September O ctober . . Novem ber Previous Month — 5 — 3 Correspond ing Month 1936 + 16 + 24 — 2 — 6 + + + + + 4 + 18 + + 4 0 2 — 3 — 14 16 24 21 19 + 13 + 12 + 8 0 + 2 Cumulative 1937 Compared With 1936 + + + + + + + + + + 16 19 20 19 19 18 17 16 15 14 Value of wholesale trade was 14 percent lower in N o vember than in October, and sales were only slightly above the November 1936 totals. A substantial reduction in wholesale trade activity has been reported since last August, and gains during the autumn months over cor responding months of 1936 were small in comparison with the large year-period increases in sales shown earlier in 1937. Available reports indicate that inventories of district wholesalers generally were larger at the end of November 1937 than a year earlier. Reflecting sharply curtailed shipments of a number of important commodities, principally forest products, freight carloadings declined by considerably more than the seasonal amount in November. Intercoastal water borne shipments also declined, and were lower than in any month since the maritime strike last winter. January 1, 1938 A g r ic u l t u r e Heavier than normal rainfall throughout the Twelfth District during November and the first three weeks of December was generally favorable to agriculture. The widespread rains improved livestock ranges and provided needed soil moisture for grains and vegetables. Damage to crops was of minor importance except in the case of un harvested rice in the Sacramento Valley. Prices paid farmers for their products were steadier in mid-Decem ber than at any time in several months. Cash farm in come in the district, which has been affected by declines in prices during recent months, was estimated to be only slightly higher in November 1937 than in November 1936, although total income for the season to date is con siderably higher than in the comparable period last year. Reflecting primarily the record output of district crops and to some extent reduced demand from processors and consumers, stocks of most agricultural products are larger than a year ago. While a large portion of these stocks will be marketed before next year’s crops are har vested, present indications point to larger than usual carry-over of a number of crops into the 1938-1939 mar keting season. In the case of rice, earlier estimates of a record supply suitable for milling purposes were revised sharply downward during early December because of crop destruction and damage to quality resulting from heavy rains in the principal growing areas of California. Livestock ranges were in good to excellent condition on December 1 except in southern California and parts of Arizona. Heavy rains in December improved conditions in those areas. Mild weather and ample new feed on most winter ranges have made necessary relatively little sup plemental feeding thus far. More cattle were in district feed lots on December 1, 1937 than on that date in any previous year except 1936, when an unusually large number of animals was being fed for market. The 1937 season was profitable for most operators, with marketings large and prices comparatively high during most of the year. The cost of feed now is gen erally lower than last year but prices paid for feeder cattle have been somewhat higher. Approximately 385,000 cattle are being fattened for market on district feed Production and EmploymentIndex numbers, 1923-1925 aver a g e = 100 Industrial Production Manufactures (physical volum e) Lum ber* ..................................... Refined o i l s * ............................... W ith Seasonal Without Seasonal r ~ Adjustment -\ t— 1937 — N 1936 r ~ Adjustment —% f— 1937—■ x 1936 N ov. Oct. N ov. N ov. Oct. N ov. 65 167 107 82 178 116 — 129 68 151 138 — 82 77 69 — — — 107 117 107 101 113 108 138 117 75 __ 81 91 ___ 74 99 107 105 84 90 88 77 106 .. Minerals (physical volume) __ Petroleum* ................................. Lead (U . S .) * * ........................ Silver (U . S .) * * ........................ Construction (value) Urban residential building per 22 mits in 18 c i t i e s * .................. Public works c o n tr a c ts * ......... . . . — Miscellaneous . 201 — 118 26 37 — — 23 109 28 101 39 147 201 176 190 200 187 * 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. January 1, 1938 M O N T H L Y R EVIEW OF BUSINESS CONDITIONS lots this year, of which approximately 70 percent are in Arizona and California. This number will be insufficient to supply local winter and spring markets, however, and as in other years demand will be met in part by the ship ment into this region of additional fat cattle for slaughter from sections east of the Rockies. On December 1 the number o f lambs in district feed lots was 40 percent lower than a year ago, but approxi mately 20 percent higher than on the comparable date in 1935 or 1934. More than 80 percent of the lambs on feed in the district are in lots in Utah, Idaho, and California. B a n k C r e d it Total earning assets of reporting member banks in the Twelfth District expanded considerably during the four weeks ending December 22, owing mainly to increased investments in United States Government obligations. Some of these securities were bought in the open market but most of them represented purchases of the mid-De cember issues of new Treasury bonds and notes. Open market purchases included both Government obligations and other securities. Loans of banks also increased mod erately during this period. Moderate expansion in deposits o f district banks in the four weeks ending December 22 reflected partly increased Government deposits resulting from the sale of new securities in mid-December. Considerable growth in time deposits also took place and, despite a reduction in de mand accounts, total deposits of banks in the principal district cities increased to levels only slightly lower than at the beginning of 1937. Complete data of deposits at country member banks are not available for the second half of 1937, but present figures indicate little net change in their deposits over the year period. The small net change in deposits of district banks dur ing 1937 contrasts with the marked expansion reported in other recent years. From the beginning of 1933 to the end Distribution and Trade— Index numbers, 1923-1925 average=100 Retail Trade Department Store Sales (value)* Twelfth District ............................. California ........................................... L os A n g e l e s .................................. Bay Region .................................. San F r a n cisco ............................... Oakland ......................................... Pacific N o r th w e s t........................... S e a t tle .............................................. Spokane ......................................... Salt Lake C ity .................................. Department Store Stocks (value) f Furniture Store Sales (value)* $ . . Automobile Sales (number)* Total ..................................................... Passenger ....................................... Commercial .................................. Carloadings (number)* Total .......................................................... Merchandise and misc................... Other ................................................... Intercoastal Traffic (volume) Total .......................................................... Eastbound ......................................... Westbound ......................................... *Daily average. tAt end of month. 3 of 1936, total deposits of district member banks increased by $1,447,000,000. The principal factor in this expansion was the disbursement in this district by the Federal Gov ernment of $1,080,000,000 more than was collected lo cally from taxes, sales of securities, and other sources. Funds to meet this excess of Treasury expenditures lo cally were obtained from tax collections and sales of securities in other areas, particularly New York. Another factor of large importance in building up district bank deposits during these years was the extension of bank credit locally through increases in investments and ex pansion of loans. Part of the increase in district bank de posits in those four years was canceled through net trans fers of funds to other regions in payment of goods, services, and the like. The net outcome of all factors tending to increase or decrease bank deposits, however, was a rapid and practically continuous expansion in the district’s purchasing medium. The comparatively slight change in district bank de posits during 1937 reflects mainly the fact that net pay ments into the district by the Federal Government were smaller than in other recent years, and the fact that earn ing assets of banks did not change materially over the year period. Changes in demand for currency within the Twelfth District are shown for recent years upon the accompany ing chart. Some expansion in currency requirements was M IL L IO N S OF D O L L A R S D E M A N D F O R C U R R E N C Y — Twelfth District W eekly changes, cumulated since January 1, 1934. With Seasonal /^-Adjustment—> t— 1937— \ 1936 Nov. Oct. Nov. Without Seasonal r-Adjustm ent-> 1937— \ 1936 Nov. Oct. Nov. 96 103 97 108 107 111 73 80 56 73 73 80 98 104 99 107 104 118 74 82 66 86 72 82 95 102 95 109 107 117 75 83 61 73 68 86 102 109 101 115 116 116 75 84 53 80 82 83 101 105 101 107 103 121 84 86 95 92 79 85 101 108 99 117 115 123 77 87 58 81 76 89 __ — __ — __ — — — — 99 97 120 106 98 188 109 108 114 81 99 57 85 94 71 90 105 71 81 98 59 103 122 80 90 104 73 59 44 114 68 55 106 27 28 24 61 48 104 73 62 111 28 30 22 average— 100. apparent from early in 1934 to the middle of 1937, if allowance is made for the seasonally lower demand in the first half of the year. This growth in currency outstand ing came about largely because of increased use for pay rolls and general business transactions. A particularly large rise during 1936 occurred at the time of and fol lowing payment of the Veterans’ Adjusted Service bonds. Since the early autumn of 1937, relatively little change in currency outstanding has taken place, although this is the season of the year when considerable increase ordi narily occurs. This customary fall expansion in money in circulation results from increased trade and business ac tivity, a peak for the year being reached in the immediate pre-Christmas shopping period. Lack of expansion dur ing the fall months of 1937 reflects lower pay rolls and general business, with the result that the pre-Christmas peak in currency demand was lower than 1937 Labor Day requirements, when demand for currency in the Twelfth District was greater than at any time in recent years. FEDERAL RESERVE B A N K OF SAN FRANCISCO January 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 I volume of industrial production continued to decline sharply, and employment and pay rolls also decreased. During the first half of November commodity prices declined further but for the past month they have been steady. n N ovem ber, P r o d u c t io n a n d E m p l o y m e n t 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 1929 to November 1937. F A C T O R Y E M P L O Y M E N T A N D P A Y ROLLS Indexes of number employed and pay rolls, without ad justment for seasonal variation, 1923 -1925 average = 100. By months, January 1929 to November 1937. Indexes compiled by the United States Bureau of Labor Statistics. Volume of industrial output, as measured by the Board’s seasonally adjusted index, declined from 1U3 percent of the 1923-1925 average in October to 90 percent in November, reflecting chieliy a sharp reduction in the manufacture of durable goods. There was a further curtailment of activity at steel mills and output for the month was at a rate of 38 percent of capacity, a decline of one-third from October. In the first three weeks of December steel production was at about 28 percent of capacity. Output of lumber and plate glass also declined substantially in November, and automobile production showed considerably less than the usual seasonal in crease. Production of nondurable goods, which had decreased by a substantial amount earlier this year, declined further in November, reflecting a continued re duction in output of textiles and shoes, partly offset in the total by an increase in activity at sugar refineries. Output of minerals, as well as manufactures, declined in November. There were marked decreases in output of bituminous coal and in iron ore shipments, while crude petroleum production continued in large volume. Total value of construction contracts awarded, as reported by the F. W. Dodge Corporation, showed little change in November and the first half of December. Awards for privately-financed projects declined, reflecting chiefly a further re duction in residential building, while contracts for publicly-financed work in creased. Employment and pay rolls at factories showed an unusually sharp decline be tween the middle of October and the middle of November, and there were decreases also in the number employed in trade and other nonmanufacturing lines. The Board’s seasonally adjusted index of factory employment was at 94 percent of the 1923-1925 average in November as compared with a level of 102 last summer and 96 in November last year. In the steel, machinery, lumber, and textile industries the number employed decreased by substantially more than the usual seasonal amount, and there was some decline at automobile factories, although an increase is usual at this season. There were declines also in the seasonally adjusted indexes for most other lines, except foods and tobacco which showed little change. A g r ic u l t u r e Department of Agriculture estimates recently issued indicate that most crops will be about the same size as forecast earlier but that cash farm income will be lower than had been anticipated, largely because of price declines both for crops and livestock. Cash income in 1937 is expected to be $8,500,000,000, as compared with $7,918,000,000 in 1936. The increase over a year ago is due primarily to in creased income from marketings of wheat, tobacco, and fruits and to larger Gov ernment payments. D is t r ib u t io n 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 months, 1929 to 1931; by weeks, 1932 to date. Latest figure is for week ending December 18, 1937. Distribution of commodities to consumers, which earlier had been maintained, declined slightly in November. There was a slight decline in sales at department stores, and mail order sales decreased considerably, while sales at variety stores showed little change. Preliminary information for the first half of December in dicates that department store sales increased by approximately the usual seasonal amount. Freight carloadings declined by considerably more than the seasonal amount in November and the Board’s adjusted index for that month was 71 percent of the 1923-1925 average as compared with 76 percent in October and an average of 81 percent in the first half of the year. The decline from October to November re flected principally marked decreases in loadings of coal and miscellaneous freight. C o m m o d i t y P r ic e s The general level of wholesale commodity prices, which had declined sharply from the latter part of September to the third week of November, has shown little change since that time. Prices of nonferrous metals, leather, wood, textile yarns, and finished cotton goods have declined somewhat further in this period, while steel scrap, hides, rubber, cotton, print cloths, and bituminous coal have recently shown some advance. B a n k C r e d it M E M B E R B A N K C R E D IT Wednesday figures for reporting member banks in 101 lead ing cities. September 5,1934 to December 15,1937. Excess reserves of member banks showed a small decline but for the first three weeks of December remained somewhat over $1,000,000,000. The increase in de mand for currency during December has been smaller than usual, reflecting largely the effects of the recent sharp decline in business activity and pay rolls. Total loans and investments of reporting member banks in 101 leading cities increased somewhat during the four weeks ending December 15, reflecting a growth of $190,000,000 in holdings of United States Government obligations, mostly in New York City. A factor in this increase was the purchase by banks of the December 15 issues of Government securities. Commercial loans, which had begun to decline in October showed a further reduction.
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