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MONTHLY REVIEW TWELFTH FEDERAL RESERVE DISTRICT J u ly 1 9 4 9 Fe d e r a l R e s e r v e B a n k of S a n Fr a n c i s c o RECENT BAN K IN G AN D CREDIT DEVELOPMENTS business activity has slackened in recent months, Asumonetary a u th o rity Kive taken steps to provide easier credit and to increase the available supply of loan able funds. The controls over consumer credit exercised by the Board of Governors of the Federal Reserve Sys tem were relaxed in March and again in April, and Con gress allowed the temporary authority for such controls to expire as of June 30. The Board of Governors reduced stock margin requirements at the end of March. Member bank reserve requirements were reduced by the Board of Governors early in May, and except for New York and Chicago banks, were again reduced at the end of June as a consequence of the decision of Congress not to ex tend beyond June 30 the temporary authority to main tain higher requirements. Finally, at the end of June the Federal Open Market Committee announced that the policy of the Committee would be to direct purchases, sales, and exchanges of government securities by the Fed eral Reserve Banks with primary regard to the business and credit situation. The announcement stated further that a policy of maintaining orderly conditions in the Government securities market and the confidence of in vestors in such securities would be followed. Change in open market policy The new policy adopted with respect to open market operations is the most fundamental of these changes. Since early in World War II the Federal Reserve Sys tem has been supporting a varying number of specific rates for Government securities. In July 1947, the Sys tem discontinued its fixed buying rate of % of 1 percent for Treasury bills and terminated the repurchase option pertaining to them. In October 1947 the Treasury in creased the coupon rate on certificates of indebtedness for the first time in the postwar period. On December 24, 1947, the Federal Reserve System lowered its support price for longer-term, fully taxable Treasury bonds, thereby permitting higher yields on these bonds. Their yields, however, were not allowed to rise above 2^4 percent, which, with minor exceptions, is the maximum coupon rate on outstanding long-term Government bonds. The latest change in open market policy will allow the System to follow a more flexible support policy than it has in the past, a policy better adapted to dealing with changing economic conditions. A V E R A G E IN T E R E S T R A T E S O N G O V E R N M E N T S E C U R IT IE S — 1948-49 Lower yields on Government securities Yields on Government securities other than Treasury bills and certificates of indebtedness reached a postwar peak toward the latter part of 1948 and have since de clined. The price of long-term Treasury bonds rose sharply after the change in open market policy was an nounced on June 28. The decline in yields (and rise in prices) of longerterm Government securities reflects the falling off in busi ness activity in recent months. The decline in business borrowing during the first half of this year stimulated the demand of banks and other lending institutions for Government securities, thus raising their prices some what. Another important factor contributing to the strength in the Government bond market has been the in vestment in Government securities of the greater part of the bank reserves released by the reduction in member bank reserve requirements early in May and again at the end of June. Also in This Issue The Price Decline Postwar Philippine— American Economic Relations 76 FEDERAL RESERVE B A N K OF S A N F R A N C ISC O During recent months, prior to the change in open market policy announced on June 28, the Reserve System had sold securities in response to the increased demand for Treasury bonds. On June 22 Government security holdings of the System were $4.2 billion lower than at the end of 1948, with $3 billion of the decline in Treasury bonds. Sales of Governments in the open market by the System both increased the supply available to banks and other private buyers and limited the demand by absorb ing much of the excess reserves made available to mem ber banks during the period. It is apparent, consequently, that the yields on Governments would have fallen con siderably more than they did, had the System been a less active seller than it was. The behavior of interest rates since June 28 clearly re flects the change in System open market policy. In the face of $800 million in excess reserves created by the re duction in reserve requirements at the end of June after the new position of the System was announced, yields on both short and long-term Governments dropped signifi cantly, as is indicated on the accompanying chart. The System did not, in fact, stay entirely out of the market in early July. Treasury bond holdings of the System were unchanged from June 29 to July 13. In the week ending July 13, however, Reserve System holdings of Govern ment securities declined by $500 million, largely because of substantial sales of Treasury bills. These were offered by the System to counter an even more precipitate de cline in yield (or rise in price) and thus maintain an orderly market in Treasury bills. Reserve requirements reduced With the expiration on June 30 of the temporary au thority to maintain higher reserves, member bank reserve requirements now stand where they did last summer be fore this temporary authority was granted and put into use. The requirements against demand deposits are 24 percent for member banks in central reserve cities, 20 percent for those in reserve cities, and 14 percent for all other member banks. The required reserve against time deposits is uniform for all member banks, 6 percent. All requirements are now at their legal maximums except the one for demand deposits at central reserve city banks, which is 2 points under the maximum of 26 percent. Required reserves of all member banks were reduced about $1.2 billion as a result of the change in reserve re quirements early in May, while the reduction at the end of June amounted to about $800 million. The correspond ing reductions for Twelfth District member banks were about $100 million in May and $140 million at the end of June. Member bank holdings of Government securities rise Government security holdings of all member banks in creased $659 million between the end of 1948 and June 29. A further substantial increase occurred early in July, after the reduction in reserve requirements, but complete figures on this increase are not yet available. This is the first time since the end of 1945 that member bank hold July 1949 ings of Government securities have increased during a half-year period. This reversal of trend has been due primarily to an increase in bank demand for Government securities to offset, at least in part, the decline in the vol ume of outstanding bank loans. Another contributing fac tor has been the slowing up in the rate of retirement of marketable public debt. Less marketable debt was re tired in the first six months of this year than in any previous half-year in the postwar period. Member bank holdings of Government securities de clined in February and March of this year in both the Twelfth District and the country as a whole. Banks sold securities during this period, especially in March, to re place reserves drawn off by the payment of Federal in come taxes. The increase in the holdings of all member banks in the subsequent three months more than offset the loss, however. By contrast, the holdings of Twelfth District member banks increased only by the amount of the loss, so that there was no net gain in their holdings for the first six months of the year. An outflow of funds from the District on commercial and financial account of banks and their customers (excluding payments to and receipts from the Treasury) apparently prevented as large an increase, relatively, in the Government security holdings of District member banks as occurred in the country as a whole. Bank loans to business decline The decline in business activity which has occurred in recent months has been accompanied by a prolonged and substantial reduction in bank loans to business. In the country as a whole, commercial, industrial, and agricul tural loans of weekly reporting member banks declined almost continuously during the first half of this year, having reached a peak just before last Christmas. By the end of June they had declined $2.4 billion from that peak, or by nearly 16 percent. Such loans outstanding in Twelfth District weekly reporting member banks have had a few ups and downs during the first half of the year, but the general trend has been almost as sharply down ward as in the country as a whole. Real estate loans of weekly reporting member banks continued to increase at a slow rate in both the nation and the Twelfth District, and loans to consumers also regis tered a net gain for the first six months of the year. Total loans of weekly reporting member banks declined during the same period, however, falling 6.6 percent in the coun try as a whole and 4.5 percent in the District. Although data on loans by type for all member banks are not yet available for June 30, total loans of all member banks de clined 3.7 percent in the nation and 4.5 percent in the District during the first half of the year. In the District, total bank loans increased in June, however. Relative decline in District demand deposits exceeds that for nation In the last three years demand deposits in Twelfth District banks have declined seasonally in the first half of the year, primarily as the result of income tax pay July 1949 77 M O N T H L Y R E V IE W ments and the retirement of bank-held public debt. De mand deposits have also declined seasonally in the coun try as a whole, and for the same reasons. In the first half of this year, demand deposits (exclud ing interbank) of all member banks declined almost 10 percent in the District compared with somewhat less than 6 percent in the country as a whole. In the corres ponding perioid of 1948, the relative decline in the Dis trict was about the same as that for the nation. Time de posits have continued to grow slowly, but the rate of growth has been somewhat less in the District than in the country as a whole. THE PRICE DECLINE of price increases have been reported in recent weeks. Copper, lead, and zinc prices turned upward in July after drastic reductions extending from March to June. At least one large oil producer in the Gulf area has marked up the price of fuel oil following successive cuts since last November. The composite pri mary market price of 7 major agricultural staples re ported by the Bureau of Labor Statistics reached its high est level on July 14 since early in March. Even cotton and woolen textiles have shown some firmness. It is too early to assume that these developments herald a sustained reversal of the downtrend of commodity prices. It seldom happens that an extended price swing, either up or down, is free from interruptions or reversals of direction. The present is a convenient moment, how ever, to attempt some appraisal of the character and extent of the price decline to date. A nu m b e r Comparative price indexes What has been happening to prices in the United States during the past three years is indicated in a general way by the accompanying chart, which compares the relative movements of three indexes of prices at different eco nomic levels. The so-called basic commodities, being closest to the raw material stage, are the most sensitive to market influences; hence the basic index shows a much wider swing in its fluctuations than either of the other two. The wholesale price index is much less volatile in its movements, as manufacturers’ and traders’ prices must allow for conversion, transportation, selling, and other costs. Consumer prices are still more sluggish, especially on the downside, and are loaded by all the costs of retail distribution. Like all index numbers, these price indexes are to be regarded only as a sort of statistical shorthand; being averages of diverse elements they are abstractions from reality and often conceal as much as they reveal. The behavior of individual prices and of the various com modity groups during the period under review differed considerably from the general average and it is neces sary to examine some of the more important items in order to get a clearer picture of the course of events. Diversity in price behavior It should be pointed out, in the first place, that con siderable differences have marked the timing of price de clines in the various sectors of the economy. There was no single turning point in the scheme of prices but rather W H O L E S A L E A N D R E T A I L P R IC E I N D E X E S — U N I T E D S T A T E S (August 1945=3 00) Percent 1 A group of 27 products traded on organized primary markets or com modity exchanges whose prices are especially sensitive to changes in mar ket conditions. 2 Based on prices of some 900 commodities. 3 Based on a list of commodities and services, including rents, purchased by moderate income groups in large cities. Source: United States Department of Labor, Bureau of Labor Statistics. a series of peaks followed by a series of declines, coming first in the grain markets and last in metals and fuels. Grain prices had been pushed up to extremely high levels in 1947 because of deficient wheat harvests in Western Europe and a short corn crop in the United States, but broke sharply in February 1948 under the pressure of increased supplies, chiefly from Argentina and Australia. The course of industrial prices varied greatly between the different industries, depending on the relative difficulty of enlarging output to keep up with demand. Those indus tries, such as chemicals, cotton textiles, and leather goods, which had little or no postwar conversion problem and could expand their output quickly, caught up with demand more rapidly than the heavy industries, where reconver sion of facilities took more time and where large backlogs of unsatisfied demand had accumulated. Demand for automobiles, houses, and household furnishings and ap pliances, as well as for a great variety of industrial and transportation equipment, was well sustained last year, although appliance sales dropped rather sharply toward the end of the year. This kept the prices of materials entering into such products under strong inflationary pressure while many other prices were already falling. Thus hide and leather prices reached their top in De cember 1947, farm products in general and chemicals as 78 FEDERAL RESERVE B A N K OF S A N F R A N C ISCO a group in January 1948, and most textile products in April. The most important single factor in carrying the wholesale and consumer price indexes to their peaks in the late summer of 1948 was the extraordinarily high level of food prices, especially of meats, poultry, and dairy products, which reached their climax at that time. Top prices for lumber also came in the summer or early fall but for most other building materials considerably later. It was only late in 1948 or early 1949 that the top of the market was reached for automobiles and trucks, agricul tural machinery, and most other metal products; for fur niture, clothing, and woolen textiles; and for tires, paper, coal and coke, and petroleum products. Declines in basic commodifies in 1949 Few important types of commodities have failed to evidence some price recession since the beginning of this year. In many cases the decline has been greater than published price quotations would indicate. The rapid dis appearance in recent months of gray markets and pre mium prices for steel products and automobiles suggests that actual prices have fallen more than manufacturers’ list prices. Drastic cuts occurred in such basic raw materials as steel scrap, copper, lead, and zinc, all of which had ad vanced to extremely high levels in 1948. Steel scrap prices have been cut in half since January; and beginning in March several successive cuts were made in nonferrous metals prices in an effort to stimulate lagging demand; the bottom of the market for these materials was appar ently reached in July, with renewed industrial buying and some price recovery. Lower prices for storage batteries, pigments, plumbing supplies, galvanized steel, and brass products have reflected the reductions in nonferrous metals. Declines of approximately 40 percent in prices of meat animals occurred between the peaks of last summer and the spring of this year, followed by some recovery since the seasonal lows. Hides, wool, lard, tallow, flaxseed, and cottonseed oil have also been marked down sharply, with most of the fats and oils currently selling below their 1946 O P A prices. Following the market break of last February, corn has made some recovery but wheat and barley remain relatively weak. All the major grains are currently near or below support levels. Prices of finished products; retail prices A wide range of price reductions has also taken place in manufactured products and consumer goods, extend ing from items like Diesel locomotives, steel rails, and automobiles to apparel, canned foods, and radios. The composite average for all manufactured products in cluded in the Bureau of Labor Statistics wholesale price index had fallen in May by about 8 percent from its peak of last August as compared with a decline of about 10 percent in the composite for raw materials. Retail prices normally lag behind wholesale prices, especially on the downside, since they include more serv July 1949 ice costs which are relatively inflexible. It is a matter of common observation, however, that sales promotions and bargain prices have been much featured by retail stores in recent months. The Fairchild index of department store prices has fallen continuously from November 1948 to July 1949, with some decline in practically all lines except woolens and chinaware. Mail order catalogs show somewhat larger price reductions. A significant develop ment in consumer durable goods has been the introduc tion of new and cheaper models of such products as re frigerators and washing machines in an effort to tap the market for less expensive merchandise and also to meet consumer resistance to prices which are out of line with current income levels. Consumers are in a waiting mood and apparently expect further price reductions. Prices and the business cycle; absence of speculation; inventory reductions Although industrial employment and production have declined along with the falling price level, the general price recession has been moderate and orderly to date. Speculative inventory accumulation was notably absent over the greater part of industry during the period of rising prices. Hence there is not likely to be any great wave of insolvencies touched off by declining prices, with resulting general impairment of business stability. On the contrary, there has been an all-around reduction of inven tories and shortening of forward commitments. While there is little in the immediate situation to indicate any precipitate downswing in the business cycle, some further decline in industrial output is not unlikely, as well as con tinued pressure for price reductions in certain areas. The very duration of the price decline to date and its quite general character are an evidence of the fundamental na ture of the adjustments going forward in the national and world economy following the postwar boom of 1946-48. Prices and foreign trade Declining production and incomes in the United States have made it more difficult for foreign countries to main tain sales here. Purchases of raw materials from abroad have been reduced as inventories have been drawn down. In recent months prices of some raw products entering into international trade, notably rubber and cocoa beans, have dropped sharply, although others, including tin, sugar, coffee, and shellac prices, are little if any lower. These developments have accentuated the problem of dol lar shortage, which has become worldwide in scope and is creating serious impediments to the free flow of inter national trade. Because of these conditions the govern ments of the British Commonwealth of Nations have re cently taken steps to restrict still further their purchases in hard currency countries. This action will tend to re duce the market strength of a number of American ex port items, such as tobacco, cotton, fats and oils, and possibly other food products. July 1949 M O N T H L Y R E V IE W Business policy in a period of recession The extent of probable further price and business re cession, as well as the timing of recovery in employment and production, will depend in no small part upon the policies followed by business and labor leaders. If such policies result in reduced output and higher unit costs, the successful adjustment to a new and lower level of costs and prices will be hampered and perhaps indefinitely de ferred. The most urgent postwar demands for many con sumer durable goods, as well as for much industrial equipment, have been satisfied, at least temporarily, but 79 a tremendous backlog of demand still exists. This demand is supported by population growth, substantial savings, and a volume of employment and income that remains high by any standard short of the extravagant levels of 1947-48. It is abundantly clear, however, that the psy chology of the boom is past; consumers can postpone many of their purchases if need be, and value received, as well as price, is an increasingly important element in their decisions to buy or postpone buying. This puts the em phasis on efficiency in production and marketing, on cost reduction, on competitive pricing. POST-WAR PHILIPPINE-AMERICAN ECONOMIC RELATIONS Filipino people acquired their independence in July 1946, as provided in the Philippine Independ ence Act of 1934. This ended a period of 48 years of American rule over the Islands. But the new Republic, with a population of about 19 million, remains, for the time being, very closely related to the United States, both politically and economically. h e T Free access to the United States market favored the development of industries in which the Philippines had a comparative advantage, namely, cane sugar, coconut, tobacco, and abaca or manila hemp production. From 1920 to 1940 these industries furnished a livelihood to the majority of the Philippine population1 and supplied more than 80 percent of all Philippine exports in that period, most of which went to the United States. On the other hand, year in year out, the Philippines had to im port rice, wheat flour, meat, dairy products, and large quantities of textiles. Thus the development of the Phil ippine economy during the American rule followed the established pattern prevailing in other colonial areas, that is, concentration on a few important export crops and reliance upon imports for most other necessities. Most of these Philippine export crops, with the excep tion of abaca, were, however, not complementary to but rather competitive with production in the United States. When the Independence Act of 1934 was framed, it was felt that an independent Philippines would have ul timately to face reduced markets for established export industries. Without tariff preference, their competitive position in American markets would be much weaker. To offset the loss of foreign exchange that would result from a decline in exports, it was thought that Philippine pro duction of food staples and industrial products of mass consumption would have to be increased and a more bal anced economic structure established. In the quoted Re port, the U. S. Tariff Commission said, “ With the loss of a preferential treatment for their products in the United States, the Philippines will be obliged to fashion 1 I t was estimated in the m id-1930’s that more than 25 percent of the total population of the Philippine Islands depended for their livelihood on coco nut production and industries based on it and 15 percent on sugar produc tion. Something like 12 percent depended on abaca, and about 3 percent on tobacco production. U . S. Tariff Commission, U n i t e d S t a t e s - P h i l i p p i n e T r a d e , Report N o. 118, W ashington, D . C ., 1937, pp. 62, 118, 128, 136. an economy which will be much more self-sufficient than the present.” 1 But while the primary political provision of the In dependence Act of 1934, the granting of independence, was consummated in July 1946, as contemplated, the in tervening war and Japanese occupation greatly aggra vated the economic problems of the Philippines, and ne cessitated a thorough overhauling of the economic provi sions of the Independence Act. American-Philippine re lations since independence was granted have been gov erned by the Philippine Trade Act of 1946 (Bell Act) and the Phillippine Rehabilitation Act of 1946 (W ar Damage A ct), supplemented by military agreements pro viding for the lease of bases for a period of 99 years. The Philippine Trade Act of 7946 Under the Philippine Trade Act of 1946, all Philippine goods may enter the United States duty free until 1954. From 1954 to 1974, most exports to the United States will be subject to duties, beginning at five percent of the full rate and increasing annually by that amount. Similar treatment is accorded American goods entering the Phil ippine Republic. By 1974, dutiable products from the Philippines will be paying the full rate applicable to the lowest duty-paying country (now Cuba). Thus, even after 1974, the Philippines will enjoy some preference in the American market. The Philippine economy is to be weaned from its preferred position in the American mar ket, but this process, instead of taking ten years, as pro vided in the Independence Act of 1934, will take 28 years. United States tariff preference for Philippine com modities until 1974 is accompanied, however, by import 1 U . S. Tariff Commission, o p . c i t . , p. V I I I . A s far as the sugar industry is concerned, the Report stated that after the full United States duties be come applicable the position of the Philippine industry will depend on whether the sugar import quota system still exists in the United States or not. “ I f such a quota system is not in operation, then it is doubtful that any large proportion of the industry will be able to su rv iv e/’ A s for a num ber of other export industries, the Report said, “ I t is also likely that with the loss of preferential treatment in the United States market after inde pendence, the Philippines will be obliged either to curtail sharply, or to dis continue altogether, their exports of such commodities as coconut oil, cigars, embroideries, and pearl buttons. It appears improbable that by 1946 they will be able t o produce such goods at sufficiently low prices to enable them to compete in world m a rk ets/’ W hile this was written in 1937 in expecta tion of the cessation of preference for Philippine goods in the United States by 1946, the problem of an adjustment of the Philippine industry to decreasing preference, and finally to the absence of preference on the American market, still remains. 80 FEDERAL RESERVE B A N K OF S A N F R A N C ISC O quotas, based partly on special legislation, for certain im portant Philippine products : sugar, cordage, cigars, scrap and filler tobacco, coconut oil, and pearl and shell buttons. These absolute annual quotas are as follows: sugar, 850,000 long tons, of which not more than 50,000 tons can be refined sugar; cordage, 6 million pounds; cigars, 200 million; scrap and filler tobacco, 6.5 million pounds; coconut oil, 200,000 long tons; pearl or shell buttons, 850,000 gross. A quota of 1,040,000 pounds of rice is also established, but the Philippines are importing rice. After 1954, a decreasing proportion of quota im ports of cigars, scrap and filler tobacco, coconut oil, and buttons continues to be duty free until 1974. The duty free quotas are the amounts of absolute quotas reduced 5 percent a year, while the (increasing) remainders of the absolute quotas are subject to full duty. The Philippine Rehabilitation Act of 1946 The Philippine Rehabilitation Act of 1946 provided for a grant to the Philippines of an amount of $400 mil lion for payment of private property losses in the Philip pines as a consequence of war. Furthermore, the Act pro vided for transfer to the Philippine Government of United States surplus property not in excess of $100 million, as well as for payment of $120 million for the repair of gov ernment buildings, communications, harbor facilities, etc., and for financing certain public health and other projects, including training of specialists. By the end of 1948 the United States-Philippine W ar Damage Com mission had processed more than 500,000 private claims out of a total of 1,255,755 and paid $95,621,000. For damage sustained by public buildings and facilities about $27 million had been paid.1 Capital investment in the Philippines Many important industrial enterprises in the Philip pines now, as before the war, are in the hands of foreign owners, primarily American.2 American investments in the Philippines are particularly heavy in various key in dustries, such as sugar centrals, plantations, coconut pro cessing plants, public utilities, and mining. By granting parity for American investors3 and a four-year tax ex emption for new industrial establishments, the Philippine Government expected to attract large amounts of Ameri can capital for development purposes. American funds have been available for the reconstruction of many enter prises in established industries, such as sugar, mining, and timber. The small influx of American capital for new ventures, however, has been rather disappointing to the Philippine Government. Partly for this reason, although it also continues a prewar tendency, the Philippine Gov ernment has engaged more and more in the establish 1 F . A . W aring, “ U . S. Aid to the Philippines Helps Repair W a r ’s R av ages,” F o r e ig n C o m m e r c e W e e k l y , February 28, 1949, pp. 6 ff. 2 The total identified long-term foreign investments in the Philippines in 1938 amounted to $306.5 million, distributed as follow s: United States, $133.5 million, with $42.8 million in portfolio and $90.7 million in direct investm ent; United Kingdom , $45 m illion; China, $100 m illion; and Japan, $28 million. O n the other hand, the Philippines had invested in the United States about $28 million. Cleona Lewis, T h e U n i t e d S ta t e s a n d F o r e ig n I n v e s t m e n t P r o b l e m s , The Brookings Institution, W ashington, D . C., 1948, p. 339. See also U . S. Tariff Commission, o p . c i t . , pp. 189-92. 3 This necessitated an amendment to the Philippine constitution. July 1949 ment, financing, and management of industrial and trad ing enterprises. In this respect the Philippine Republic is acting much as do most other countries of a similar economic structure and faced with similar economic prob lems. G old production Gold production, which rose from about $3.75 million in 1931 to $39.1 million in 1940, has been partially re stored, and 1948 production was estimated in excess of 200,000 ounces. At $35 an ounce, this output would be worth about $7 million, but as most of the bullion was reportedly sold in the open market at $45 or more an ounce, the mines realized about $9 million. Early in 1949 the newly established Central Bank of the Philippines in troduced a system of licenses for exports and imports of gold, limited domestic sales to sales for industrial and artistic purposes only, and reiterated that the price of $35 per ounce must be observed. Philippine postwar economic policy The heavy influx of American dollars and the result ing prosperity during the first two postwar years had to be considered a temporary rather than a permanent fea ture of the Philippine economic situation. In order to protect some of the newly developing domestic industries and to conserve dollars both for current needs and to in sure the stability of the Philippine peso, the Joint Philip pine-American Finance Commission proposed a whole series of financial and economic measures most of which have been put into effect. These measures include the es tablishment of a central bank, higher taxes on luxuries and semi-luxuries, measures to reduce the budget deficit and to cover regular outlays through current revenue, and, finally, reduction of imports of luxuries and semi luxuries to reduce foreign exchange requirements. The Import Control Act of June 1948 went into effect in January 1949. The control procedure established per missible import quotas for a long range of articles, con sidered as luxuries, semi-luxuries, and non-essentials produced or substitutable locally, expressed as percen tages of imports during the fiscal year 1948. These quotas covered luxuries and semi-luxuries such as high-priced automobiles, all perfume and toilet preparations, alco holic beverages, most textile manufactures, watches and clocks, and chewing gum ; and nonessentials produced at home such as tobacco products, ready-made cotton ar ticles, cotton grey cloth, lard and substitutes, soap, all fresh fruits, beer, various rubber products, all furniture, and matches. The percentage cuts ranged from 20 to 90 percent, but were generally 40 or 50 percent.1 As of Aug ust 1, 1949 the imports of nails, Portland cement, raw rubber, fresh and canned vegetables, and canned pine apple were also to be put under quotas. Moreover, the earlier announced percentage cuts have been increased for a considerable number of articles. The exact effect of that change is not known, however, since the base for de1 F o r e ig n C o m m e r c e W e e k l y , January 17, 1949, pp. 26-27. July 1949 M O N T H L Y R E V IE W ciding quotas has been shifted from the imports in the fiscal year 1948 to the average imports for 1946-48 and since the definition of luxuries has been broadened by lowering or eliminating price limits below which certain items are not considered luxuries and subject to quotas.1 The damage to production facilities in the Philippine Islands during the war and the dislocation of the Philip pine economy sharply reduced postwar production of both commercial and subsistence crops, industrial prod ucts, and minerals. The result has been a marked reduc tion of exports and a need for large imports, primarily from the United States. The new Republic has relied heavily ever since the end of the war on various dis bursements of the United States in the Islands. These have included disbursements by the United States armed forces for goods and services bought in the Philippines, payments of the W ar Damage Commission, transfers of surplus property, Veterans Administration payments, etc. Such payments are continuing, although at a reduced rate. According to a recent statement of the American Ambassador to the Philippines, these payments through 1951 will total about $2,150 million. In 1947, the Re construction Finance Corporation granted a loan to the Philippines in the amount of $75 million, but $15 million has already been repaid. This great mass of purchasing power put at the disposal of the Philippine people, in ad dition to funds coming from the export trade, led to a high degree of prosperity in the Islands, although there have been shortages in various consumer goods and dif ficulties in their distribution. There were also periods of glut in consumers’ goods markets (especially in wheat flour and canned milk) as a result of speculative over stocking, such as in the early months of 1947. Generally speaking Philippine economic policy since the end of the war has been directed towards : (1 ) making good the destruction and dislocation wrought by the war in the economic life of the Islands in order to provide for basic economic services and to re establish as soon as possible the productive and export capacity of the country. This was, so to speak, the short term or reconstruction task. (2 ) diversifying somewhat the structure of domestic production in order to lessen the dependence of the coun try on imports of primary necessities such as rice, tex tiles, cement, and nails. The provisions of the Trade Act of 1946 which insured free access to the American mar ket until 1954, and preferred access to that market until 1974, have served, however, to attract relatively much more capital into old established industries than into new ventures, many of which had to be carried on by the Gov ernment through its corporations. (3 ) developing further the productive facilities of the country in order to provide for the rapidly growing pop ulation and to sustain so far as possible the higher stand ard of living that has been achieved in recent years. The need for economic development of the country is generally accepted as a must for the new Republic. While 1 S a n F r a n c is c o C o m m e r c i a l N e w s , July 11, 1949, 81 the average level of consumption in the Philippines has risen greatly under the American rule and is consider ably above the average in most other areas of Southeast Asia and the Far East, it is still low, with great inequali ties among various groups. One factor which is not operative in many of these other areas is that under American rule, the consumption habits of the Filipinos have been largely Americanized, and low income is re sented more than would be the case otherwise. In 1938 it was estimated that about half of the Philippine families received an average annual income, largely in kind, of not more than 125 pesos ($62.50) per family. On the other hand about 1 percent of the population, consisting of business and professional men, landlords, and skilled laborers, received according to the same estimates about one-third of the total national income.1 One of the basic social and economic problems in the Philippines is to be found in the difficult conditions with regard to land tenure and the closely related issue of ag ricultural credit. Certain reforms pertaining to tenancy in rice-growing areas have been decreed in recent years, improving somewhat the condition of the tenants. But it is doubtful that these steps are sufficient to reverse the tendency toward further concentration of land owner ship in fewer hands, which prevailed during the 1920,s and 1930’s. The proportion of tenants among farm oper ators rose from 16.6 percent according to the census of 1918, to 35 percent according to the census of 1939. The 1918 census showed that 77.8 percent of all operators were owners, although many of them were on farms so small that they could hardly have been considered capable of furnishing a living. In 1939 only 49.2 percent of all farm operators were full-owners, while another 15.6 per cent were part-owners. Moreover, it must be kept in mind that the landlord-tenant relationship in the Philip pines, as in most other areas of Southeast Asia, is often combined with a creditor-debtor relationship. Farmers and tenants are forced to borrow not only to improve or carry on production, but also to sustain life for part of the crop year. As interest rates are extremely high, many peasant debtors are never able to extricate themselves from debt.2 In regard to economic development, the Philippines, as other under-developed areas, have to contend with sev eral basic difficulties, of which the most important are dearth of capital and lack of managerial talent and skilled workers. Two measures appear to be necessary: first, help from abroad in the form of capital and skills, and second, establishment of a system of priorities in devel opmental work. Several tentative programs for the eco nomic development of the Philippines exist, some more, 1 R e p o r t a n d R e c o m m e n d a t i o n s o f t h e J o i n t P h il i p p i n e - A m e r i c a n F in a n c e C o m m is s io n dated June 7, 1947, and a Technical Memorandum entitled “ Phil ippine Economic Development,” U . S. Congress, 80th Congress, 1 st Ses sion, House Document N o. 390, W ashington, D. C., 1947, p. 11; U . S. Department of Commerce, “ Republic of the Philippines— Summary of Current Economic Information,” International Reference Service, V o l. V , No. 42, June 1948, p. 9. 2 U . S. Department of Agriculture, Office of Foreign Agricultural Rela tions, R e p o r t o f t h e P h il i p p i n e - U n i t e d S t a t e s A g r ic u l t u r a l M i s s io n , W ash in g ton, D. C ., 1947, p. 13, says with regard to the interest rates on borrow ing in kind : “ I f they borrow in kind, say for a period of 6 months, the custom is to require from 2 to 3 units in return for every one borrowed.” 82 July 1949 FEDERAL RESERVE B A N K OF S A N FR A N C ISCO others less ambitious. All of them aim at an increase in the productivity of labor, as only in this way is a rise in the standard of living possible, and at a greater diversifi cation of the Philippine structure of production. One such program has been prepared by Thomas Hibben of the U. S. Department of Commerce, who in 1947 was at tached to the Joint Philippine-American Finance Com mission. He envisaged the spending of over $1 billion during a period of a little more than 5 years. According to his estimates, more than $600 million would be needed for financing of imports of materials and equipment, about $350 million for the payment of labor and domes tically produced materials, and about $100 million for freight and insurance. Hibben’s summary is an illustra tion of what the various plans of economic development of the Philippines intend to achieve The completion of the economic development proposals outlined in the preceding chapters would provide at least 75,000 homesteads, 80,000 hectares of irrigated land, selfsufficiency even with increased population and higher living standard demand in rice, corn and vegetables; selfsufficiency and possible export of fruits, nuts, fish and meats; greatly reduced import requirements in shoes and leather, chemicals, textiles, paper, glass, clay products, iron and steel; maintenance of prewar levels and possible increase in export of sugar cane products, coconut prod ucts, abaca and other fiber products, lumber, tobacco products and mine products; increase in the output of power; and transportation and communications facilities to meet the demand of a growing industrial and prosper ous agricultural economy. P h ilip p in e Foreign T rade and t h e U n ite d S ta t e s S h a r e In I t , 1946-48 (in thousand pesos; 1 peso $0.50) Total exports (including reexport«)........ Total imports ............................................ Import surplus ...................................... Exports to United States & Terr............ Imports from United States & Terr........ Import surplus from United States... 1946 128,375 591,716 463,341 76,510 515,332 438,822 1947 531,097 1,022,701 491,604 306,481 882,151 575,670 1948 638,410 1,136,409 497,999 418,185 939,229 521,044 tu r e o f P h ilip p in e e x p o r ts sin ce th e w a r , th e g r e a tly in cr e a se d n e ed fo r im p o r ts , th e fa c t th a t th e U n it e d S ta te s w a s th e o n ly so u r c e w h e r e m a n y o f th e P h ilip p in e n e c e s sities c o u ld b e o b ta in e d , a n d th e la r g e flo w o f d o lla r s fr o m th e U n it e d S ta te s to th e P h ilip p in e s o u tsid e o f c u r re n t tr a d e a c c o u n ts. I n 1948, P h ilip p in e im p o r ts d e c lin e d f r o m q u a rte r to q u a rte r , w ith th e s h a r p e st d r o p in th e la st q u a rte r o f th e y e a r . T h i s te n d e n c y is e x p e c te d to b e c o m e still s tr o n g e r in 1949 b e ca u se o f th e in tr o d u c tio n o f im p o r t c o n tr o ls. B e s id e s th e U n it e d S ta t e s , th e o th e r c h ie f c u s to m e r s 1946-48 w e r e o f th e P h ilip p in e s d u r in g th e y e a r s M a la y a , N e th e r la n d s I n d ie s , I n d ia , H o n g K o n g , C h in a , a n d J a p a n in A s i a ; F r a n c e , th e U n it e d K i n g d o m , D e n m a r k , B e l g iu m , I ta ly , N o r w a y , a n d S w it z e r la n d in E u r o p e ; a n d C a n a d a . C h in a , I n d ia , S ia m , C a n a d a , th e U n it e d K i n g d o m , a n d B e lg iu m w e r e , a fte r th e U n it e d S ta t e s , th e m o s t im p o r ta n t su p p lie rs o f g o o d s to th e P h ilip p in e s . Principal exports of the Philippines T h e c o m p o s itio n o f P h ilip p in e p o s tw a r e x p o r ts h a s re Thus far the Philippine Republic has been unable to secure any development loans abroad. Loan negotiations with the International Bank for Reconstruction and De velopment for building of two power projects have been under way for several months, but no final decision has been made. The Government is proceeding with some projects to the extent that it can finance them by domestic capital resources. m a in e d e sse n tia lly th e sa m e as it w a s in p r e w a r y e a r s , b u t Philippine foreign trade after the war Abaca and rope ...................................... The Japanese occupation of the Philippine Islands ended in August 1945. During the remainder of that year Philippine imports amounted to 57.9 million pesos and exports to 2.3 million pesos. During the next three years both imports and exports rose steadily, but the per sistent large import surplus indicates clearly that Philip pine productive and export capacities have not yet been restored. Two characteristics of Philippine foreign trade as a whole during the period 1946-48 are outgrowths of the war. First, Philippine foreign trade, in contrast with the interwar period, is now characterized by a large import surplus. Second, the United States’ share in Philippine exports has been reduced from about 71 percent during the 1930’s to an average of 61 percent during the past three years, and its share in Philippine imports has in creased from about 63 to 82 percent, in the comparable period. These changes are related to the altered struc1 Thom as H ibben, P h i l i p p i n e E c o n o m i c D e v e l o p m e n t — A T e c h n i c a l M e m o r a n d u m , in the quoted H ouse Document, N o. 390, p. 2 2 2 . V a l u e o f L eading E xp orts and Im ports o f t h e P h ilip p in e s 1946-48 (in thousands of pesos; 1 peso $0.50) Exports Copra.............................................................. Dessicated coconut ...................................... Coconut o i l .................................................... Copra meal and cake.................................. 1946 78,021 4,100 630 658 1947 354,415 19,055 13,941 4,391 1948 309,400 57,491 40,739 7,425 Coconut products .................................... 83,409 391,802 415,055 Abaca, manufactured .................................. Abaca, rope .................................................. 9,653 2,222 63,436 2,904 60,294 4,067 11,875 66,340 64,361 M aguey......................................................................... 3,295 1 Tobacco and manufactures ........................ 2,5034,383 1 Embroideries ................................................ 83 2,335 13,917 Sugar............................................................................. 4,081 41,580 Pineapple, canned ..................................................... . . . . 7,648 Chromite....................................................................... 446 5,192 Other exports (inc. reexports) ................ 30,505 58,415 90,657 Total .......................................................... 128,375 Imports Cotton and manufactures............................ Grains and preparations ............................ Rayon and other synthetic textiles .......... Automobiles, parts and tires .................... Iron and steel manufactures...................... Tobacco and manufactures ........................ Dairy products ............................................ Paper and manufactures ............................ Mineral oils, petroleum products ............ Fish and fish products, canned.................... Machinery, machines and parts (except agricultural and electrical) .................... Other imports .............................................. 1946 94,476 76,392 29,649 22,694 17,349 45,141 21,424 23,183 14,731 15,651 1947 153,442 98,834 90,585 51,414 46,144 43,962 42,625 38,887 36,842 30,783 1948 137,363 84,110 105,020 63,910 55,889 49,391 45,925 44,714 68,503 1 8,631 2 222,395 36,423 352,760 43,170 438,414 Total .......................................................... 591,716 531,097 1,022,701 638,410 1,136,409 1 Included among other exports or imports. 2 Including agricuutural machinery and implements. Source: For 1946 and 1947, Republic of the Philippines, Department of Commerce and Industry, T h e P h il i p p i n e s 1 9 4 8 , Manila 1948, pp. 9-15; for 1948, F a r E a s t T r a d e r , San Francisco, California, April 13, 1949. July 1949 M O N T H L Y R E V IE W great changes have taken place in the relative importance of the various commodities. As indicated in the accom panying table, copra and other coconut products were, so to say, the salvation of Philippine foreign trade in 1946-48. In 1946, 1947, and 1948 these products repre sented 65, 74, and 65 percent, respectively, of the total value of exports, compared with an average of only 27 percent during the 1935-39 period. It took some months after the liberation for coconut collection to get under way, largely because law and order were lacking in out lying areas, and price relations between copra on the one hand, and rice and cotton goods, the two basic con sumer articles, on the other, were unfavorable to copra. Exports of copra and coconut oil during the period 193539 and in the past three years were as follows (in long to n s ): Year Average 1935-39 1946 1947 1948 .................................. Copra 299,838 600,374 968,432 625,630 Coconut oil 161,747 no data 23,251 41,985 Total (as copra) 556,579 600,374 1,005,338 6 9 2 ,0 0 0 1 1 Reduction in 1948 exports partly caused by typhoon damage to coconut groves. S ource: U . S. Department of Agriculture. The Philippines’ capacity to raise exports of copra and coconut products coincided with a great demand for fats and oils abroad as a result of the war. After a decline in the summer of 1947, copra prices rose until May 1948, when they reached $320 a short ton (c.i.f. Pacific Coast) as against $109 a short ton in the summer of 1946. In 1939 copra was quoted at $38 on the average, and in 1940 at only $32 a ton. The rehabilitation of agriculture in the main fat-im porting countries markedly reduced the demand for Phil ippine copra. This was reflected in lower exports in 1948 as well as in reduced copra prices which fell to $174 a short ton in April 1949. Prices rose to $183 a ton in May. While copra and other coconut products remain one of the basic export products of the Philippines, the postwar copra bonanza seems to be over. The second most important export of the Philippines during the period 1946-48 was abaca and cordage, which accounted for 9, 12, and 10 percent, respectively, of the total value of exports of these three years, compared with an average of 12.5 percent during the 1935-39 period. Abaca (manila hemp) production has not satisfactorily recuperated since the war, chiefly because its production has not been so profitable as other Philippine products, even though its price rose from an average of 6.5 cents a pound in 1939 to an average of 24.2 cents in 1947 and 28.1 cents in 1948 (New York prices). Sisal and henequen from Central America and British possessions in Africa, sources which were open during the war, have proven effective competitors to abaca. Before the war, Philippine abaca was obtained mainly from the Japanese financed and managed plantations in the Davao Province in Mindanao. These plantations appear to have been overstripped immediately after the war and there were no new plantings during the war 83 years. Since the price of abaca is not satisfactory, private capital cannot be found to engage in raising abaca.1 A large share of the sugar industry was fully or par tially destroyed in the war and in 1946 the Philippines had to import sugar. In 1939, most of the raw sugar pro duced was exported, and sugar accounted for about 40 percent of total exports. In 1947, only $2 million worth of sugar was exported, but in 1948, sugar exports rose to $21 million, representing about 7 percent of total exports. It was estimated in 1947 that an investment of about $135 million would be required to bring sugar milling capacity to prewar level.2 Having a secure and profit able market for some years in the United States, this in dustry is making great strides in recuperation. Some of its representatives are of the opinion that in 1950 it will be capable of filling its United States annual quota of 850,000 tons and will become again the chief Philippine source of American dollars. Exports of tobacco, embroideries, and non-ferrous ores have been increasing, but all these industries have a long way to go before they reach their prewar volume. The timber industry, which may become one of the important export industries of the Islands, was not allowed to ex port until recently because of the great demand for tim ber in the country. Principal imports of the Philippines The need for all kinds of imports rose as a result of increased population and reduced domestic production. The greatest relative increases in the major groups of commodities were in cotton and related goods and in bread grains. The percentages of a few leading commod ity groups in the total value of Philippine imports in pre war years and during the past three years are as follows: Average Commodity group 1935-39 Iron and steel m anu factures............... 16.3 Cotton manufactures ............................. 16.2 i Rayon and other synthetic textiles. Oil and petroleum products................. 7.2 5.9 Grains and preparations ...................... Tobacco and manufactures ............... 4.7 Paper and manufactures ................... 3.6 4.8 58.7 1946 2.9 16.0 5.0 2.5 12.9 7.6 3.9 3.8 4.5 15.0 8.9 3.6 9.7 4.3 3.8 5.0 54.6 54.8 1947 1948 4.9 1 2 .1 9.2 6.0 7.4 4.3 3.9 5.6 53.4 1 N ot available, but presumably unimportant. Source: For 1935-39, B u l l e t i n o f P h i l i p p i n e S t a t i s t i c s , Vol. 6 , 1939, pp. 1061 0 8 ; for 1946-48, table on p. 82. Even in prewar years the Philippines imported rice and wheat flour to supplement their own food resources. Imports of these commodities have increased consider ably since the war, particularly in 1946 and 1947 when domestic production of rice and corn, the two basic food crops of the Islands, was short. The rice supply and its distribution have constituted one of the most difficult postwar problems of the Philippine Government. The situation became much less difficult in 1948 with in creased Philippine and world production of rice and eas1 Early this year, a government loan of 35 million pesos was granted “ in principle” to the Mindanao Abaca Planters Association. This appears to be the first major step in rehabilitating the abaca industry. 2 National Development Company and H . E . Beyster Corporation, P r o f o r I n d u s t r i a l R e h a b i l i t a t i o n a n d D e v e l o p m e n t , Manila, O c tober 1947, p. 166. Milling capacity in 1939 was 1.5 million long tons. P osed P rogram 84 ing of international rice allocation controls. Under these conditions, rice prices in the Philippines declined sub stantially early in 1948 and have been relatively stable for the past 15 months. United States trade with the Philippines The United States is both the chief customer and the chief supplier of the Philippines. This country takes roughly 60 percent of their exports and supplies over 80 percent of their imports. The accompanying table shows the value of the chief items of trade between the two countries. The increase in value of total imports between 1946 and 1948 reflects both the rehabilitation of Philip pine export industries and higher prices. The chief im port from the Philippines is copra, followed by two other coconut products, coconut oil, and coconut meat, both in shell and shredded. During the years 1946, 1947, and 1948, copra and coconut products accounted for 76, 77, and 68 percent, respectively, of the value of all imports from the Philippines into the United States. The other two major imports are manila hemp and cane sugar. Cane sugar imports from the Philippines were not resumed until 1948. The value of United States exports to the Philippines during the past three years has been on the average much larger than in the five years before the war. From the latter part of 1945 through 1946, when the Philippine economy was greatly dislocated from the war and occu pation, many of its needs were met by the supply opera tions of the United States armed services and the trans fer of $100 million of war surplus. As these special sup ply operations (which are not reflected in foreign trade statistics) tapered off, the need for imports from the United States increased. United States exports to the Islands increased 50 percent from 1946 to 1947, reflect ing, in addition to price increases, the increased avail ability in the United States of various commodities for export and the increased ability of the Islands to pay for L July 1949 FEDERAL RESERVE B A N K OF SAN FRANCISCO e a d in g U n it e d S tates P I m ports h il ip p in e s — from a n d E xports to 1946 $ 29,083 1*, i 3 Ó 1947 $106,924 3,616 13,235 1948 $109,018 18,654 26,001 22,749 17,618 2,212 803 29,172 3*881 23,322 1,645 1,085 11,865 ................................ $ 39,712 $161,692 $226,227 Exports Cotton manufactures ...................... Synthetic fibres and manufactures 1947 $ 60,083 44,216 16,033 9,394 10,883 16,405 16,433 4,849 24,414 19,361 217,418 1948 $ 62,088 48,555 20,650 Autos, parts, accessories ............... Other exports and reexports. . . . 1946 $ 46,236 16,132 11,488 26,298 6,885 13,022 13,600 5,124 22,647 12,509 123,426 Total exports .................................. $297,367 $439,489 $467,746 Total imports Rice (milled) ....................................... Fish products .................................... Dairy p r o d u c ts ............................. .. Fruit and vegetable p r e p a r a t io n s Beverages .............................................. 5,375 243 Source : U . S. D e p a r t m e n t of Commerce. Among the United States exports to the Philippines, textiles, consisting principally of cotton and synthetic fibers and goods made from them, have accounted for about one-fourth of total postwar United States exports to the Islands, and this is the largest single group of com modities. After textiles come various types of foodstuffs, which also accounted for between 20 and 30 percent of the total. In 1946 and 1947 rice was one of the im portant items of export to the Philippines, but increased domestic production in the Philippines and imports from Asiatic sources reduced total imports of rice and elimi nated imports from the United States. It is interesting to note that wheat flour exports from the United States to the Philippines have increased over the three years, al though part of their imports came from Canada and Aus tralia. Increased consumption of wheat flour in recent years, partly caused by insufficient rice supplies, seems more or less permanent. Other important food items ex ported to the Philippines are fish, dairy products, and fruit and vegetable preparations. No data are available to show the development of total Philippine foreign trade during the first half of 1949. Thus nothing can be said about the effect of the import controls introduced last January. The fact, however, that these controls were extended and strengthened as of August 1 would indicate that the reduction of imports was not sufficient in the opinion of the Government. United States trade with the Philippines during the first four months of 1949 was as follows: Exports th e 1946-48 (in thousands) Imports Copra . . . . ............................................ Coconut o i l ............................................ Coconut m e a t ....................................... Cane s u g e r .......... ................................. Manila hemp or a b a c a .................... Chrome ore and concentrate . . . . Copper ore and concentrates. . . . A ll other im p o r t s ................................ their imports. The latter was more a result of United States disbursements in the Islands than of increased Philippine exports to this country. The increase in United States exports to the Islands was only 6 percent from 1947 to 1948, reflecting partly the reduced need for some types of imports due to the rehabilitation of domestic production, partly the satisfaction of certain pent-up de mands, and partly a reduced ability of the public to buy goods, especially those of a luxury type. 11,290 22,275 11,858 4,160 27,412 26,370 233,088 Imports (in millions) Monthly average 1948 ............................................................. 1949 J a n u a ry .................................................................................. February ............................................................................. March .................................................................................... April ....................................................................................... $39.0 44.3 35.5 34.4 41.3 $19.0 14.9 15.1 16.9 15.3 While exports to the Philippines averaged $38.8 million, or virtually at the monthly average level of 1948, aver age monthly imports from the Philippines during the first four months of 1949 were only $15.5 million, or 18 per cent below the average for 1948. Before the war, the balance of United States-Philippine trade was in favor of the Philippines. From 1923 to 1939, United States exports to the Philippines averaged $67 million, and imports from the Philippines $99 mil lion. The value of exports to the Philippines in 1948 and 1949 has been more than twice as large, however, as the value of imports from the Islands. This markedly favor able trade balance of the United States has been made possible by the payment to the Philippines of dollars for other— and non-recurring— items and cannot be main July 1949 M O N T H L Y REVIEW tained indefinitely. The Philippine trade position has been further complicated in recent months by the sharp drop in copra sales to the United States. Copra imports from the Philippines, during the first quarter of 1949, amounted to only 86.3 million pounds, compared with 205.7 million pounds during the corresponding period of 1948. Moreover, the price of copra in April 1949 was down almost 50 percent from its 1948 peak. Larger Philippine sugar exports may compensate to some extent for the decline in copra exports, although only about a quarter of the United States sugar quota of 850,000 long tons was filled in 1948. During the first five months of 1949, however, the United States imported over 250,000 long tons of raw sugar from the Philippines. 85 Owing to the apparent cessation of the copra bonanza and an only gradual recuperation of other export indus tries, the Philippines face the problem of handling their large import surplus. This obviously is being tackled from two points of departure; on the one hand by stim ulating exports, and on the other by reducing imports of luxuries and those commodities which are produced do mestically or can be substituted by domestic products. This problem of a better balance between total Philippine exports and imports and also between exports to and imports from the United States has become one of the basic problems of Philippine economic policy. The grad ual reduction of United States expenditures in the Islands for non-recurrent items makes this task still more urgent. 86 F E D E R A L R ESER VE B A N K OF S A N July 1949 F R A N C IS C O B U S IN E S S IN D E X E S — T W E L F T H D IS T R IC T i (1935-39 average = 100) Industrial production (physical volume)2 Year and Month Petrol eum* Lumber Crude Refined Cement 1929________ 1930________ 1931________ 1932________ 1933________ 1934________ 1935________ 1936________ 1937________ 1938________ 1939________ 1940________ 1941________ 1942________ 1943________ 1944________ 1945________ 1946________ 1947________ 1948________ 148 112 77 46 62 67 83 106 113 88 110 120 142 141 137 136 109 130 141 144 129 101 83 78 76 77 92 94 105 110 99 98 102 110 125 137 144 139 147 149 127 107 90 84 81 81 91 98 105 103 103 103 110 116 135 151 160 148 159 162 110 96 74 48 54 70 68 117 112 92 114 124 164 194 160 128 131 165 193 211 171 146 104 75 75 79 89 100 118 96 97 112 113 118 104 93 81 73 98 107 160 106 75 33 26 36 57 98 135 88 122 144 163 188 192 171 137 109 163 153 106 100 101 89 88 95 94 96 99 96 107 103 103 104 115 119 132 128 133 116 83 84 82 73 73 79 85 96 105 102 112 122 136 167 214 231 219 219 256 284 133 122 128 153 159 155 149 145 141 152 152 153 152 153 123 151 153 153 166 172 168 167 171 110 155 173 171 212 205 207 211 214 219 229 217 196 108 102 105 99 108 106 107 115 111 165 165 165 159 166 161 152 109 104 116 108 115 123 124 123 114 126 122 104 111 131 142 138 151 152 153 152 149 174 170 176 169 170 176 173 195 212 215 112 107 120 108 129 169 128 118 102 82 1948 April_______ _________ M a y _______ ______ June_________ _ — Ju ly-------------------------August____ __________ September___ _______ October_____________ November ______ December___________ 1949 January_____________ F e b ru a ry _____ _____ M a rch ---------------------April — M ay. _ _ — Lead3 Car Dep’ t Total Cali Dep’ t mf’ g fornia loadings store store Retail Wheat Electric employ factory (num sales stocks food Copper8 flour8 power ment4 payrolls4 ber)2 (value)2 (value)5 prices8»6 124r 122 167r 159 100 "8 8 100 112 96 104 118 155 230 306 295 229 175 184 189 111 93 73 54 53 64 78 96 115 101 110 134 224 460 705 694 497 344 401 430 135 116 91 70 70 81 88 103 109 96 104 110 128 137 133 141 134 136 142 134 112 104 92 69 66 74 86 99 106 101 109 119 139 171 203 223 247 305 330 354 134 127 110 86 78 83 88 96 108 101 107 114 137 190 174 179 183 238 300 348 132.0 124.8 104.0 89.8 86.8 93.2 99.6 100.3 104.5 99.0 96.9 97.6 107.9 130.9 143.4 142.1 146.3 167.4 200.3 216.1 275 263 266 284 289 295 291 295 309 184 180 185 190 194 197 196 194 190 396 406 424 440 455 454 452 449 444 130 125 135 137 141 146 131 132 131 362 356 302 359 361 350 345 343 358 374 348 339 337 333 351 346 340 320 216.0 217.6 216.6 218.1 218.0 217.6 217.1 215.6 216.5 308 305 294 299 289 184 183 184 183 183 430 423 412 412 415 105 103 118 126 131 343 308 324 338 339 321 327 344 332 320 217.9 214.1 213.3 215.6 211.0 B A N K IN G A N D C R E D IT S T A T IS T IC S — T W E L F T H D IS T R IC T (amounts in millions of dollars) Year and month 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 Condition items of all member banks7 Total Demand Loans U .S . deposits time and Gov’t discounts securities adjusted8 deposits 2 ,2 3 9 2 ,2 1 8 1 ,8 9 8 1 ,5 7 0 1 ,4 8 6 1 ,4 6 9 1 ,5 3 7 1 ,6 8 2 1 ,8 7 1 1 ,8 6 9 1 ,9 6 7 2 ,1 3 0 2 ,4 5 1 2 ,1 7 0 2 ,1 0 6 2 ,2 5 4 2 ,6 6 3 4 ,0 6 8 5 ,3 5 8 6 ,0 3 2 495 467 547 601 720 1 ,0 6 4 1 ,2 7 5 1 ,3 3 4 1 ,2 7 0 1 ,3 2 3 1 ,4 5 0 1 ,4 8 2 1 ,7 3 8 3 ,6 3 0 6 ,2 3 5 8 ,2 6 3 1 0 ,4 5 0 8 ,4 2 6 7 ,2 4 7 6 ,3 6 6 1 ,2 3 4 1 ,1 5 8 984 840 951 1 ,2 0 1 1 ,3 8 9 1 ,7 9 1 1 ,7 4 0 1 ,7 8 1 1 ,9 8 3 2 ,3 9 0 2 ,8 9 3 4 ,3 5 6 5 ,9 9 8 6 ,9 5 0 8 ,2 0 3 8 ,8 2 1 8 ,9 2 2 8 ,6 5 5 1 ,7 9 0 1 ,9 3 3 1 ,7 2 7 1 ,6 1 8 1 ,6 0 9 1 ,8 7 5 2 ,0 6 4 2 ,1 0 1 2 ,1 8 7 2 ,2 2 1 2 ,2 6 7 2 ,3 6 0 2 ,4 2 5 2 ,6 0 9 3 ,2 2 6 4 ,1 4 4 5 ,2 1 1 5 ,7 9 7 6 ,0 0 6 6 ,0 8 7 5 ,5 6 9 5 ,5 9 1 5 ,6 4 0 5 ,7 4 3 5 ,8 4 8 6 ,8 8 3 6 ,8 4 1 6 ,8 1 6 6 ,7 1 2 8 ,4 4 5 8 ,4 5 5 8 ,5 5 6 8 ,5 5 5 6 ,0 0 8 6 ,0 5 8 6 ,0 1 0 6 ,0 0 5 6,394 8,661 6,003 5,910 5,984 8 ,6 4 7 8 ,6 5 8 8 ,6 5 5 6 ,0 1 8 5 ,9 9 8 6 ,0 3 2 6 ,4 4 0 6 ,3 5 8 6 ,3 6 6 6 ,0 0 9 5 ,9 1 0 5 ,8 9 9 5 ,8 1 1 5 ,7 3 8 5 ,7 6 2 6 ,3 8 2 6 ,3 0 6 6 ,2 0 8 6 ,2 3 0 6 ,3 5 7 6 ,3 3 0 8 ,6 6 4 8 ,3 3 0 8 ,1 4 7 8 ,1 5 7 8 ,1 5 4 8 ,0 0 6 6 ,0 8 2 6 ,0 9 7 6 ,1 0 2 6 ,1 0 9 6 ,1 1 2 6 ,1 7 9 Bank rates on short-term business loans9 Member bank reserves and related items10 Reserve bank credit11 _ — + — — + + — + + + + + + — r + 34 16 21 42 2 7 2 6 1 3 2 2 4 107 214 98 76 9 302 17 Coin and Commercial Treasury currency in operations12 operations12 circulation11 23 89 154 234 150 257 219 454 157 276 245 420 ,0 0 0 ,8 2 6 ,4 8 6 ,4 8 3 ,6 8 2 +1 ,3 2 9 630 + 482 _ 0 — 53 — 154 — 175 — 110 — 198 — 163 — 227 — 90 — 240 — 192 — 148 — 596 - 1 ,9 8 0 - 3 1,751 - 3 1,534 - 3 1,743 - 1 ,6 0 7 — 443 472 + + + + + + + + + + + + + +1 +2 +4 +4 +4 — — — 14 10 38 1 + 427 8 — — 98 35 + + 7 45 — — 58 19 6 109 94 5 — + f ~r + + + + 4* + 4* + + + — — Reserves Bank debits index 31 cities’ *18 (1935-39 = 100)2 6 16 48 30 18 4 14 38 3 20 31 96 227 643 708 789 545 326 206 209 175 183 147 142 185 242 287 479 549 565 584 754 930 1 ,2 3 2 1 ,4 6 2 1 ,7 0 6 2 ,0 3 3 2 ,0 9 4 2 ,2 0 2 2 ,4 2 0 146 126 97 68 63 72 87 102 111 98 102 110 134 165 211 237 260 298 326 355 26 13 11 17 2 ,0 6 8 2 ,0 6 1 2 ,0 7 5 2 ,0 6 5 2 ,4 0 9 342 347r 354 356 1948 M ay June July August September October November December 6,087 — 30 14 15 23 + + 17 12 + 3 .0 0 — + 3.20 — 3 .1 6 + 25 11 + + — — - 40 2 + + 45 12 43 12 + — — + + + — 2,351 359 363 8 61 2 ,3 2 3 2 ,4 2 0 355 376 54 4 31 11 37 0 2 ,3 2 9 2 ,3 0 8 2 ,2 9 9 2 ,2 6 4 2 ,1 2 8 2 ,0 6 3 356 344 364r 354 345 351 2 8 1949 January February March April M ay June + 3 .2 7 — — + — 3 .2 3 2 4 15 6 8 0 — — — — — 101 7 34 127 202 53 — + + + — — + + 1 All monthly indexes but wheat flour, petroleum, copper, lead, and retail food prices are adjusted for seasonal variation. Excepting for department store sta tistics, all indexes are based upon data from outside sources, as follows: Lumber, various lumber trade associations; Petroleum, Cement, Copper, and Lead, U .S. Bureau of M ines; W heat flour, U .S. Bureau of the Census; Electric power, Federal Power Commission; Manufacturing employment, U .S. Bureau of Labor Statistics and cooperating state agencies; Factory payrolls, California State Division of Labor Statistics and Research; Retail food prices, U.S. Bureau of Labor Statistics; and Carloadings, various railroads and railroad associations. 2 D aily average. * N ot adjusted for seasonal variation. 4 Excludes fish, fruit, and vegetable canning. Factory payrolls index covers wage earners only. 5 A t retail, end of month or year. • Los Angeles, San Francisco, and Seattle indexes combined. 7 Annual figures are as of end of year; monthly figures as of last Wednesday in month or, where applicable, as of call report date. 8 Demand deposits, excluding interbank and U .S. G ov’t deposits, less cash items in process of collection. M onthly data partly estimated. 9 New quarterly series beginning June 1948. Average rates on loans made in five major cities during the first 15 days of the month. 10 End of year and end of month figures. 11 Changes from end of previous month or year. 12 Minus sign indicates flow of funds out of the District in the case of commercial operations, and excess of receipts over disbursements in the case of Treasury operations. 13 Debits to total deposit accounts, excluding inter bank deposits. p— preliminary. r— revised.
@FedFRASER