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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 or more than a decade the major economic problems of the Twelfth Federal Reserve District as well as of F the country as a whole have been those of stimulating a sluggish economy. Recent developments have brought with them a distinctly different group of problems. These new problems are concerned primarily with the difficul ties of meeting increased demands which, in a few lines, have exceeded the capacity of available production fa cilities, and which, in many other lines, have been the source of actual or threatened sharp price increases out of which price distortions and resulting maladjustments of the entire economy could develop. In the long run, it is probable that problems of this kind can be dealt with most effectively by expanding available resources of plant, equipment, and trained personnel in the proper fields, and much is being done in the district along these lines. Evidence of this development is shown by the sharp increase in construction contract awards for the expan sion of industrial plants and the active training programs sponsored by private firms and agencies and by the Fed eral Government and other political units. Even with these and prospective increases in production facilities it is probable that output will fall short of demands upon a number of local industries for some time to come. It is thus quite possible that further means will be taken by the Federal Government to restrain rapid and large price advances which might otherwise occur and which, con sidered from a broad point of view, would be undesir able for the economic system. Gains in Twelfth District business during the last half of 1940, in part originating in and made possible by ex pansion in production facilities, were generally extended in January and February. Industrial production, em ployment, and payrolls advanced further, seasonal in fluences considered. As in the immediately preceding months, expansion occurred principally in the defense and durable goods industries. Activity at aircraft and shipbuilding plants and at the numerous firms supplying these two industries with materials, equipment, and parts was advanced further, while gains also took place in the lumber industry. Furniture manufacturing and automo bile assembling appeared to recede less than is usual in January. Local steel production remained at about ca pacity levels, while the mining and smelting of nonferrous metals, spurred on by demands that, temporarily at least, appear to be in excess of current production, continued at the high levels of recent months. New pri vate residential building, which customarily declines slightly in January, advanced substantially, and on a seasonally adjusted basis attained a record for recent years. Five new defense housing projects to provide 675 dwelling units were started in January, and added to total residential building during the month. With three addi tional projects initiated in February, permanent defense housing facilities started in the district since October will March 1,1941 provide 8,239 dwelling units to cost approximately $26,200,000. Nonresidential construction initiated during January was somewhat lower than the totals for the pre ceding several months. The material advances in retail trade during Novem ber and December were well maintained in January. Dol lar gains in recent months have been largest in localities in which the principal and rapidly expanding district defense industries— aircraft and shipbuilding— are lo cated, or in which heavy defense construction and the D e f e n s e H o u s i n g — T w e l f t h D is t r ic t Contract Awarded 1940 October October October N o vember November November November December December December 1941 January January January January January February February F ebruary Sponsor Location Long Beach, Cal.............. San Diego, Cal................... Alameda, Cal..................... Bremerton, W a s h ........... Seattle, W a s h ..................... Vallejo, Cal........................ . Benicia, Cal........................ San D iego, Cal................... . . Moffett Field, Cal............ . . Boise, Idah o...................... Hamilton Field, C a l.. . . March Field, Cal.............. Stockton, Cal..................... Fort Lewis, W a sh ............ Fort Ord, Cal..................... Hawthorne, N ev .............. . Totals to March 1, 1 9 4 1 .......... USH A USH A PBA PBA PBA PBA PBA PBA PBA PBA PBA PBA PBA Dwelling Units Value 400 1,200 600 600 600 150 250 50 3,000 150 $ 1,263,000 3,800,000 2,256,100 1,897,000 1,812,300 465,900 858,000 172,000 9,070,000 481,000 100 150 175 150 100 250 264 50 325,300 450,000 521,000 488,000 300,000 875,000 p 1,000,000 164,400 8,239 $26,199,000 U S H A : United States Housing Authority. P B A : Public Buildings Administration, p : Preliminary. training of troops are taking place. In San Diego, de partment store sales in January were 40 percent higher than in January 1940, while in Tacoma the gain amounted to 38 percent. For the district as a whole, the year period increase amounted to 10 percent. San Diego is an im portant center of the aircraft industry and is also the headquarters of the Eleventh Naval District. The large influx of population recently attracted to that locality created an acute housing shortage and construction of the largest defense housing project in the West, provid ing accommodation for some 3,000 families, was com menced near the city in December. That project followed a contract award made in October for the construction of 1,200 units to house families of naval personnel. Ta coma is an important shipbuilding and lumbering center, and is close to Fort Lewis Military Reservation and McChord Flying Field where construction of new fa cilities to cost some $17,000,000 has been started during the past thirteen months. While increases in sales at de partment stores in other principal population centers have not been as large as those in San Diego and Ta coma, retail trade in Los Angeles, San Francisco, Port land, and Seattle has nevertheless improved recently. In downtown Los Angeles, for example, department store 14 FEDERAL RESERVE B A N K OF SA N FRANCISCO sales during the three months ended January 31, were 10 percent higher than in the preceding three months, after allowance for Christmas trade and other seasonal in fluences. A g r ic u l t u r e The substantial curtailment of the foreign market for United States agricultural products, seen in the reduction in the volume of exports of farm products to 31 percent of the 1935-1939 average in December (on a seasonally adjusted basis), continued to be the most unfavorable feature in both the local and the National agricultural situation. Demand for farm products has improved in recent months, however, under the stimulus of growing domestic consumer purchasing power generated by the United States defense program and production of air craft and other war materials for Great Britain. Federal Government activities designed to expand domestic con sumption of farm products such as the food stamp plan and the cotton stamp plan, the school lunch program, and direct purchases of surplus crops as well as non-recourse crop loans are becoming increasingly important to the numerous agriculturists in this district who formerly ex ported large proportions of their crops abroad. Reflecting these developments and better demand, Twelfth District as well as United States farm income expanded during December and January and was somewhat higher than in the same months a year earlier. Physical as well as domestic economic conditions af fecting agriculture in the Far West generally have been favorable in recent weeks. Although rainfall in Cali fornia has been excessive and has resulted in some dam age to fall and winter sown crops in a few low-lying sec tions, generally higher than usual temperatures and near normal precipitation during January and February re- M a r c h 1, 1941 plenished soil moisture and raised subsoil water levels, aided the growth of livestock range feed and pasturage, and benefited growing crops. Though still subject to changes in conditions later in the season, depths of snow packs and stored water supplies late in February indicate adequate water for irrigation purposes during the forth coming spring and summer. The livestock industry is enjoying especially favorable conditions, with recent cash returns to growers and dairy men at higher levels than a year earlier and production costs about the same. In addition, death losses of live stock have been light and little supplemental feeding has been necessary, reflecting warm weather, snow-free ranges and plentiful natural forage. Supplemental feeds, where needed, have been adequate and relatively low in price. The general price structure for meat animals, dairy products, wool, and most other livestock products has strengthened in recent weeks, and in late February avereraged about 10 percent higher than a year earlier. Re flecting the increasing number of men in Army and Navy forces in this area, and stronger consumer demand, con sumption of livestock and related products continued to be somewhat greater than in the early part of 1940. N u m b e r a n d V a l u e of L iv e s t o c k o n F a r m s a n d R a n g e s a s of J a n u a r y 1— T w e l f t h D i s t r i c t (in thousands) t— Horses ............... Mules ................. Beef cattle*-----M ilk cow s.......... Sheep ................. H o g s ................... Chickens .......... Turkeys ............ T o t a l ............... Number of Animals— N Average 1930-39 1940 1941 921 857 843 91 77 74 4,504 4,788 4,975 1,607 1,653 1,706 13,397 12,161 12,278 1,475 1,940 1,775 32,698 29,973 29,090 1,308 2,283 1,830 — — — , -------------- Farm Value--------------- N Average 1930-39 1940 1941 $ 60,992 $ 58,431 $ 53,636 7,313 6,622 6,183 123,541 165,161 195,765 87,231 98,638 114,809 76,610 83,207 91,004 13,237 15,637 14,276 24,921 21,730 22,641 3,529 5,750 4,862 $397,374 $455,176 $503,176 ^Includes some calves to be kept for milk cows. P roduction and E m ploym ent— Index numbers, 1923-1925 average=100 Industrial Production1 Manufactures (physical volume) Lumber2 ............................................ Refined oils....................................... Cement .............................................. W heat flour....................................... Minerals (physical volume) P e tr o le u m ......................................... Lead (U . S .) 3.................................. Silver (U . S .) 3................................ Copper (U . S .) 3............................. Construction (value) Residential building permits4 Twelfth D istrict........................ Southern California............ Northern California............ Oregon .................................... W ashington ........................... Intermountain states.......... Public works contracts............... Miscellaneous Electric power production. . . . Factory Employment and Payrolls5 Employment Pacific C oast.................................... California ..................................... Oregon ......................................... W ashington ................................ Payrolls California .................................... Oregon ......................................... Washington ................................ With Seasonal ✓-Adjustment-^ 1941 (— 1940— v Jan. Dec. Jan. 122 — 148 115 110 159 118 95 — 115 112 — — — 146 112 132 141 114 101 147 — Without Seasonal t—Adjustment-^ 1941 ,— 1940— \ Jan. Dec. Jan. 87 162 105 115 85 159 118 118 69 158 81 112 92 91 118 133 146 93 114 100 144 143 91 95 80 80 66 192 — 107 131 79 43 83 97 — 67 76 48 60 58 94 — 68 75 64 37 48 79 85 113 54 26 47 63 459 50 60 39 27 43 39 174 258 251 232 239 238 215 156 180 128 121 149 175 122 111 126 138 116 106 144 169 112 109 144 171 116 106 116 129 101 96 170 202 137 121 159 186 135 112 126 138 109 110 152 185 113 103 154 184 122 108 112 126 90 93 JDaily average. 2Revised series. 8Prepared by Board of Governors of Federal Reserve System. (1935-1939 = 100). 4Includes figures from 197 cities and Los Angeles County, unincorporated. 6Excludes fish, fruit, and vegetable canning. Annual inventory data of numbers and value of workstock, meat and dairy animals, and poultry in January 1941 and other recent years are shown in the accompanyDistribution and Trade— Index numbers, 1923-1925 average—100 Retail Trade Department store sales (value)1 California ......................................... Los A n geles.................................. Bay R egion.................................. San Francisco................... .. Pacific N orthw est.......................... Portland ............................. ......... S e a t t le ........................................... Spokane ....................................... Salt Lake C ity............................... Department store stocks Rvalue)2 Furniture store sales (valu e)1*3. . Furniture store stocks (value)2' 3 Automobile sales (num ber)1 With Seasonal Without Seasonal t—Adjustment—^ t—Adjustment—% 1941 t— 1940— V Jan. Dec. Jan. 1941 t— 1940— s Jan. Dec. Jan. 109 106 96 114 106 137 117 114 125 103 103 62 90 109 108 98 117 106 145 111 110 117 99 98 61 95 71 98 96 88 102 94 123 103 98 107 106 87 64 81 74 90 89 82 93 88 107 90 98 91 67 77 57 76 — — 188 189 163 211 189 276 186 170 213 154 195 57 128 70 80 81 75 83 78 96 79 84 78 69 64 58 68 70 161 157 200 106 101 158 Passenger .................................... C om m ercial........................ .. Carloadings (num ber)1 — — — — — — — Merchandise and m isc................ 105 109 100 97 107 84 94 98 89 83 91 72 85 95 73 74 82 64 65 48 125 64 48 118 67 56 104 64 50 112 60 45 111 66 58 94 Intercoastal Traffic (volume) Eastbound ....................................... Westbound ....................................... 1Daily average. 2A t end of month. 31929 average — 100. M a r c h 1,1941 15 M O N T H L Y RE V IEW OF BUSINESS CONDITIONS ing table. Little change from last year in numbers of live stock is indicated but, owing to large increases in the value of beef cattle, milk cows, and sheep, the inventory value of all livestock increased $48,000,OCX) during 1940 and on January 1, 1941 amounted to $503,176,000. In terms of numbers, beef cattle and dairy cows increased; turkeys showed a sharp decrease; horses, mules, hogs, and chickens decreased; and the number of sheep re mained about the same. Although the number of turkeys declined some 20 percent from the unusually high level of January 1, 1940, farm holdings at the beginning of 1941 were more than 40 percent above the 1930-1939 average. B a n k i n g a n d C r e d it Bank lending to commercial and industrial businesses in the Twelfth District continued to increase during Jan uary and February, as it had during the last six months of 1940. At the end of February the volume of such loans outstanding was about 12 percent larger than a year earlier. The increased need of commercial bank credit reflects the stimulating effects of the defense program to busi ness generally, although direct loans for defense indus tries appear to have been relatively small thus far. The indirect effects that have resulted in larger sales, inven tories, and payrolls in many “ non-defense” businesses thus seem to explain most of the growth in demand for S e l e c te d I t e m s of C o n d it io n o f R e p o r t in g M e m b e r B a n k s — T w e l f t h D is t r ic t (in m illio n s o f d o lla rs) Feb. 26, 1941 , 2,373 Total loans and investments. . . . . Loans— total ....................................... Commercial, industrial, and agricultural lo a n s ........................ . . . Open market paper........................... Loans to finance securities transactions .................................... Real estate loans............................... A ll other loans.................................... . . . Change from---------- \ Jan. 29,, Jan. 1, Feb. 28. 1941 1941 1940 +50 + 6 + 120 +25 + 44 +18 385 15 +20 + 1 +14 + 1 + — 42 2 58 386 181 + + 4 — 1 0 — + + 9 2 H U . S. Government obligations. . . 1,007 341 Other securities.................................. . . . 3 0 + 1 +22 + 3 — 2 — 10 + + 43 33 Demand deposits— adjusted.......... . Time deposits....................................... — 19 + 6 — 39 — 1 +234 + 28 . 1,240 . 1,106 commercial bank loans in this region during the past eight months. Twelfth District banks were net sellers of both Gov ernment and non-Government securities during January, but made relatively little net change in investment hold ings during February. T h e T w e lft h D is tr ic t L u m b e r I n d u s tr y in c e mid-1940, activity in the Twelfth District lumber industry has expanded substantially. After allowance S for seasonal influences the gain in output from May through December was 30 percent, as may be seen from the accompanying chart. In January, the decline in out put which customarily occurs at this time of year in the Twelfth District as a whole did not take place, and the seasonally adjusted index advanced 12 points further to 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 L U M B E R P R O D U C T I O N — Twelfth District Index of daily average output, with and without adjustment for sea sonal variation. By months, January 1929 to January 1941. 1923-1925 average=100. 122 percent of the 1923-1925 average, the highest level in more than twelve years. Despite this sharp increase in production, unfilled orders were 60 percent higher on December 31, than six months earlier. The pressure of consumer demand evidenced by these developments o f fered the industry an opportunity to advance quotations on lumber, and prices were increased abruptly in the last half of 1940. The large orders placed with district mills during re cent months have been partly traceable to direct require ments of the national defense program. The Lumber Sur vey Committee estimates that defense needs for lumber and timber, including those of the past eight months and of the next three years or so, will range between four and five billion board feet. These requirements will, of course, be supplied by mills throughout the country and amount to about one-sixth of the total domestic output in the single year 1940. Obviously, if shipments to meet these estimated requirements were to be distributed equally over an approximately four-year period they would not constitute a heavy demand upon the industry at any one time. Actually, however, a fairly large share of these needs has been urgently required for the imme diate building of troop cantonments and for other con struction at army and navy posts and bases. Thus, lumber purchased or earmarked by the Army and Navy is re ported to have totaled 563,000,000 board feet during the third quarter of 1940 alone. While there has been this urgency for delivery on fairly large defense orders, na tional defense lumber and timber requirements do not account for anything like the entire increase in lumber orders received by mills since early last summer. Com mercial as distinct from military buying has been un usually active, particularly during the summer months of 1940, and available evidence suggests that a part of this buying has been of a “ protective” or speculative charac ter. Thus during the quarter referred to above when the Army and Navy purchased or earmarked 563,000,000 board feet in the country as a whole, new orders received by district mills alone exceeded four billion board feet, a billion board feet more than those received during the preceding quarter. The estimated volume of new orders reported by district mills is shown by months in the ac companying chart. It will be seen from this chart that FEDERAL RESERVE B A N K OF SA N FRANCISCO 16 total orders rose sharply in July and August, exceeding 1,500,000,000 board feet in the latter month. The closest approximation to this large volume during any month in recent years was in April 1937 when district mills reported new orders of about 1,200,000,000 board feet. Direct requirements of the national defense program have been a factor in the recent sharp increase in orders placed with local lumber mills, but non-military demands appear to have had as much or perhaps more influence. A portion of these demands appears to have originated M a r ch 1,1941 since, year after year, and despite recent spectacular ad vances in the aircraft industry, local saw and planing mills and logging camps have employed more wageearners, paid out a larger volume of wages, and, up to the present time, have had a higher annual value of out put than any other single manufacturing industry in the seven western states. In 1940, for example, an average PER CENT L U M B E R O R D E R S — Twelfth District EM P LO YM E N T A N D PAYROLLS Twelfth District Lumber Industry N ew orders received by sawmills. By weeks. Latest figures cover week ended February 22, 1941. Indexes, 1935-1939 average=100. By months, January 1935 to January 1941. These indexes are not adjusted for seasonal variation. in forward buying by distributors and possibly by others in the trade seeking to protect themselves against price advances. This type of buying was promoted by the price policy followed by the industry in the last half of 1940. In the Douglas fir area, quotations in December averaged some 40 percent higher than in June and were above those prevailing at any time in the past decade. In the western of 115,000 workers, receiving nearly $180,000,000 in wages, produced lumber and timber products valued at well over $500,000,000. Available information indicates, however, that if present anticipations are realized, the Pacific Coast aircraft industry will attain top position in 1941. Any appraisal of the outlook for the lumber industry during 1941 necessarily depends largely upon the pros pects for private residential building and other private construction as well as upon defense requirements. In the several years immediately prior to mid-1940 new resi dential building was the principal single source of demand for locally produced lumber and consumed a substantial proportion of the total district output. The probable course of private residential construction, although al most certain to be influenced by the need for new housing in the vicinity of defense industry centers and the like, is not readily predictable, even for the immediate future. Rapidly rising construction costs could reduce or seri ously curtail the private housing market, although to date rising costs appear to have stimulated new construction as a result of efforts to anticipate further increases. Such a stimulus, however, is unstable in character and could terminate abruptly, particularly if housing costs and rents were to rise more rapidly than national income. While the outlook for private residential construction is unpredict able, Government buying is likely to be well maintained during the next few months, since less than half the esti mated requirements for defense purposes through De cember 31, 1941 had been covered by the end of January. PER CENT L U M B E R P R IG E S -U n ite d States United States Bureau of Labor Statistics index, 1926— 100. By months, January 1935 to January 1941. pine area, mill prices increased 15 percent on the average during the same period, but in December were below those prevailing in the spring and summer of 1937. Active operations in the district lumber industry are of particular importance to the economy of this area MONTHLY REVIEW March 1,1941 Federal Reserve Bank of San Francisco ipplement S u m m a ry o f N a tio n a l B u s in e s s C o n d it io n s Prepared by the Board of Governors of the Federal Reserve System I I N D U S T R I A L P R O D U C T IO N Index of physical volume of production, adjusted for sea sonal variation, 1935-1939 average=100.By months, January 1934 to January 1941. TS IN TOTAL INDEX POINTS IN TOTAL INDEX too F R E I G H T -C A R L O A D I N G S Index of total loadings o f revenue freight, adjusted for sea sonal variation, 1923-1925 average == 100. Miscellaneous, coal, and all other expressed in terms of points in the total index. By months, January 1934 to January 1941. activity continued at a high level in January and distribution of com modities was maintained in large volume. n d u str ia l P r o d u c t io n In January volume of industrial production declined less than seasonally and the Board’s adjusted index rose one point further to 139 percent of the 1935-39 average. There were further considerable increases in activity in industries mak ing machinery, aircraft, ships, and similar products important in the defense pro gram, and output of industrial materials, such as steel and nonferrous metals, con tinued at near capacity rates. Lumber production also was in unusually large vol ume owing to demand arising from construction under the defense program as well as from private building. Automobile production, which ordinarily declines considerably at this time of year, was maintained at a high rate in January and the first half of February. This reflected in part an unusually large volume of retail sales and in part the industry’s efforts to build up dealers’ stocks of cars as much as possible with a view to having an adequate supply on hand in case priorities or work on defense orders should necessitate curtailment of automobile production. Currently dealers’ stocks of new cars are probably near record levels. In the cotton textile industry, activity in January showed some further in crease from the record level reached in December but the rise was less than usually occurs at this season. At wool textile mills there was some decline from the high level of November and December, while output at rayon mills was main tained in large volume. Defense program orders for textiles, particularly wool and cotton products, have been substantial for some time, and these combined with considerable civilian demand have resulted in the accumulation of large order backlogs at most mills. Activity at meatpacking establishments was reduced in January owing chiefly to a sharp decline in hog slaughter, which had been excep tionally large in the latter part of 1940. Shoe production advanced by less than the usual seasonal amount following a high rate of output in November and December. At mines output of most metals continued at record levels in January. Produc tion of fuels was sustained in large volume but was not at such high levels as output of other minerals owing in part to the existence of considerable stocks, particularly of petroleum products. Value of construction contracts, as reported by the F. W. Dodge Corporation, declined in January. The decrease reflected chiefly a sharp reduction in awards for public construction from the exceptionally large December total, which had included a number of defense projects not previously reported by the Dodge Cor poration for lack of detailed information. Contracts awarded for private nonresidential building declined somewhat in January but as in December were twice as large as the amount awarded in the corresponding period a year ago. Awards for private residential building increased and on a seasonally adjusted basis were at the highest level since the middle of 1929. D is t r ib u t io n v#V J ^ V. FOODSTUFFS J V s \ /s r ,v 1934 ilNDUSTRIAL hMATERIALS 1 1 I 1935 1936 1937 1938 1939 1940 W H OLESALE P R IC E S O F B A S IC C O M M O D I T IE S Indexes compiled by the United States Bureau o f L a bor Statistics, 1926=100. By weeks, 1934 to week ending February 13, 1941. PER CENT 4 TREASURY BONDS ~ ( IZYEARS ANOOVER) ‘ Distribution of commodities to consumers in January was maintained at the high level reached in the latter part of 1940. Sales at department and variety stores declined seasonally following an unusually large amount of Christmas trade, while sales of automobiles continued near the rate prevailing in December. In the early part of February department store sales were sustained in large volume. Total freight-car loadings, which usually decline from December to January, showed little change this year and the Board’s seasonally adjusted index rose two points further to 86 percent of the 1923-25 average. W h o l e s a l e C o m m o d i t y P r ic e s Prices of industrial materials and foodstuffs generally showed little change from the middle of January to the middle of February, some imported commod ities, principally coffee, cocoa, rubber, and tin, rose slightly and there were in creases also in prices of lard and wool tops, while declines were reported for live stock and meats, hides, grains, lumber, and scrap metals. Prices of some finished commodities, particularly textile products, showed advances in this period. Bank RESERVE BANK DISCOUNT RATE -h — TREASURIY Y INOTES (3-5 YEARS) \ V ■N>" I'M 1 L Jt TREASURY BILLSJ \ k (newissues) f \ I }\ ^ 1935 1936 1937 1938 U n it 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 ic e s Vv _ 1934 VL_ 1939 1940 M O N E Y R A T ES IN N E W Y O R K C IT Y For weeks ending January 6, 1934, to February 15, 1941. C r e d it Total loans and investments at reporting member banks in 101 leading cities increased substantially during January and the first half of February, reflecting largely purchases of new defense notes issued by the Government. Commercial loans at these banks increased further while loans to New York security brokers and dealers declined. Prices of United States Government securities continued to decline in the latter half of January and the first half of February, more than canceling the gains from the end of October to the peak of December 10. The 1960-65 bonds on Feb ruary 14 were selling on a yield basis of 2.28 percent, compared with a low of 2.03 percent on December 10.
@FedFRASER