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MONTHLY REVIEW B U S IN E S S C O N D IT IO N S IN T H E T W E L F T H F E D E R A L R E S E R V E D IS T R IC T Federal Reserve Bank of San Francisco h ere was little perceptible change in the general state of Twelfth District business during April or early T May. Industrial production remained about the same as in March, after allowance for seasonal influences, and retail trade was maintained at about the levels of the preceding month. Factory employment and payrolls in the three Pacific Coast states declined slightly during April, after allowance for seasonal factors. Value of residential build ing permits was slightly lower in April and May than in March, but the general level of residential construction continues higher than in any other period of the past decade. I ndustry On a seasonally adjusted basis, industrial output was somewhat lower in April than in the winter months, but with few important exceptions production was substan tially higher than a year ago. Value of permits issued for new residential building was slightly lower in April than in March and this bank’s adjusted index declined 2 points to 52 percent of the 1923-25 average. At that level, however, it was as high as last December, and higher than in any month previous to December since 1929. The small April downturn occurred principally in southern California, where new residential construction has recently been exceptionally active. In complete data for May indicate that the district index will remain close to the April level in that month. After declining in February and March, lumber pro duction increased more than is usual in April and May. Increased activity was in response to an advance in new orders which began early in March. On May 13, mill quotations on Douglas fir items in mixed cars for rail shipments direct to the trade averaged slightly higher than a month earlier. The rate of output of the district aircraft industry ap pears to have attained an all time peak during the past few months. With the receipt of large new orders and the prospect of further large orders, most of the district’s major plants have stepped up operations since the first of this year. As a result, operations are less uneven than they were in the latter part of 1938, when several plants were operating at or near capacity with others only moderately active and some relatively inactive. At some plants, how ever, there still exists a large amount of unused capacity. Employment of wage earners in the industry declined considerably last year, owing chiefly to increasing output per man-hour. Late in 1938, however, with rising pro duction, employment turned upward and has now re attained the former peak figure. Despite the high rate of operations, there has been only a small amount of plant June 1,1939 expansion since 1937, with the exception of one import ant plant which has extended its productive facilities considerably since mid-1938. Contemplated construction in California of several relatively small plants by new companies has been announced recently. Activity at district automobile plants, which had under gone substantial declines from January through March, receded slightly further in April, according to available information. Furniture plants continued active at rates averaging moderately higher than a year ago. Trade com ment indicates that sales and production of wood pulp currently show little, if any, improvement over the de pressed levels reported during most of 1938. District flour mills have received a considerable volume of orders for export, largely to the Orient, in recent months, and unfilled export orders held by mills in midApril were reported to be higher than in many years. During the first four months of 1939 shipments to China from Pacific Northwest ports totaled 855,000 barrels, or 41 percent of total cargo shipments of flour from those ports. During the corresponding 1938 period shipments to China aggregated 78,000 barrels, or 6 percent of the total. Milling activity advanced substantially in April to the highest level for that month since before 1923, when monthly data for this district first became available. Out put for the first four months as a whole was likewise higher than in any corresponding period since before 1923. In May, contracts for erection of a flour mill in Spokane, expected to cost about $700,000, were awarded. After advancing slightly during the latter half of 1938, the number of wage-earners employed in district mills and factories has not shown much change since De cember, allowing for the customary small seasonal in creases. Total wages paid were somewhat lower in April than in March, and were considerably lower than last December when output and working hours were higher than currently. In comparison with April of last year, employment this year was 4 percent higher and payrolls averaged 6 percent higher. T rade Consumer purchases of most commodities for which information is available displayed about the usual sea sonal changes during April. New automobile sales, which had declined markedly earlier in the year, increased sea sonally in that month. Viewed broadly, retail commodity sales appear to have been well maintained since early in 1938, although the moderate advances apparent last autumn have more recently tended to slow down or cease entirely. 26 FEDERAL RESERVE B A N K OF SAN FRANCISCO A g r ic u l t u r e Total farm cash income in the Twelfth District, in cluding receipts from Federal commodity loans, export subsidies, and Government benefit payments, has been somewhat larger through April this year than in the first four months of 1938. Prices received by farmers for their products have in general tended to increase in recent weeks, while marketings of seasonal products have been earlier and the aggregate volume of all farm products sold thus far this spring has been slightly larger than a year ago. The increase in cash receipts of farmers has not been general throughout the district. In fact, the gain in the total for the seven western states is accounted for en tirely by the Pacific Northwest, where combined receipts from marketings of wheat and Federal loans on wheat, as well as income from the sale of apples, potatoes, and livestock, have been larger than in the first four months of 1938. Elsewhere in the district gross farm income has been lower than a year ago. Spring sown grain and field crops and deciduous fruits are being affected unfavorably by inadequate moisture. Earlier estimates of probable crop yields in unirrigated sections of the district were reduced in April and unirri gated pastures and livestock ranges at lower altitudes are dry in many localities. Irrigated crops, orchards, and pas tures, however, are in good condition. Insect infestation is reported by growers throughout the district to be greater than usual this year. California spring lambs were moved to eastern and mid-western markets in heavier volume and at an earlier date this year than last. Out-of-state shipments through May 20 are estimated at about 571,000 head or 87,000 more than had been shipped by June 15, 1938. An active demand for both feeder and slaughter lambs made it pos sible for growers to dispose of entire bands regardless of finish. Slaughter lambs comprised a much smaller than Production and Employment■ Index numbers, 1923-1925 average=100 Industrial Production* Manufactures (physical volume) L u m b e r ................................................ Refined oils ....................................... Cement ................................................ M eat ..................................................... W heat flour ....................................... Minerals (physical volume) P e tr o le u m ............................................ Construction (value) Residential building permitsf Twelfth District ......................... Southern California ............ Northern California ............ Oregon ....................................... W ashington ............................. Intermountain states............ Public works contracts................. Miscellaneous Electric power production............ With Seasonal Without Seasonal r ~ Adjustment —\ t— 1939— V 1938 r - Adjustment -\ , — 1939— v 1938 Apr. M ar. Apr. Apr. M ar. 71 — — 106 148 69 — 101 116 121 58 — 70 109 117 76 164 __ — 131 64 153 102 __ 118 103 — — — 93 94 109 52 59 41 30 41 83 — 54 63 42 22 37 93 — 36 39 33 20 25 66 — 59 65 50 37 51 97 129 62 72 51 32 43 83 140 42 43 40 24 31 78 106 205 211 182 202 196 179 96 106 88 78 92 103 78 75 95 106 86 78 93 104 83 77 92 102 78 77 92 101 87 73 86 97 74 66 92 101 83 76 91 101 83 73 87 97 75 70 Factory Employment and Payrolls# Employment 95 Pacific Coast .................................... California ....................................... 107 Oregon ........................................... , 85 W ashington .................................. 75 Payrolls Pacific Coast .................................... , 90 California ...................................... , 101 Oregon ......................................... . 81 W ashington .................................., 71 Apr. 62 159 74 *Daily average. flncludes figures from 197 cities and Los Angeles County, unincorporated. ^Excluding fruit and vegetable canning. June 1, 1939 usual proportion of the total number marketed this sea son, and were lighter in weight and of poorer quality than in other recent years. Prices per head received by grow ers, however, have averaged higher than last season. Estimates of probable output of the principal decidu ous fruits grown in the district are still tentative. In the case of the California apricot crop, harvesting of which began late in May, reports indicate that if there is suffi cient moisture to mature the fruit properly in unirrigated sections, output will be considerably larger than in 1938 and may approximate the record production of over 300,000 tons harvested in 1937. California usually accounts for more than 95 percent of the entire apricot crop grown in the United States and for well over half the total world output. Gross income of growers in California has varied widely from year to year during the past decade. In 1929, a large crop was sold at high prices, yielding growers a peak return of $13,500,000, while in 1932 a depression low of $4,600,000 was reported. On the average, farm income from apricots has approximated $8,500,000 during recent years. P r o d u c t io n , U t i l i z a t i o n , a n d F a r m V a l u e of A p r ic o t s — Years or Proaverage duction of years (tons) 1922-26 ............ 168 215* 1927-31 ............ 1932-36 ............ 228* 1936 248 1937 311 1938p ............... 176 C a l if o r n ia (in thousands) , --------------- Utilization--------------- s Farm Consumed Price Farm Dried Canned Fresh (dollars Value (tons) (tons) (tons) per ton) (dollars) 108 44 16 50 3,476 144 49 20 47 9,909 162 44 19 35 7,879 177 53 18 38 9,424 189 101 21 37 11,507 127 27 22 35 6,160 *Includes fruit unharvested, totaling 8,300 tons in 1 9 3 0 ; 4,000 tons in 193 1 ; and 13,000 tons in 1932. p Preliminary. Source: California State Department of Agriculture and Giannini Foun dation, University of California. As indicated in the accompanying table, apricot pro duction in California fluctuates considerably, but the trend has continued upward during the past decade de spite a reduction in bearing acreage. In the late twenties, bearing acreage reached a peak of approximately 83,000 acres and has since been reduced to about 75,000 acres, owing principally to abandonment of poorer orchards. Expansion of output during a period of contraction in acreage is explained by the fact that an increasing pro portion of the trees have been reaching maximum bear ing age. Apricots are quite perishable and are poorly adapted to shipment to distant markets as fresh fruit. Consequently, most apricots are dried or canned for marketing. In re cent years about 65 percent of the crop has been dried and an additional 25 percent has been canned. O f the re mainder, the bulk has been marketed locally as fresh fruit, only a small portion having been shipped to eastern and mid-western centers. Foreign markets constitute an important outlet for both dried and canned California apricots. More than 45 percent of the dried output has been exported in each year of the past decade except in 1929. In that year, 43 percent of the dried output was exported and the pro portion has ranged as high as 52 percent in 1935. Exports of canned apricots have likewise been large, although the proportion of the pack sold abroad has declined during the past few years. In the five crop years ending May 31, 1938, exports averaged 16 percent of the canned pack. June 1, 1939 B a n k in g a n d C r e d it Reserve balances of member banks in the Twelfth Dis trict advanced further during the five weeks ending May 24, continuing the expansion which began early in March. The increase in reserve balances during the five week period amounted to $9,500,000, and brought the total on May 24 to $566,468,000. Operations of the United States Treasury were en tirely responsible for the increase in reserves during the past five weeks, as has been the case during most of the past decade. Since 1930, disbursements of the Federal Government in the Twelfth District have customarily exceeded Treasury collections in this region from all sources, including taxes, payments of interest and prin cipal on loans made by Government agencies, sales of Government securities to district purchasers, and the like. To meet the excess disbursements, transfers of funds have been made by the Treasury to the Twelfth District from other parts of the United States. When the Treasury disburses the funds transferred in from other districts, there is a net addition to reserves and de posits of banks in this district. In the five weeks ending May 24, the additions to dis trict bank reserves and deposits coming from Treasury operations amounted to $50,100,000. Other factors, how ever, particularly net payments of $35,700,000 to other districts in connection with commercial and financial transactions, drew down member bank reserves, and the net increase in reserves over the five weeks was only $9,500,000. The accompanying table shows the amount of net Treasury additions to district bank reserves, of net commercial and financial payments to other districts, and of net changes in district bank reserves, by years since 1929, and during the first five months of this year. The fact that United States Treasury operations dur ing recent years have had the effect of adding to the re serves of member banks in the Twelfth District stands in sharp contrast to the general effect of Treasury opera tions upon the reserves of member banks in the United Distribution and Trade— Index numbers, 1923-1925 aver a g e = 100 With Seasonal /— Adjustment— n f— 1939 — n 1938 Apr. Mar. Apr. Retail Trade Department store sales (value)* 92 Twelfth D is t r ic t ................................ 96 California ........................................... 93 Los A n g e l e s .................................. 98 Bay Region .................................. San Francisco ............................. 94 Oakland ......................................... 113 Pacific N o r th w e s t.......................... 75 85 S e a t t le .............................................. 74 Salt Lake C ity.................................. 64 Department store stocks (value) t 78 Furniture store sales (value)* $ . . . 68 Furniture store stocks (v a lu e ) f i. . Automobile sales (number)* — — Passenger ....................................... — C om m ercial.................................... Carloadings (num ber)*§ 86 Total .......................................................... 96 Merchandise and misc..................... 74 O t h e r ..................................................... Intercoastal Traffic (volume) 63 Total .......................................................... 52 Eastbound ......................................... Westbound ......................................... 100 *Daily average. 27 M O N T H L Y REVIEW OF BUSINESS CONDITIONS tA t end of month. Without Seasonal Adjustment— \ ,— 1939— \ 1938 Apr. Mar. Apr. ,— 93 97 92 102 100 110 77 87 74 65 73 70 91 96 91 100 97 114 72 79 77 65 70 71 90 93 88 96 92 107 75 85 71 67 71 70 84 89 85 91 89 98 68 75 65 67 65 70 90 94 87 99 96 110 72 79 75 68 65 74 — — — — — — 99 92 169 95 88 166 78 71 154 79 93 62 75 85 62 84 90 75 74 87 58 73 80 63 69 57 110 48 40 73 62 49 106 68 53 116 47 37 78 $1929 averages 100. §Revised series. States as a whole. When the entire banking structure of the country is considered, Treasury operations may exert at most only a temporary influence upon the aggregate volume of bank reserves, even during periods of heavy deficit financing. That is, when the Federal Government sells securities to banks to meet deficit expenditures, the banks pay for the securities by drawing down their re serve balances. Banks have, in other words, then replaced C h a n g e s i n M e m b e r B a n k R eser ves a n d P r in c ip a l F actor s C a u s i n g C h a n g e s — T w e l f t h D is t r ic t (in millions of dollars) 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 [J a n . 1 - Apr. 19 I Apr. 19 - M ay 24 .... ... . U . S. Treasury Operations + 23 + 89 +152 +241 +145 +270 +207 +454 +157 +276 + 1 0 + 50 Commercial Operations 0 — 53 — 162 — 178 — 103 — 202 — 154 — 227 — 90 — 240 — 27 — 36 Reserve Balances — 10 + 7 — 36 — 4 + 43 + 70 + 32 +191 + 70 + 16 — 8 + 10 Note. Changes in reserve bank credit and in demand for currency, both of which affect member bank reserves, are not shown. They would account for most of the changes in member bank reserves not shown by Treasury and commercial operations. cash reserves with an earning asset— Government securi ties. When the Federal Government disburses the funds received from its securities sales, the Government checks are promptly deposited in banks, resulting in increased deposits and increased cash items. When the cash items (Government checks) are presented to the Reserve bank for payment, the member bank receives credit in its re serve account, and the Treasury’s checking account at the Reserve bank is charged accordingly. This payment of the Treasury checks thus restores aggregate member bank reserve balances to the level that existed before the Government sold the aforementioned securities. The posi tion of member banks as a group, as compared with their position before the Government securities were sold, is one of increased earning assets in the form of Govern ment securities, and of increased deposit liabilities to in dividuals, businesses, and the like. Other items in the composite balance sheet of banks have not been changed by the Government deficit financing. Because of the in creased deposit liabilities, reserve requirements have been increased, and under conditions such as have existed in recent years, the volume of excess reserves has accord ingly been reduced. In sum, it may be said that Government deficit finan cing does not change the total volume of bank reserves of the United States as a whole, but it does reduce the vol ume of excess reserves. In the Twelfth District, how ever, an excess of Federal Government disbursements over collections results in an addition to local bank re serves, the additional reserves being drawn from banks in other localities where the Treasury collects more than it pays out. Similarly, in any other region in which the Federal Government consistently disburses more than it collects, Treasury operations add to reserves of banks in that locality. Conversely, in an area in which the Federal Government collects more than it spends— New York is the principal example— Treasury operations serve to re duce bank reserves. 28 June 1, 1939 FEDERAL RESERVE B A N K OF SAN FRANCISCO S u m m a ry o f N a tio n a l B u sin e ss C o n d it io n s Prepared by the Board of Governors of the Federal Reserve System of industrial production declined sharply in April, reflecting chiefly shutdowns at bituminous coal mines and reduction in activity at textile mills. Retail purchases by consumers were maintained. V o lu m e P IN D U S T R IA L P R O D U C T IO N Index of physical volume of production, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1934 to April 1939. FA C T O R Y E M P L O Y M E N T A N D PAYROLLS Indexes of number employed and payrolls, without adjust* ment for seasonal variation, 1923-1925 average=100. By months, January 1934 to April 1939. r o d u c t io n In April, the Board’s seasonally adjusted index of output at factories and mines was at 92 percent of the 1923-1925 average, compared with 98 in March and 77 a year ago. In the steel industry, production declined in April and the first three weeks oi May, but in the fourth week ingot output increased to 4 8 ^ percent of capacity, about the rate prevailing a month earlier. Around the middle of May substantial concessions were made in prices of some types of steel and it is reported that a considerable volume of orders for steel was placed during this period. Automobile production in April was at about the same rate as in March, al though there usually is some increase, and in May output declined, owing in part to the fact that stocks of new cars were larger than is usual at this time of the year. Plate glass production decreased sharply in April, following smaller de clines earlier in the year. In the lumber industry, output increased somewhat in April, while cement production, which had risen sharply in February and March, showed less than the usual increase. Textile production declined sharply in April, particularly at woolen mills, where output had been at a high level, and in the silk goods industry, where further curtailment reflected in part recent high prices for raw silk. Output of shoes showed a decrease from the high level maintained during the first quarter of this year. A t flour mills and sugar refineries, activity increased further, while in most other nondurable goods lines changes in output were largely seasonal in character. Bituminous coal production was in small volume during April and the first half of May as most mines were closed pending settlement of contract negotia tions between mine operators and workers. After the middle of May agreements were reached at most mines and output began to increase rapidly. Production of anthracite, which had been reduced in March, increased sharply in April and crude petroleum production rose further. In the first half of May anthracite pro duction was maintained but petroleum output declined somewhat. Value of construction contracts awarded, according to the F. W . Dodge Cor poration, was larger in April than in March, owing chiefly to a rise in awards for public projects. Contracts for private construction showed little change in the aggregate as private residential contracts declined, contrary to seasonal tendency, while contracts for commercial, factory, and other private construction increased. In the first half of May, awards for private work increased somewhat while the volume of public contracts declined. E m ploym ent Employment in nonagricultural pursuits declined somewhat from the middle of March to the middle of April, reflecting a sharp drop at bituminous coal mines offset in part by seasonal increases in construction and trade. A t factories, the number employed showed little change, while payrolls declined considerably be cause of fewer hours of work. D D E P A R T M E N T ST O R E SA LE S A N D STOCK S Indexes of value of sales and stocks, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1934 to April 1939. is t r ib u t io n In April, distribution of commodities to consumers showed about the usual seasonal increase. The Board’s adjusted index of department store sales remained at 88 percent of the 1923-1925 average, about the level that has prevailed since last autumn. Railroad freight-car loadings declined sharply owing mainly to a reduction in shipments of coal. Loadings of miscellaneous freight showed less than the usual seasonal rise. _ _ C o m m o d i t y P r ic e s Prices of grains and cotton advanced from the middle of April to the third week of May and there were also increases in prices of silk, hides, and bituminous coal. Prices of copper and steel scrap, on the other hand, were reduced and sub stantial concessions were granted in prices of several leading steel products. B a n k C r e d it Total loans and investments at reporting member banks in 101 leading cities, which had increased in April, declined during the first half of May. The decline was at New York City banks and reflected a reduction in loans to security brokers and dealers and redemption of obligations of New York state and city Govern ments. After increasing substantially in April, demand deposits at banks in lead ing cities showed little change in the first half of May. Bank reserves increased further in May to a new high level. M M O N E Y R A T E S IN N E W Y O R K C IT Y For weeks ending Januarv 6. 1934 to M av 20. 1939. oney R ates Prices of United States Government bonds and notes increased sharply during the last half of April and the first three weeks of May to new high levels. The average yield on long-term Treasury bonds declined from 2.34 percent on April 11 to 2.13 oercent on Mav 22. Other monev rates showed little chansre.
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