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MONTHLY REVIEW B U S IN E S S C O N D IT IO N S IN T H E T W E L F T H Federal Reserve Bank of San Francisco expansion in industrial activity in the Twelfth District during April and early May was ac companied by further increases in factory employment and payrolls to new record levels. The awarding of contracts for defense construction in this area reached a peak in the late fall and early winter months, but total nonresidential construction initiated in April remained large and in cluded substantial awards for army and navy facilities and for defense housing. Contracts for shipbuilding facil ities bulked heavily in the total for the month. Private residential building rose more than seasonally in April to a dollar total exceeding that for any month since 1929, when monthly figures were first compiled. Estimates indi cate that cash farm income in April was considerably above a year earlier because of both larger marketings and substantially higher prices. Rising quotations for farm products in recent weeks have been reflected in a considerable advance in retail food prices, and total costs of living in the four larger Pacific Coast cities in midApril averaged about 3 percent higher than a year earlier, with a further advance indicated for more recent weeks. Bank loans extended for commercial and industrial pur poses continued to expand in April and the first three weeks of May. As shown by a recent survey, a consider able proportion of the increase in these loans over the past year is traceable to advances for financing defense. C o n t in u e d I ndustry and T rade The course o f industrial activity in the district con tinues to be one of uninterrupted expansion. Factory em ployment and payrolls advanced further, the seasonally adjusted index o f employment in the three Pacific Coast states rising to 157 percent of the 1923-1925 average in April, some 44 percent higher than a year earlier and 50 percent above April 1939. Payroll increases over a year and two years ago were even larger, the gains amounting to 50 percent and 81 percent. Recent increases in industrial activity have been partly due to expansion in activity in the older established basic industries of the district, particularly lumbering and nonferrous metals mining and smelting. The food processing industry, however, has been somewhat less active recently than a year earlier. Crude oil production continues to be restricted by a proration program, but a small gain has been evident in operations at petroleum refineries. Much of the expansion in industrial activity has been traceable to aircraft production and shipbuilding, industries which have risen rapidly to positions of importance in the econ omy of the area comparable to those held by the longestablished primary lines mentioned above. This rise of the aircraft industry has taken place in little over two years. The development of shipbuilding to its present status has been even more rapid, and represents the sud den revival of a long dormant industry which had thrived previously on the Pacific Coast for a brief period about two decades ago. In the interim most of the facilities F E D E R A L R E SE R V E D IS T R IC T June 1,1941 utilized earlier had been dismantled and much of the plant now in use, to which huge additions are in progress, has been constructed and equipped during the past year. The importance attained by the aircraft industry in the Twelfth District is indicated by the fact that about 85,000 wage-earners are now employed by local aircraft manufacturers. Additional thousands are employed by firms supplying parts and equipment, and current empha sis upon sub-contracting is steadily bringing an increasing number and variety of plants into the service of the air craft industry. Suppliers of materials to this industry are being attracted to the Pacific Coast. Production of aluminum from raw materials shipped from the South has recently been commenced in the Columbia River sec tion, using Bonneville electric power, and additional facilities are under construction. Another light structural material, magnesium, will shortly be produced in quan tity by a large plant now under construction in Central California. The ore to be reduced in this plant will be mined in Nevada. Workers engaged in shipbuilding in Pacific Coast yards probably numbered in the neighborhood of 40,000 in April, but this figure is to be regarded as merely an approximation. Although not as numerous as in the case of aircraft, there are, in addition, an indeterminate num ber of workers employed by firms with sub-contracts. New building construction continued active in April, the total value of projects for which permits were issued or contracts awarded exceeding $76,000,000. This com pares with a monthly average of $64,000,000 during the first quarter and was about twice the figure for April 1940. Included in the total was some $15,000,000 for shipbuilding facilities* Value of permits for private resi dential building was higher than for any month in 12 years and further contracts were awarded during the month for defense housing of a permanent character. Through April, the construction of nearly 10,500 defense dwelling units to cost about $33,000,000 had been initi ated and further large awards were made in early May. District lumber production continued to increase in April and was larger than in any like month during the past 11 years. Because of the abnormally high level at which output was maintained during the winter, how ever, the increase was of less than seasonal proportions. New orders have increased irregularly since the first of the year and averaged 334,000,000 board feet in the three weeks ending May 17. This figure is only 2 percent be low the weekly average last August when a variety of factors induced a volume of buying from district lumber mills greater than at any time in more than a decade. Steel mill operations which have been at about capacity levels for some months advanced slightly in April, and small additions are being made to plant facilities in this industry. Production of cement in California was of near record proportions in March and April, although output remained relatively depressed in the Pacific North FEDERAL RESERVE B A N K OF SAN FRANCISCO 26 west. A factor in the operations of cement plants in Cali fornia has been the active construction of Shasta Dam. Among other industries, assembly of automobiles dur ing the first four months o f 1941 was at a higher rate than at any comparable period in the past, while pulp and paper manufacturing continued at capacity in April. The effect of increased payrolls upon retail trade has been clearly evident during the past few months. Com bining the figures for March and April to eliminate the distorting influence upon year period comparisons of the shift in the date o f Easter, department store sales were 14 percent above the corresponding 1940 period and, after allowance for seasonal influences, averaged higher during the two months than at any previous time. By far the largest gains in retail trade were accounted for by sales o f consumer durable goods. During March and April, sales of major household appliances by district department stores were 33 percent higher in value than in the like months o f 1940, and furniture stores reported an increase of 21 percent. New automobile registrations likewise showed large year-period gains. A g r ic u l t u r e Although estimates are subject to material change be tween now and the actual harvest season, current pros pects suggest that the output of nearly all crops in the Twelfth District will be as large as, and in some cases larger than, the heavy production of 1940 or of the previ ous three years. Precipitation during the past winter and spring has been less than normal in the Pacific Northwest and some shortages of irrigation water may occur later, but the present excellent condition of most crops indi cates larger-than-usual yields in that area. A heavy set of apples and pears in most orchards points toward crops P rod u ction and E m ploym ent— With Seasonal Adjustment -> r - 1941 —v 1940 Apr. Mar. Apr. Index numbers, 1923-1925 average=100 idustrial Production1 Manufactures (physical volume) 106 — 130 120 85 — 121 135 104 172 138 136 95 161 131 117 88 157 127 US — 118 127 144 93 154 — 118 127 148 160 92 116 132 151 93 119 130 150 85 84 67 52 159 148 73 70 81 39 66 131 — — 66 71 52 41 . 66 125 — 98 93 82 65 199 174 654 85 80 99 56 76 117 291 /5 79 63 50 83 147 131 234 240 219 231 223 216 188 121 . 113 155 185 123 114 119 137 102 93 157 186 124 117 152 180 118 113 120 136 105 96 . 179 . 210 . 142 132 173 203 135 131 119 136 98 94 181 210 145 138 171 200 130 131 120 136 100 97 Refined o i l s .................................... Cement .............................................., . , Minerals (physical volume) Petroleum ...................................... Lead ( U . S .) 3.................................. Silver ( U . S .) 3............................. Copper ( U . S .) s ........................... Construction (value) Residential building permits4 Twelfth D istrict...................... . . Southern California.......... . . Northern California.......... . . Oregon .................................. , . W ashington ........................ . Intermountain states. . . . . . Public works contracts. . . . Miscellaneous ., Electric power production actory Employment and Payrolls2 Employment Pacific C oast.................................. California .................................. Oregon ....................................... . Washington ............................. Payrolls Pacific C oast.................................. . California .................................. . Oregon ....................................... . Washington ............................. Without Seasonal ,—Adjustment-^ f — 1941— N 1940 Apr. Mar. Apr. — 131 154 — 1Daily average. 2Revised series. 3Prepared by Board of Governors of Federal Reserve System. (1935-1939 = 100). ‘ Includes figures from 197 cities and Los Angeles County, unincorporated. 5Excludes fish, fruit, and vegetable canning. June 1, 1941 larger than in 1940. In California, long periods of exces sive rainfall during the winter and early spring months curtailed plantings and other farming operations, and seriously damaged crops and fruit trees in some locali ties. Warm, dry weather has been more favorable re cently, however, and heavy late plantings of rice, beans, tomatoes, and a number of other crops have improved the anticipated total production. Output of citrus fruits is expected to be slightly larger than in the 1939-1940 season, notwithstanding recently lowered estimates of Valencia (summer) orange production. The lemon crop is forecast at over 13,580,000 boxes, compared with the previous record crops of 11,963,000 and 11,106,000 boxes harvested in 1940 and 1939, respectively. Estimated grapefruit production of 4,700,000 boxes in Arizona and California is approximately equal to harvests during the past three years. The cherry and apricot crops are ex pected to exceed the small rain-damaged crops of 1940, and reports from orchardists on most other deciduous fruits, except peaches, suggest larger yields than in 1940. With pastures and ranges in excellent condition throughout most of the Twelfth District since early in the year, with larger herds, good lamb and calf crops, lighter than usual losses of animals from winter weather, and plentiful supplies of relatively inexpensive feeds, aggre gate output of livestock and such related products as milk and other dairy products and of wool is expected to be above 1940 and other recent years. Production of milk, butter, and cheese has been larger than in the spring of 1940, but two years of low egg prices have reduced the current output of eggs. Sales of chicks by hatcheries in recent months suggest that current high egg prices will result in a sharp expansion in egg production by next fall. Low hog prices resulted in curtailed pig crops last year, but it is expected that the recent price supporting meas ures of the Federal Government will increase production next fall and spring. Aside from weather and physical conditions, the out standing development affecting the agricultural situation in the Twelfth District this spring has been the sharp advance in prices of farm products following the relative stability of the preceding year. Prices paid at the farm in April are estimated to have been around 10 percent higher on the average than a year earlier and a further increase took place during the first half of May. A variety of factors has contributed to the upsurge in prices of farm products. The recent expansion in con sumer purchasing power, together with the requirements of the enlarged personnel of the armed forces has re sulted in record or near-record domestic demand. Con gressional action in providing for loans on a number of crops at specified mandatory values, sharply higher than the values at which loans have been granted in recent years, appears also to have played an important role. These loan values are considerably higher than market prices prevailing late last winter. Another influence has been the initiation of the so-called food-for-defense pro gram announced by the Government during April. This new food program is designed to bring about an increase in production of various livestock products and a few crops expected to be needed in increasing volume to meet domestic and British requirements over the next several years, and is being effected through price supporting measures. Minimum prices are being maintained by means of Government purchases, when necessary, and these minimum prices are generally well above those in effect in March, prior to announcement of the program. The program now covers hogs, butter, cheese, evaporated milk, dried milk, poultry, eggs, beans, and rice, with some prospect that dried fruit may be added later. Some what similar in purpose is a recently announced program designed to encourage output of tomatoes, sweet corn, peas, and snap beans for processing. The accompanying chart shows the various sources of cash income from sales of livestock and related products MILLIONS O f DOLLARS MILLIONS OF DOLLARS F A R M G A S H I N C O M E F R O M L IV E S T O C K A N D R E L A TE D PR O D U C TS -1 9 4 0 by states and for the district in 1940. Although showing wide regional variations— averaging from 17 percent in the less-densely populated states of Arizona, Nevada, and Utah, to over 40 percent in California, Oregon, and Washington— income was larger for dairy products than for any other farm commodity. The $158,000,000 re ceived for dairy products sold during 1940 accounted for over 34 percent of total cash income returned to livestock producers in this district. Marketings o f cattle and calves returned growers over $136,000,000, or 29 percent of total income from livestock and related products. Sales of lambs and wool accounted for 15 percent, chickens and eggs 12 percent, hogs only 5 percent, and turkeys 4 per cent of total returns from livestock in 1940. B a n k in g and C r e d it Loans extended for commercial, industrial, and agri cultural purposes by weekly reporting member banks in the Twelfth District continued to increase in the five weeks ending May 21, and on that date totaled $412,000,000. During recent months, much o f the increase, which has amounted to $74,000,000 since mid-May last year, has been in response to a demand for funds arising direct ly from defense activity. O f the $406,000,000 outstand ing on April 30, the banks reported that about $33,000,000 had been extended to customers to finance the pro vision of facilities, supplies, or equipment for national 27 M O N TH LY REVIEW OF BUSINESS CONDITIONS June 1,1941 defense. Among these defense loans were advances to aircraft and aircraft parts producers to finance expan sion of facilities or to finance current operations approxi mating $3,200,000, and loans to firms engaged in ship building approximating $12,700,000. Unused commit ments for future loans amounted to $13,900,000 in the aircraft industry and $13,600,000 in the shipbuilding industry. As in other recent months, the only remaining group of loans to increase slightly further during the five weeks ended May 21 was the miscellaneous “ other” group in which personal and consumer installment loans are included. Investments expanded in the period under review, almost the entire increase taking place in holdings of direct obligations of the United States. Expansion in loans and investments has been a factor in the further rise in deposits of district reporting mem ber banks during recent months, a rise which continued through the five weeks ending May 21. Since the first of the year this increase has been largely in demand deposits, time accounts fluctuating narrowly with little net change. On May 21 adjusted demand deposits totaled $1,337,000,000, compared with $1,279,000,000 on December 31, 1940 and $1,068,000,000 on May 22, 1940. The yearperiod gain approximates 25 percent and continues the sharp increase in demand deposits of recent years. At the same time the rate of use or the turnover of demand deposits appears to have increased slightly more than seasonally since last August (the month of the year in which turnover is ordinarily at its lowest), but continues well below the levels of a year ago. This expansion and more active use of demand de posits has occurred while the other component of the money supply, currency in circulation, has been increas ing in volume. Following a reduction in January, which is a customary development in the several weeks after the Christmas buying season, district demand for currency has expanded steadily. From February 1 through May 21, net payments o f coin and currency into circulation by the Federal Reserve Bank of San Francisco and the San Francisco Mint totaled $52,043,000. Net payments over the past year have amounted to $133,444,000. Distribution and Trade— Index numbers, 1923-1925 average=100 Retail Trade Department store sales (va lu e )1 Twelfth D istrict............................ California ....................................... L os A n g e l e s ............................... Bay Region ............................... San Francisco .......................... Oakland ..................................... Pacific N orthw est........................ Portland ..................................... S e a t t le .......................................... Spokane ..................................... Salt Lake C ity ............................... Department store stocks (va lu e )2 Furniture store sales (va lu e )1' 3. . . Autom obile sales (nu m ber)1 With Seasonal r-Adju8tment-'\ t— 1941— N 1940 Apr. Mar. Apr. 112 108 101 113 104 136 121 120 129 101 94 62 100 — — Passenger ................................... Commercial ............................... — Carloadings (nu m ber)1 Total .................................................... 106 Merchandise and m isc................. 113 96 Intercoastal Traffic (volum e) 60 51 Eastbound ..................................... 91 W estbound ..................................... *Daily average. 2At end of month. 111 106 94 116 107 142 121 114 133 109 103 65 99 96 94 88 99 91 121 99 102 100 91 82 63 83 — — Without Seasonal /—Adjustment—s ,— 1941— V 1940 Apr. Mar. Apr. 110 105 96 110 102 132 120 117 129 106 88 65 92 99 96 87 103 95 126 105 103 113 88 88 67 85 90 88 81 92 85 111 95 96 96 90 75 66 77 174 166 250 133 124 225 — — — — 101 108 92 91 100 80 103 107 98 94 101 86 89 94 82 58 40 119 61 48 104 59 48 97 57 37 126 60 45 110 31929 average — 100. FEDERAL RESERVE BA N K OF SAN FRANCISCO 23 POINTSINTOTAL\b June 1,194 N a tio n a l B u s in e s s C o n d it io n s — B o a r d o f G o v e r n o r s commodity prices advanced sharply in April and the first half o May, with the exception principally of metals for which maximum price had been established. Industrial production declined in April, owing to reduce output of coal and automobiles, but increased rapidly in the first half of May a operations in these industries were resumed. h o le s a le W P r o d u c t io n a n d D is t r ib u t io n I N D U S T R I A L P R O D U C T IO N Federal Reserve index of physical volume o f production, adjusted for seasonal variation, 1935-39 average—100. Sub groups shown are expressed in terms of points in the total index. By months, January 1935 to April 1941. W H O L E S A L E P R IC E S O F B A S IC C O M M O D I T IE S Bureau of Labor Statistics* indexes based on 12 foodstuffs and 16 industrial materials, August 1939=100. Thursday figures, January 3, 1935 to M ay 8, 1941. In April the Board’s seasonally adjusted index of industrial production decline to 139 percent of the 1935-1939 average, a drop of 4 points from March. Th decline reflected chiefly a sharp reduction in output of bituminous coal, as moj mines were closed during the entire month. The mines were reopened on April 3 and in the first half of May coal output increased rapidly. Automobile production also declined in April, owing to stoppage of work £ plants of the Ford Motor Company during an industrial dispute. This was settle about the middle of the month and domestic output has since advanced to a hig monthly rate of over 500,000 cars and trucks. Announcement by the Office of Prc duction Management that output in the twelve months ending July 31 would aj proximate 5,290,000 units indicates that a rate close to that now prevailing shoul be maintained through July, although there is usually a decline in this period. Steel production was curtailed somewhat in the latter half of April by shori ages of coal and coke and output declined from a level of 100 percent of capacit to 94 percent at the month end. Subsequently output increased, reaching 99 pei cent by the middle of May. In most other lines activity continued to increase during April and the fir half of May. Machinery production rose further and activity in the aircraft ar shipbuilding industries continued to expand rapidly. Consumption of nonferroi metals also advanced, and, as in March, domestic sources of copper were suppl< mented by large supplies from Latin America. Textile production rose furth< from the high rate prevailing in March. Consumption of raw cotton in Apr amounted to 920,000 bales, a new record level, and rayon deliveries also rose to new peak. At wool textile mills activity was maintained near the high March rat Continued advances were reported in the chemical, paper, and food industries. Anthracite production declined considerably in April, owing to a delay t dealers in placing usual spring orders, but increased in the first half of May. Ou put of crude petroleum showed little change from the March rate, followir some increase from the reduced level of the winter months. Iron ore shipments i April amounted to about 7,000,000 tons, an exceptionally large amount for this tin of year, and mine output of nonferrous metals continued at near capacity rates. Value of construction contract awards in April declined somewhat from tl high March total, owing principally to a smaller volume of defense plant coi tracts, according to F. W. Dodge Corporation reports. There was an increase contracts for publicly financed defense housing, and awards for private resident! building rose by about the usual seasonal amount. Sales of general merchandise at department and variety stores showed aboi the usual seasonal rise from March to April, making allowance for the changir date of Easter. Retail sales of new automobiles, which had amounted to 526,0( cars and trucks in March, rose further in April and sales of used cars were peak levels. Freight-car loadings declined sharply in April, reflecting a reduction in shij ments of coal and coke, but increased in the first half of May when coal mini were reopened. By the middle of the month total loadings had risen to a week rate one-fourth higher than in the corresponding period last year and about tl same as the seasonal peak reached in the autumn of 1940. C o m m o d i t y P r ic e s E X C E SS RESERVES O F M E M B E R BAN KS Wednesday figures partly estimated, January 2, 1935, to M ay 7, 1941. Prices of most basic commodities, both domestic and imported, advanced shar ly further in the first half of May following a short period of little change durii the latter part of April. Price increases were most pronounced for agricultur commodities reflecting in part the prospect of legislation raising Federal loan rat for basic farm crops. Prices of a number of semimanufactured industrial producl including petroleum products, coke, leather, textile yarns and fabrics, and buildii materials, also advanced. Metal prices, now for the most part subject to Feder control, remained at the maximum levels established earlier. B a n k C r e d it — U n i t e d S t a t e s G o v e r n m e n t S e c u r i t y P r i c e s M E M B E R B A N K S IN 101 L E A D I N G C IT IE S Wednesday figures, January 2, 1935 to M ay 7, 1941. Commercial loans, which include industrial and agricul tural loans, represent prior to M ay 19, 1937, so-called *‘ôflip f Inane” a c frh n rpnnrti’ fl Bank loans and investments have shown a marked rise since last summer, tl increase at reporting banks in 101 leading cities amounting to $4,000,000,000. ! April and early May holdings of investments by these banks increased conside ably, mostly at New York City banks, reflecting substantial purchases of new issued Reconstruction Finance Corporation notes. Increases in commercial loa: in this period were somewhat smaller than during the preceding two months. Excess reserves of member banks were $5,700,000,000 on May 14. Since Jan ary they have declined by about $1,100,000,000, owing largely to increases in Trea ury deposits with the Reserve Banks and in currency in circulation. The decrea has occurred entirely at New York City banks. Prices of United States Government securities, which had risen sharply fro April 9 to April 21, subsequently declined irregularly through May 15. On th date the 1960-65 bonds were ¿4 of a point lower than on April 21 and about 1 points below the all-time peak reached on December 10, 1940. The yield on tl issue is currently about 2.09 percent, compared with 2.03 percent on December 1
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