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MONTHLY REVIEW B U S IN E S S F ederal R eserve Bank C O N D IT IO N S o f San IN T H E T W E L F T H F r a n c isc o a decline during the first quarter of the year, district industrial activity in April was considerably higher than a year earlier and turned upward in May. The higher rate of operations in recent months and the upturn in May are traceable principally to developments associated with the war in Europe and to the sustained high level of residential building in the district as well as elsewhere in the United States. More recently the large domestic armament program now being developed has become a prominent influence in the business situation through assuring a strong demand for armaments and related products over the next several years. Some of these products such as aircraft are now produced in im portant volume in the Twelfth District. The influence of large armament expenditures would, however, be felt in this region principally through indirect channels, such as stimulation of demand for agricultural and miscellaneous industrial products growing out of a general rise in busi ness levels. The rise in industrial operations in May was accom panied by advances in factory employment and payrolls, greater than seasonal gains taking place in both the Pacific Northwest and California. At the mid-month, the num ber of wage-earners in the three Pacific Coast states was 13 percent higher than a year earlier while payrolls showed an increase of 16 percent. The year-period gains and the increase in May in Oregon and Washington pri marily reflected increased operations in the lumber and the pulp and paper industries, while the gains in Cali fornia resulted chiefly from expansion in the aircraft in dustry and in metal working industries which supply re quirements of the aircraft manufacturers. Freight-car loadings, which are a rough measure of primary distri bution, have fluctuated with little net change in recent months, seasonal factors considered, at levels well above a year ago. Residential building undertaken in May was lower than in April but the seasonally adjusted index was somewhat higher than in February and March and con siderably above a year earlier. Preliminary data for June point to little change in the index in that month. New automobile registrations increased moderately, although a decline usually occurs at this season, while sales of department stores, on a seasonally adjusted basis, re mained as large as in other recent months. In other lines of retail trade for which information is available, sales were well maintained or advanced slightly in May. D e s p it e I n dustry Operations in a number of district industries, includ ing principally the aircraft, metal-working, copper min ing and smelting, and pulp and paper industries, con tinued to be stimulated in May by demand arising directly or indirectly from the war in Europe. District aircraft manufacturers, pressed for deliveries against huge backlogs of unfilled orders, which are up wards of half the total held by all domestic aircraft firms, expanded operations still further in May. Employment F E D E R A L R E SE R V E D IS T R IC T J u ly 1 ,1 9 4 0 in this industry has more than doubled in a year's time, approximating 38,000 wage-earners at the mid-month. The requirements of the aircraft plants for equipment, materials, and parts have given rise to increased activity over a wide range of district metal working industries located principally in southern California. Copper mining and smelting remained in May at the levels of the first four months of the year, with output running half again as large as that of a year ago. While the war has not brought about a large increase in the direct demand for domestic copper, it has resulted in substantial purchases of copper products by the Allies. Output, however, appears to have been somewhat in excess of consumption in recent months since stocks of refined copper have increased moderately. The recent capitulation of France has resulted in the withdrawal of one of the industry’s largest foreign customers. District pulp and paper mills have maintained their operations at practical capacity for many months as a result chiefly of orders from sources previously supplied by the Scandinavian countries. The domestic industry has replaced Scandinavian producers not only in this country but also to some extent in South America, exports to that continent having expanded slowly but steadily since the first interruption of shipments from Europe. Prices of pulp and paper have risen considerably during the past few months. On the whole, output in the building materials indus tries has been well maintained during recent months at levels somewhat above those of a year earlier. District output of lumber advanced more than seasonally in May following less-than-seasonal gains in earlier months of this year. A factor in the advance in May probably has been the increased availability of space for intercoastal shipments. District output of cement, allowing for sea sonal factors, again increased in May. A sustaining factor in the high level of current operations in this industry is the large demand from Grand Coulee Dam. Operations in the district steel industry have continued since last summer at near-capacity levels. This active rate of operations was partly maintained by drawing upon the backlog of orders accumulated last fall. New orders re ceived by mills were approximately stable during the first quarter of the year and were somewhat below current rates of production, but they have been rising in recent weeks. The high rate of steel output in the district partly reflects activity in both residential and nonresidential building and in the construction of cargo vessels in Pa cific Coast yards. Heavy steel for construction of these vessels is largely shipped in from the East but require ments for miscellaneous smaller items are a substantial source of demand for local mills and fabricators. Operations of the petroleum industry showed little change during the month. A reduction in the retail price of gasoline, the first general change in four years, oc curred late in May. Earlier in the month the other prin cipal buyers had reduced the posted price of crude oil to 30 FEDERAL RESERVE B A N K OF S A N F R A N C ISCO conform to the reductions effected by the largest Cali fornia company several months earlier. Declines in off shore shipments of petroleum have been more than offset by an increase in domestic demand, but the gain in over-all demand during recent months has been small. Neverthe less, the industry continues to spend large sums for the construction of facilities required for the utilization of the newer methods of manufacturing gasoline, which not only yield a product of higher quality but also increase the gasoline yield of crude petroleum. NUMBER Or VEHICLES 2000 1934 1935 1936 1937 »938 1939 1940 NEW M OTOR V E H IC L E SALES—Twelfth District Daily average registrations, by months, January 1934 to May 1940. Not adjusted for seasonal variation. Logarithmic vertical scale, that is, equal vertical distances measure equal percentage changes rather than absolute amounts. Sales of new passenger cars in the district increased in May to the highest total for any month since August 1937 and were 30 percent above sales a year earlier. In four of the past six years registrations of new cars have fallen off in May from the April level. Reflecting the in creased volume of sales during the month, activity at district assembly plants was somewhat higher than in any of the preceding three months. Furniture store sales in May increased contraseasonally, and for the first five months of 1940 sales have shown a gain of 6 percent over the like period of last year. Manu facturing of furniture, however, is reported to have been somewhat reduced from a year earlier during recent months. Among other important district industries, activity at motion picture studios is reported to have increased in May from the reduced rate which had prevailed since the outbreak of the war. A g r ic u l t u r e Domestic demand for farm products has been well maintained in recent months at a higher level than in the like period of 1939, and expanding consumer incomes accompanying the revival in industrial operations during May and June suggest a continuation of this more active demand. Prices paid district farmers and livestock growers for their products during the first four months of 1940 averaged about 10 percent higher than a year earlier. Price changes in May and June were numerous and divergent but there was little net change in the gen eral level of quotations. Prices of wheat, barley, and a number of other grain and field crops decreased, but these declines were about offset by higher prices paid for July 1, 1940 fruits, meat animals, and some poultry and dairy prod ucts. Total cash returns to agriculturists in the district, as in the country as a whole, continued higher in May than in the like month of 1938 or 1939 and only slightly below May 1937. Larger Federal benefit payments to growers have been an important item in the increased farm income but receipts from marketings have also con tributed to the gains over the preceding two years. Although growth of feed on district livestock ranges and pastures was retarded by lack of rainfall in May, stock water and natural forage is more plentiful than is usual at this time of year. Summer and fall ranges in the national forests and elsewhere in the mountains, which are now beginning to be utilized for pasturing, are in good to excellent condition throughout most of the dis trict. Shipment to the East of early lambs, principally from Arizona and California, was practically completed by mid-June, with the total movement less than in 1939 but about equal to the average of recent years. Quality and prices of lambs have been higher than last season. The late lamb crop has made rapid growth and animals are now heavier than usual at this time of year. Prices paid most growers for cattle and calves and sheep and lambs continue at a higher level than a year ago. Hog prices moved irregularly during May and June, at levels considerably below quotations of a year ago. Although returns on hogs and poultry have been less satisfactory than in either of the preceding two years, the season to date has been generally more favorable for the livestock industry than in either 1938 or 1939. Growing crops in the district deteriorated somewhat during May and estimates of anticipated output were revised downward. Aggregate crop production, however, still is expected to be larger than in either of the preced ing two years. Anticipated output of winter wheat in California has been reduced considerably by rust damP roduction of Selected Crops—T welfth D istrict (in thousands) Average 1929-38 Barley (b u .)* ............ 29,590 Flaxseed (b u .)............ 549t Winter Wheat (bu.) . ., 66,941 231 Apricots (to n s).......... 57 Cherries (ton s).......... Peaches (b u .)* .......... 21,914 C lingstone.............. 14,343 Freestone .............. , 7,571 17,632 , 13,243 , 4,389 62 Plums (ton s)............ 199 Prunes (ton s)*.......... , 2,547 Grapefruit (boxes) Lemons (boxes)$ . . . . , 7,881. Oranges (boxes) $. . . ., 34,895 15,515 Valencia ................ 19,380 Asparagus (crts.)*. . ., 6,747 Early Potatoes (b u .). 4,436 44 Spinach (ton s)*.......... 1937 41,555 660 61,708 311 53 23,252 15,418 7,834 18,616 13,272 5,344 66 249 2,950 8,102 30,283 13,454 16,829 6,499 9,424 44 1938 41,288 684 84,016 166 84 20,501 13,042 7,459 22,704 15,528 7,176 63 224 4,693 9,360 46,264 17,030 29,234 5,641 9,690 21 1939 30,850 1,728 71,818 312 88 24,043 15,251 8,792 20,730 14,529 6,201 71 185 4,444 11,322 41,582 18,337 23,245 6,232 11,089 28 Indicated 1940 34,552 2,520 76,864 118 69 23,961 15,585 8,376 20,128 13,598 6,530 70 192 4,875 12,000 44,980 18,120 26,860 6,780 10,950 34 * California Production Only. tShort-term average. Crop first introduced in 1934. t Citrus year ends October 31, of calendar year shown. age, the estimate declining 14 percent during May. As harvesting of early grain and field crops has progressed in that State, production estimates have been revised downward somewhat but are generally larger than a year ago. As shown in the accompanying table, among de ciduous fruits only the apricot and cherry crops are expected to be much smaller than in 1939. Current ex pectations point to an output of barley, flaxseed, pears, plums, lemons, oranges, and potatoes of record or near record proportions. No forecasts have yet been made of probable production of almonds, apples, grapes, Pacific Northwest prunes, and walnuts, although reports from growers indicate that in general these crops are progress ing favorably and are in good to excellent condition. B a n k i n g a n d C r e d it Demand for credit from commercial and industrial enterprises in the Twelfth District declined moderately from mid-May to mid-June, loans of reporting member banks to such borrowers decreasing from $338,000,000 on May 22 to $328,000,000 on June 19. During the pre ceding two months these loans had fluctuated with little net change at about the levels to which they had risen in late February as a result of rather persistent gains throughout the fall and winter quarters. This decrease in commercial and industrial borrowings was accounted for principally by banks in Los Angeles, although declines also took place at banks in San Francisco. Such changes as occurred in other reporting cities generally were in the direction of small gains. Loans to finance the purchase of real estate or securities were unchanged during the four-week period, while advances for miscellaneous other purposes increased somewhat. After adding slightly to their investments in Govern ment securities during the preceding month, district mem ber banks reduced their holdings of these obligations in the four weeks ending June 19. On that date banks which hold approximately 90 percent of all investments of dis trict member banks reported holdings of Governments of $1,291,000,000, which compares with $1,302,000,000 on May 22 and $1,236,000,000 on June 21, 1939. Invest ments in other securities increased in recent weeks re flecting the purchase of a $20,088,000 block of securities Production and Employment— Index numbers, 1923-1925 average=100 idustrial Production* Manufactures (physical volume) With Seasonal r—Adjustment—n ,— 1940-^ 1939 May Apr. May 84 — , 134 Wheat flour.................................. 126 Minerals (physical volume) P etroleum .................................... — 72 Lead (U. S .) t ............................ Silver (U. S .) t ............................ Construction (value) Residential building permits^ Twelfth District...................... , 59 Southern California............, 64 Northern California............ 53 Oregon ................................, 40 57 Washington #........................ Intermountain states.......... 80 Public works contracts................ — Miscellaneous Electric power production........ 230 actory Employment and Payrolls § Employment Pacific Coast................................ 122 California ................................ 139 Oregon ...................................... 104 Washington ............................ 97 Payrolls Pacific Coast................................ 121 California ................................ 139 Oregon .................................... 100 Washington ............................ 94 80 — 121 135 — 81 — 125 150 — Without Seasonal t—Adjustment—N /— 1940—>, 1939 May Apr. May 96 159 141 110 89 157 127 118 93 151 131 132 93 70 93 60 117 93 80 69 60 116 82 71 66 71 52 41 66 125 — 51 60 39 30 35 77 — 69 72 61 49 77 112 153 75 79 63 50 83 147 131 59 67 45 37 47 108 152 219 208 234 216 212 119 137 102 93 107 120 100 86 124 139 108 101 120 136 105 96 109 120 104 90 117 134 98 94 104 117 93 84 124 141 107 98 120 136 100 97 107 118 100 89 * Daily average. tPrepared by Board of Governors of Federal Reserve System. ¿Includes figures from 197 cities and Los Angeles County, unincorporated. §Excludes fish, fruit, and vegetable canning. 31 M O N T H L Y R E V IE W OF B U SIN E S S C O N D IT IO N S July 1, 1940 of the Metropolitan Water District of Southern Cali fornia from the R. F. C. Expansion in adjusted demand deposits, which are the principal exchange medium of the community, has been accompanied by an increase in district demand for cur rency since the first of the year. Customarily a consider able net return of currency from circulation in the district takes place in the first two months of the year, and, de spite a seasonal expansion in the spring, demand for cur rency is lower in mid-June than in early January. Thus, except in 1936 when payment of the veterans’ “bonus” was accompanied by a sharp increase in the use of cash by the public, receipts from circulation in the district from January 1 through June 19 exceed payments. Excluding 1936, these net receipts from circulation averaged $6,500.000 during the comparable periods of the years 1935 to 1939. This year, however, payments of coin and cur rency into circulation through the Federal Reserve Bank of San Francisco were $11,576,000 larger than receipts. Despite the drain upon local banking reserves of this greater than seasonal expansion in demand for currency, district member bank reserve balances have advanced sharply in recent months to attain a new record on June 19. Reserve deposits at the Federal Reserve Bank of San Francisco on that date totaled $740,177,000, an increase of $178,327,000 from a year earlier. O f this large in crease, $156,584,000 has come since the first of the year. This sharp increase in member bank reserves has been traceable to recent unusually large local disbursements by the United States Treasury, over and above its col lections in the district. From the first of the year through June 19, local net Treasury disbursements amounted to $228,913,000, compared with an average of $107,246,000 during the like period of the preceding five years. Failure of member bank reserve balances to expand correspond ingly is attributable principally to a net outflow of $52,497.000 because of interdistrict payments arising from commercial and financial transactions and to the increase of $11,576,000 in demand for currency. Distribution and Trade— Index numbers, 1923-1925 average=100 Retail Trade Department store sales (value)* Los Angeles.............................. Bay Region.............................. San Francisco.......................... Pacific Northwest........................ Portland .................................. S eattle...................................... Spokane .................................. Salt Lake City............................ Department store stocks (value) t Furniture store sales (v a lu e )* !... Furniture store stocks (value) t $ .. Automobile sales (number)* With Seasonal /’—Adjustment—>, r—1940— N1939 May Apr. May Without Seasonal /'—Adjustment—> r-1940—N 1939 May Apr. May 99 96 88 102 93 127 103 103 106 97 101 62 89 76 97 97 87 105 98 128 97 95 99 94 95 64 81 68 95 90 81 96 86 123 99 100 99 81 110 63 80 79 90 88 81 92 85 111 95 96 96 90 75 66 75 77 93 91 80 99 91 124 92 92 92 90 104 65 73 70 — 135 128 208 133 124 225 105 98 181 96 94 88 99 91 121 99 102 100 91 82 63 81 75 — — — — — — — 87 98 73 91 100 80 84 96 68 88 92 82 89 94 82 84 90 77 73 Eastbound .................................. 61 Westbound .................................. 114 61 48 104 73 66 97 72 57 124 60 45 110 71 61 105 — Passenger ................................ Commercial.............................. Carloadings (number)* Merchandise and misc................ Intercoastal Traffic (volume) * Daily average. fA t end of month. Í1929 average = 100. 32 FEDERAL RESERVE B A N K OF S A N FRA NC ISCO July 1, 1940 N a tio n a l B u sin e ss C o n d itio n s— B o a rd o f G o v e rn o r s I ndustrial activity increased considerably in May and the first half of June, while prices of commodities and securities declined sharply in the middle of May and fluctuated near the lower levels after that time. Distribution of commodities to consumers was maintained at levels prevailing earlier this year. IN DU STRIAL PRODUCTION Index of physical volume of production, adjusted for sea sonal variation, 1923-1925 average=100. By months, January 1934 to May 1940. CON STRU CTION CON TR AC TS AW ARDED Three-month moving averages of F. W. Dodge Corporation data for value of contracts awarded in 37 Eastern States, ad justed for seasonal variation. Latest figures based on data for April and May and estimate for June. M ON EY RATES IN NEW YORK C ITY For weeks ending January 6, 1934, to June 15, 1940. M EMBER BANKS IN 101 LE AD IN G CITIES Wednesday figures, September 5, 1934, to June 15, 1940. Commercial loans based on new classification beginning May 19,1937. P roduction Volume of industrial production increased in May and the Board’s seasonally adjusted index advanced from 102 to 105. The rise in May reflected chiefly sharp increases in activity at steel mills and woolen mills. Steel production in May was at about 71 percent of capacity, as compared with 60 in April, and by the third week of June activity had risen further to 88 percent. Lumber production also increased. In the automobile industry, where output had been at a high rate in the first four months of the year, dealers’ stocks were in large volume and production was curtailed in May and the first half of June. Retail sales of automobiles con tinued at a high level during most of May, although in the middle of the month a temporary sharp reduction was reported. In the woolen textile industry activity in May rose sharply from the low level reached in April. At cotton mills activity was maintained at about the rate pre vailing in March and April and was somewhat lower than in the early months of the year. Rayon production continued large, while mill takings of raw silk de clined to the lowest level in nearly twenty years. In other industries producing nondurable manufactures activity generally showed little change from April to May. Coal production in May continued at a high level for this time of the year, reflecting in part increased exports and unusually large shipments of coal to Upper Lake ports. Iron ore shipments down the Lakes were also large for this season. Petroleum production in May declined somewhat from the high rate main tained in March and April. Value of construction contract awards increased further in May, according to figures of the F. W . Dodge Corporation, reflecting principally continued growth of private building. Private residential contracts rose to the highest level in the past 10 years. Awards for commercial buildings advanced somewhat further while those for factory construction continued at about the level reached in April. Both were considerably larger than a year ago. Contracts for public construction increased slightly in May but were about one-sixth lower than a year earlier. D istribution Department store sales in May declined from the level prevailing in the past three months, while sales at variety stores and mail-order houses were largely maintained at earlier levels. In the first week of June department store sales in creased considerably. Volume of railroad freight traffic increased in May, reflecting larger ship ments of miscellaneous merchandise, coal, and forest products. Loadings of grains declined. _ _ F oreign T rade Total exports of United States merchandise showed little change from April to May. Increases were reported in shipments to Canada and Australia and to Italy and Finland, while exports to other European nations showed declines. Exports of industrial machinery in May declined somewhat from the high level reached in April, while exports of steel, copper, chemicals, and commercial vehicles in creased, following declines in the previous month. Coal shipments, largely to Canada, rose to the highest level in recent years. Cotton exports continued to decline from the high level of last winter. The monetary gold stock of the United States increased by $439,000,000 in May and by $250,000,000 in the first two weeks of June. Commodity P rices Following a general decline in basic commodity prices around the middle of May, prices of industrial materials, particularly steel scrap, zinc, tin, and wool, advanced and by the middle of June were in some instances above the levels of early May. Raw cotton prices also increased, and in the second week of June prices of cotton gray goods likewise advanced as sales of these goods were in excep tionally large volume. Prices of a number of foodstuffs continued to decline. Bank Credit Total loans and investments at reporting member banks in 101 leading cities showed little net change during the four weeks ending June 5. Holdings of United States Government obligations increased further at New York City banks, while loans to security brokers and dealers declined considerably. Deposits and reserves of member banks continued to increase sharply as a result mainly of heavy gold imports. Government Security M arket Prices of Government securities held relatively steady during the latter part of May and the first part of June, after a reaction at the time of the invasion of Belgium and Holland. Subsequently prices increased sharply, and on June 15 the yield on the 1960-1965 bonds was 2.40 percent, compared with 2.52 percent on June 10 and 2.26 percent at this year’s peak in prices on April 2.
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