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MONTHLY REVIEW B U S IN E S S C O N D IT IO N S IN Federal Reserve Bank of San Francisco 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 January 1} 1939 trade, which has lagged somewhat in the re and miscellaneous freight shipments than is customary covery of Twelfth District business during recent in the late fall. months, advanced considerably in October and Novem New residential building undertaken in the Twelfth ber, and preliminary data indicate about the full seasonal District declined slightly more than seasonally in Novem gain in December. The movement of freight by rail, par ber from the relatively high levels of the preceding four ticularly of merchandise, likewise increased sharply in months. This decrease, however, appears to have been November on a seasonally adjusted basis, after having checked in December. Value of permits issued in leading shown only a slight expansion during the summer and district cities during the first 23 days of December point early fall. New residential building initiated during the to a much better sustained level of construction of this month was maintained at about the relatively high levels type than is customary during the early winter. To a con prevailing since June. Although production in the im siderable extent, this reflects conditions in southern Cali portant lumber industry declined slightly, industrial fornia, preliminary data indicating little change in the activity in the district generally advanced further in N o value of new residential building in that area during vember. Factory employment and payrolls also increased, December although a considerable decline from the N o after allowance for seasonal influences. On the other vember total is usual. In the lumber industry, which employs nearly 50 per hand, farm income continued to show the influence of cent of all factory wage-earners working in the Pacific low prices for many products. Northwest, production was reduced more than seasonally in November following a marked expansion since last I n d u str y a n d T rad e winter. New orders received by mills continued the in Despite the moderate expansion in most other lines of crease evident during October and were somewhat larger activity in the district since early summer, seasonally than production. A slight falling off in orders, however, adjusted sales of department stores did not increase until was reported during the first three weeks of December. October. In fact, a decline from the unusually stable PER C E N T levels of the preceding seven months took place in Sep tember. That decline was principally attributable to the strike of department store employees in San Francisco, but after making full allowance for this factor a consid erable reduction in the value of sales was evident. In October, a substantial increase took place, gains being reported from almost all parts of the district. These gains continued during November and, with termination of the strike in San Francisco early in the month, season ally adjusted sales of district department stores were larger than in any other month this year and slightly greater in value than in November 1937. Weekly reports indicate that the customary large expansion in sales took F R E I G H T -C A R L O A D I N G S — Twelfth District place during December. Daily average freight-car loadings, adjusted for seasonal variation, Value of both furniture and apparel store trade has 1923-1925 average^lOO. By months, January 1929 to November 1938. followed a somewhat similar pattern in recent months. Little net change was evident in sales of these stores dur Daily average output of crude petroleum in California, ing the summer and early fall, but expansion of consider which was curtailed slightly in September and October, ably greater than seasonal proportions has taken place in was about unchanged in November. Aggregate stocks of October and November. Registrations of new passenger crude oil and refined petroleum products continued to automobiles, which had advanced more than seasonally increase and were larger at the end of the month than in the preceding two months, advanced further in Novem at any time since 1933. The increase has been almost ber to levels approximately as high as in the correspond continuous since early last year, and has been confined ing month last year. Sales of new trucks, however, were largely to fuel oils, although a considerable expansion in 27 percent lower in November than a year earlier. crude oil inventories has also taken place. Because of Volume of railway freight traffic declined much less these large stocks, new development work has been cur than seasonally in November and the adjusted index ad tailed as much as possible by a number of producers, and vanced sharply to the highest level since December 1937. the industry is making aggressive efforts to bring about The sharp advance in the index in November had been further voluntary curtailment of crude output. preceded by a small increase during the summer and fall Assembly of motor vehicles, which advanced in Octo months owing to an expansion in loadings of industrial ber, increased further in November. Major plants in products. In November, however, the increase largely southern California were reported to have been operating reflected a much better sustained volume of merchandise at near capacity levels at the month-end. Production of R e t a il 2 rubber tires was also reported to have been higher in November than in the preceding few months. Output in a variety of other industries was likewise greater in November than during the summer and early fall. Production of pulp and paper in the Pacific North west has increased slightly in recent months from the low levels prevailing at the mid-year. District steel mill oper ations have expanded, reflecting a moderate but general increase in demand, and cement production has gained considerably since last summer. Greater activity at mo tion picture studios also has been reported recently. In mid-November, employment at district mills and factories was slightly higher than a month earlier, al though a moderate decline customarily takes place at this time of year. As a result, this bank’s adjusted index ad vanced sharply to the highest level since March. Total wages paid likewise advanced, after seasonal adjustment. A g r ic u l t u r e The volume of marketings of district farm products declined considerably in November and early December. To a large extent, this reduction was seasonal in char acter. In addition, early frosts and generally unfavorable weather damaged such crops as citrus fruits, cotton, avo cados, potatoes, and some truck crops which are harvested and marketed at this time of year. Farmers have also been induced by prevailing low prices to withhold nonperishable crops from the market. In this, they have been aided by the Federal Government's program of extending non-recourse loans on a number of staple commodities. Substantial sums have already been loaned on wheat and cotton grown in the district. Loans have also been made on hops. The effect o f this program has been to establish minimum farm prices for these crops by enabling growers, regardless of their need for funds, to refrain from selling at prices below specified loan values. Federal aid has also been extended to district agricul turalists in other ways. Where large supplies have threat ened seriously to depress prices, the Government has bought farm products for relief distribution. A partial list of products so purchased includes butter, grapefruit, oranges, dried fruits, potatoes and beans. Wheat farmers in the Pacific Northwest will benefit by an arrangement whereby lecally grown wheat is sold on the foreign market at world prices, although bought at higher domestic prices, the Government absorbing the difference. The market for a number of farm products is expected to be increased as a result of tariff concessions by Canada and England contained in the recently negotiated trade agreements with those countries. A proposal submitted to rice grow ers designed to regulate the volume of marketings of this crop next year was voted upon favorably by Cali fornia producers, but farmers in the southern rice grow ing states were opposed in sufficient number to cause its abandonment. Returns from the poll of cotton growers throughout the United States, however, favored a market ing agreement for next year’s crop; more than 75 per cent of the California and Arizona growers voting for the proposal. The district almond and walnut crops, recently har vested, were considerably smaller than in 1937. Output of almonds is estimated at 12,100 tons, compared with a record crop of 20,000 tons last year. Final figures for wal nuts are expected to show a yield of about 11,000 tons be January 1, 1939 FEDERAL RESERVE B A N K OF SAN FRANCISCO low the 60,100 tons harvested in 1937. Farm value of the almond crop in 1937 was approximately $5,000,000 and that of walnuts was about $10,000,000. In the aggregate, income from these two products amounted to slightly more than one percent of total district farm receipts. Almonds are grown on a commercial basis in this coun try only in California, and walnuts are grown commer cially only in California, Oregon, and Washington. Almost the entire almond crop is harvested in San Luis Obispo County, in the Sacramento and northern San Joaquin valleys, and in the San Francisco Bay region. O f the wralnut crop, about 93 percent is grown in Cali fornia and the bulk of the remaining 7 percent in Oregon. About two-thirds of the California output comes from the southern part of the state, principally from Ventura and Los Angeles counties. The San Francisco Bay region is also an important walnut producing area. In Oregon, the Willamette Valley accounts for almost the entire crop. The bulk of these nuts has been marketed through three large co-operative growers’ associations; the California Walnut Growers Association, California Almond Grow ers Exchange, and the North Pacific Nut Growers Co operative in Oregon. The policy of these associations has been to fix a season price to their members and to extend advances to members on the basis of this price, thereby making possible the orderly marketing of the crops. Packing and distribution of the crops are handled by their own facilities and the associations have actively promoted sales by means of extensive advertising campaigns. Out put of walnuts has increased sharply over the past decade, and the large supplies have prompted the adoption of a Federal marketing agreement under which the portion of the total crop sold on domestic markets is fixed an nually. Under the terms of this agreement, 80 percent of the 1938 crop or 688,000 bags of 100 pounds each will be Production and Employment— Index numbers, 1923-1925 average=100 Industrial Production* Manufactures (physical volum e) Lum ber ............................................ Refined o ils ..................................... Cement ............................................ With Seasonal r~ Adjustment 1938— > 1937 N ov. Oct. N ov. Without Seasonal Adjustment /— 1938— V 1937 N ov. Oct. N ov. 74 — 108 120 105 64 — 107 116 107 72 168 108 — 116 82 166 103 .— 114 63 168 107 — 100 100 52 101 106 82 128 28 30 28 14 16 40 — 47 53 41 20 26 75 221 51 60 40 22 33 83 279 26 30 24 11 14 36 109 206 200 197 195 104 119 83 83 95 96 107 106 77p 79 84p 80 105 120 84 83 96 111 77 74 91 92 102 102 77p 83 72p 76 97 111 78 74 77 — 90 116 96 W heat flou r..................................... Minerals (physical volume) — — P e t r o le u m ....................................... 50 Lead (U . S. ) f ................................. 102 Silver (U . S . ) t ............................... Construction (value) Residential Building Permits§ 48 50 Twelfth D istrict........................ 52 57 Southern California............. 46 41 Northern California............. 25 22 Oregon ................................... 30 39 W ashington .......................... 82 85 Intermountain states........... — — Public works con tracts............... Miscellaneous Electric power p roduction........... 211 198 Factory Employment and P ayrolls! Employment 95 90 Pacific C oast................................... California ................................... 105 101 76p 75 Oregon ....................................... 84p 76 W ashington ............................... Payrolls Pacific C oast................................... 91 89 99 California ................................... 102 75p 78 Oregon ........................................ 73p 71 W ashington ............................... 79 119 — 118 *Daily average. p Preliminary. t Prepared by Eoard of Governors of the Federal Reserve System. § Includes figures from 197 cities and Los Angeles County, unincorporated. ^Excluding fruit and vegetable canning. January 1, 1939 M O N T H L Y R EVIEW OF BUSINESS CONDITIONS sold on the domestic market and 172,000 bags will be diverted to export channels or shelled. The market for both almonds and walnuts has been active since the opening of the current selling season early in the fall. Prices, however, have been at levels from 10 to 18 percent below those in effect a year earlier. Except in Arizona and southern California where drought has reduced feed and stock water, district live stock ranges are in good condition. Growers report large supplies of roughage and other feeds are available throughout the district for winter requirements. Cattle and calves, and sheep and lambs generally are entering the winter in good condition. A recent survey of feed lots indicates that feeding operations will be on a much smaller scale than in the winter of 1937-1938. About 340.000 head of cattle, 64 percent of which are in Ari zona and California, were on feed on December 1, com pared with 430,000 head a year earlier. Lambs on feed in the district numbered 740,000, a decline of 145,000 or 16 percent from the number reported on December 1, 1937. Although feed supplies are plentiful and relatively cheap, the narrow spread between feeder stock and fat stock prices has resulted in curtailed operations in district feed lots. The unprofitable experience of operators in the past few years has also been a factor in the decline. C r e d it B a n k in g a n d Reserve balances of member banks in the Twelfth Federal Reserve District increased considerably in the ten weeks prior to mid-December, advancing from $523,900.000 on October 5 to $593,200,000 on December 14. At that time, balances were slightly larger than the previ ous peak of $587,500,000 reported on March 16, 1938, one month prior to the effective date of the reduction in reserve requirements ordered by the Board of Governors of the Federal Reserve System. That reduction did not change the total volume of reserve deposits of member banks at the Federal Reserve Bank of San Francisco. Excess reserves, however, were thereby increased by Distribution and Trade— average=100 Retail Trade Department store sales (value)* Twelfth D istrict............................ California ....................................... Los A n geles................................. Bay R.egion................................. San F rancisco............................ Oakland ..................................... Pacific N orthw est.......................... S e a t t le ......................................... Salt Lake C ity ................................. Department store stocks (value) f Furniture store sales (v a lu e)* $ . . . Furniture store stocks (value) t í - • Autom obile sales (num ber)* Total ................................................ Passenger ................................... Commercial ............................... Carloadings (num ber)* Total .................................................... Merchandise and m isc................. O t h e r ................................................ Intercoastal Traffic (volum e) Total .................................................... E a s tb o u n d ....................................... W estbound ..................................... * Daily average. |At end of month. With Seasonal r—Adjustment— r—1938—s 1937 Nov. Oct. N ov. 96 103 98 108 106 116 75 84 72 66 78 67 88 91 95 79 64 115 72 80 88 62 76 67 Without Seasonal f— Adjustment—N ,— 1938— \ 1937 Nov. Oct. Nov. 96 103 97 108 107 111 73 80 73 73 80 79 102 109 102 116 115 122 77 88 79 74 81 70 91 92 97 79 63 117 81 84 95 68 79 69 102 109 101 115 116 116 75 84 80 82 83 83 95 96 87 66 63 95 99 97 120 — — — — — — — — — 85 98 68 79 86 70 81 99 57 85 97 70 97 112 78 81 98 59 58 49 90 60 49 95 59 44 114 60 53 83 66 56 99 61 48 104 $1929 average 100. 3 about $63,000,000, and that amount of additional funds became available to banks for loans and investments. Immediately following the April 16 reduction in reserve requirements, district member banks made substantial transfers of funds to the East to purchase Government securities. Principally because of these transfers, actual reserves of local member banks declined to $505,000,000 of May 4. A moderate expansion took place during suc ceeding weeks to $523,900,000 on October 5. The increase of nearly $70,000,000 in district member bank reserve balances from October 5 to December 14 chiefly reflected United States Treasury operations. In recent years, Treasury disbursements in the district for public works, relief, maintenance of the army and navy, the postal service, and the like, have substantially ex ceeded local collections from taxes and from other sources, such as sales of securities, loan repayments, and postal receipts. To meet these net disbursements, the Treasury has transferred funds collected in other dis tricts, principally in New York, to its account with the Federal Reserve Bank of San Francisco. Consequently, to the extent that Treasury disbursements exceed collec tions in the Twelfth District, a net addition is made to district banking funds. In the ten weeks ending December 14, net disburse ments of the Treasury in the Twelfth Federal Reserve District amounted to $93,100,000 and funds to that amount were thus added to member bank reserve balances. During the same period, however, local reserves were drawn upon to the extent of $14,100,000 because of a net balance of payments by individuals, business concerns, and banks to persons located outside the Twelfth District. Local bank reserves were also drawn upon to meet an increase of $10,800,000 in demand for currency. In the aggregate, these and other minor changes explain the net expansion of about $70,000,000 in district member bank reserves between early October and mid-December. This large expansion in reserves up to December 14 was followed by a reduction of $37,500,000 in the week ending December 21. During that week, allotments to district purchasers of new issues of Treasury notes and bonds dated December 15 amounted to $48,540,000, ex clusive of exchanges for maturing issues. O f this total, $10,254,000 was paid for with deposit credit, and $38,286,000 was paid for in cash. This large cash payment for securities, together with fourth quarter income tax receipts, swelled Treasury collections which totaled con siderably more than local Treasury disbursements and thus drew down member bank reserve balances. In the period of rapidly expanding reserves prior to December 14, deposits against which member banks must maintain specified minimum reserves were also increas ing. Consequently, some portion of the increased reserves was absorbed in meeting the larger requirements. The bulk of the increase, however, took the form of excess reserves. As a result, during November and the first half of December, excess reserves of district member banks were larger than at any previous time except for a brief period immediately prior to the original increase in re serve requirements effective August 15, 1936. With only a small reduction in deposits, and consequently in reserve requirements, in the week ending December 21, the sharp reduction in total reserves was reflected almost entirely in a decrease of excess reserves to around $140,000,000. 4 January 1, 1939 FEDERAL RESERVE B A N K OF SAN FRANCISCO S u m m a ry o f N a tio n a l B u sin e ss C o n d it io n s Prepared by the Board of Governors of the Federal Reserve System he sharp rise in industrial production, which began early last summer, con tinued in November. Preliminary reports for the first three weeks of Decem ber indicate some slowing down in the advance. Employment also increased in November and payrolls showed little change, although a decline is usual at this season. Distribution of commodities to consumers increased considerably. T P roduction The Board’s seasonally adjusted index of industrial production in November rose to 103 percent of the 1923-1925 average from 96 percent in October. Output of steel continued to increase, contrary to the seasonal trend, and there was a further sharp rise in automobile production. In the first three weeks of December, activity at steel mills declined somewhat more than seasonally, while output of automobiles continued at the high level reached at the end of November. Lumber production in November decreased by more than the usual seasonal amount. In the nondurable goods industries, shoe production declined seasonally, while out put of textiles showed a considerable expansion, with increased activity at cotton, wool, and silk mills. At mines, bituminous coal output increased further and pro duction of anthracite showed less than the usual seasonal decline. Output of petroleum showed little change. Value of construction contracts awarded in November showed a decline from the high level reached in October, according to F. W . Dodge figures for 37 eastern states. Both private and public projects declined, following increases in October. The decline in contracts for private residential building was less than seasonal. E mployment 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 November 1938. FACTORY EM PLOYM ENT Index of number employed, adjusted for seasonal var iation, 1923-1925 average=T00. By months, January 1934 to November 1938. M ILLIO N SO FD O L L A R S 300 200 500 C O N S T R U C T IO N C O N T R A C T S A W A R D E D Three-month moving averages of F . W . Dodge data for value of contracts awarded in 37 eastern states, adjusted for seasonal variation. Latest figures based on data for October and November and estimate for December. Employment increased somewhat further and payrolls showed little change between the middle of October and the middle of November, although declines are usual at this time of year. In manufacturing, the number employed continued to rise, reflecting principally a further sharp increase at automobile factories and substantial increases in the machinery, steel, and textile industries. Employment declined seasonally at establishments producing clothing and shoes—in most other industries employment increased somewhat. In lines other than manufacturing, employment showed some increase, when allowance is made for usual seasonal changes. D istribution Distribution of commodities to consumers showed a considerable increase in November. Department store sales and mail order sales, which had been retarded in October by unseasonably warm weather, rose sharply, and sales at variety stores also increased in November. Sales of automobiles to consumers expanded sharply following the introduction of new models and in November were larger than a year earlier. Freight-car loadings, which had increased considerably in previous months, showed a slightly less than seasonal decline in November. Commodity P rices Prices of some industrial materials, such as nonferrous metals, hides, and cot ton goods, decreased somewhat from the middle of November to the third week of December. Sugar prices also declined, while grains advanced somewhat. Prices of most other agricultural and industrial commodities continued to show little change. B ank Credit M EM BER BANK RESERVES A N D R ELATED ITEM S Wednesday figures, January 3, 1934 to December 21, 1938. In connection with pre-holiday trade, there was a sharp increase in money in circulation and as the result of this increase in the demand for currency, together with Treasury operations around December 15, there was a temporary decline in member bank reserves. Following declines during November, total loans and investments of reporting member banks in 101 leading cities increased during the first three weeks of De cember, largely reflecting operations of the Treasury. Loans to security dealers by New York banks increased sharply, reflecting temporary borrowing for the pur pose of carrying Government securities exchangeable for new issues on Decem ber 15. Adjusted demand deposits rose to a new high level in the first half of December.
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