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Qewleur FEDERAL RESERVE BANK MARCH large and growing war production program under taken by the United States makes imperative many further and substantial adjustments in all sectors of the economy of this country, adjustments that will vitally affect the lives of individuals both as producers and as consumers. A further increase in aggregate industrial output may be expected but, to a much larger extent than heretofore, the vast increase in production of war mate riel can take place only through plant conversion and at tendant curtailment of civilian output. A transition of this nature does not stop with physical conversion and expansion of plant facilities and the problems of man agement arising therefrom. It also means that many in dividuals, as employees, will be forced to change their work and that all individuals, as consumers, will be com pelled to alter their consumption habits as many kinds of goods become either unavailable or available only in re duced amounts. The Twelfth Federal Reserve District, in comparison with many other regions in the United States, has relatively fewer workers in consumer goods industries of the types adversely affected by war develop ments. As a result, expansion of war production in the Twelfth District, to a much greater extent than in the country as a whole, has been and will continue to be largely a result of expansion of production facilities rath er than of conversion of already existing plant facilities. T h e Industry and Trade Expansion has been most spectacular in aircraft construction and shipbuilding, activ ities which have increased over sevenfold during the last three years and which have already attained positions of dominance in western industry. Most other Twelfth District industries producing materials needed in the war ef fort are operating at record levels for this time of year. Lumber production, spurred by large Government orders placed since the outbreak of war, increased 7 percent in Jan uary over the December output after allow ance for seasonal influences. Production did not keep pace with new orders, however, and unfilled orders during January increased 250,000,000 board feet to 1,550,000,000 board feet at the month-end. Mining and smelting of nonferrous metals continued highly active under the stimulus afforded through recent increases in price ceilings au thorized by the OPA. Basic maximum prices F O R V I C T O R Y ★ B u y U n i t e d OF SAN F R A N C ISC O 1, 1 9 4 2 at the present time are 12 cents per pound for copper, 8.25 cents for zinc, and 6.50 cents for lead. Regulations have been announced under which, beginning with February production, the Metal Reserves Company will pay pre miums over these prices amounting to 5 cents for copper, and 2.75 cents for zinc and lead produced in excess of quotas based on 1941 output, a move designed to permit the mining of low-grade submarginal ores. Conversion of manufacturing facilities in the Twelfth District has been most marked in the automobile as sembly and tire manufacturing industries. Other indus tries, such as iron and steel, are diverting a larger pro portion of their output to war purposes. In some cases, the change-overs to war production are resulting in tem porary unemployment, and workers in trade and service industries indirectly affected by the war effort are being laid off. Despite these developments, however, the basic labor problem is one of labor shortages rather than one of unemployment. The problem of labor shortages is becoming increas ingly serious as additional demands arise out of the com pletion of new plants and as workers continue to with draw from industry into the armed services. To date, much of the increased demand for labor on the Pacific Coast has been met by net inward migration, but as full employment is approached throughout the nation, this source of supply may be expected to dimin ish in importance. Some West Coast work ers have come from the Intermountain states of the district, states which now, in turn, are themselves faced with labor short ages, especially in the localities in which new defense plants are being constructed. Part of the increased demand for labor can be met through the increased employment of women, a movement which has already made some headway in the important air craft industry and for which additional numbers of women are now being trained. For those plants which have not yet done so, lengthening the working day offers nother attack on the problem. Increased manufacturing employment in recent months has been accompanied by still greater increases in factory payrolls, brought about by longer working hours and higher wage rates. Other groups in the local economy, especially farmers whose cash income in 1941 was 38 percent larger than in 1939, are also receiving larger dollar in S t a t e s S a v i n g s B o n d s a n d S t a m p s 14 March 1, 1942 M O N T H L Y REVIEW comes now than in previous recent years. Part, but only part, of this monetary increase in income has been offset by higher costs of living, which, on the basis of United States Bureau of Labor Statistics indexes, increased from 13 to 16 percent in three major Pacific Coast cities be tween June 15, 1939 and January 15, 1942. Prices paid by farmers throughout the United States increased 16 percent during the same period. Department store sales, after allowance for seasonal factors, advanced sharply during January and were 32 percent larger than in the corresponding month of the previous year. Part of this increase is more apparent than real, since it reflects higher prices as well as larger physi cal quantities sold. In the light of what has already been said, it is evident that current high levels of consumer buying cannot permanently be maintained since dealers will be unable to replace many items of their stocks when current supplies are exhausted. Decreases in consumer satisfactions and standards of living will be less than de creases in sales, however, because the unusually large stocks of most durable goods, such as automobiles, radios, stoves, and refrigerators now in the hands of consumers will continue to yield services for some time in the future. In cases where available supplies are below potential civilian requirements, distribution should be made in the interests of equity among individuals on some basis that takes into account buyers' needs as well as ability to pay. Most individuals recognize the situation and are willing to cooperate with Government programs such as rationing designed to meet the problem. Further evidence of the willingness of the public to support the war program is found in the sales of Series E Defense Savings Bonds, which, for the United States as a whole, increased from Production and Employment— Index numbers, 1923-1925 average=100 With Seasonal t------- Adjustment------- \ 1942 , 1941-------Industrial Production1 Jan.Dec. N ov. Jan. Manufactures (physical volume) L u m b e r ................................ 122 114 109 117 Refined oils........................... — — — — Cement ................................ 218 211 177 148 W h ea t flo u r........................ 112 112 94 115 Minerals (physical volume) P e tr o le u m ........................... — — — 122 127 Lead (U . S .) 2............................. Silver ( U . S .) 2..................................................... Copper ( U . S .) 2............... 159 155 152 Construction (value) Residential building permits3 Twelfth D istrict.......... 81 57 100 Southern California. 95 63 65 Northern California. 43 32 155 O r e g o n ........................ 97 40 39 W ashington ............ 85 65 213 Intermountain states 93 166 93 Public works contracts. . — — — Miscellaneous Electric power produc tion ..................................... 305 294 284 Factory Employment and Payrolls4 Employment Pacific C oast...................... 233 216 204 California ...................... 279 264 246 O regon ........................... 192 158 155 W ashington ................. 162 152 145 Payrolls Pacific C oast...................... 344 290 266 California ...................... 408 348 321 Oregon ........................... 303 235 203 Washington ................. 232 199 183 Without Seasonal f -------Adjustment-19411942 Jan. Dec. Nov. Jan. 87 137 154 112 87 167 156 112 103 176 177 103 85 163 104 115 — 116 128 148 94 96 124 99 128 156 156 156 92 116 129 145 89 95 70 80 66 216 — 60 75 34 45 63 60 495 44 54 22 24 37 108 323 93 66 137 31 185 81 502 66 75 56 37 48 89 408 255 282 278 269 236 154 179 127 119 215 263 167 146 210 260 150 144 207 252 153 145 143 169 111 107 173 198 139 137 311 380 251 197 285 346 211 191 267 324 198 181 156 185 115 117 1Daily average. 2Prepared by Board of Governors of the Federal Reserve System. (1935-1939 = 100). 3Includes figures from 197 cities and L os Angeles County, unincorporated. ^Excludes fish, fruit, and vegetable canning. $111,370,000 in November to $402,585,000 in December and to $667,411,000 in January. The general industrial pattern now emerging with its preponderant emphasis upon war production and restric tion of civilian consumption is likely to be maintained for the duration of the war. Economic resources will be used so as to render maximum contribution to the war effort, with over-all direction and control supplied by the Gov ernment. When the transition to a full wartime economy is completed, about one-half of our national productive effort will be directly devoted to the war. Agriculture Increased demands for food by the civilian population, by the Government for military purposes, and by Amer ica’s allies require an expansion in output of agriculture similar to that required of industry. Pointing to the need for increased farm output arising out of war develop ments, the United States Department of Agriculture has recently revised production goals for 1942 first announced last September. Revised 1942 goals for the Twelfth District, together with actual production or acreage in 1940 and 1941, are shown in the accompanying table. The new goal for dry peas calls for more than double the 1941 acreage, with most of the increase scheduled for the Pacific North west. A 24 percent larger goal is scheduled for dry edible beans, with most of the increase allocated to California and Idaho. An increase in acreage of American-Egyptian cotton from 101,000 acres planted in 1941 to 110,000 acres for 1942 has been established for Arizona, the state in which approximately three-fourths of the United States production of this type of cotton is grown. In creased demand for milk and milk products has made it necessary to revise upward the 1942 goals which are now 11 percent above 1941 output. The revised 1942 goal for district egg production calls for a 10 percent increase in output over 1941. It is hoped to increase 1942 marketings and farm slaughter of hogs 12 percent over those of the previous year. For all the farm products discussed above, as well as for certain others deemed vital to the war effort, price supporting measures, to be in force until June 30, 1943, have been adopted by the Department of Agriculture. For evaporated milk, dry skim milk, cheese, chickens, and hogs, prices will be supported by direct purchases at 85 percent of parity. Dry beans, dry peas, and flaxseed for oil will be supported at 85 percent of the parity price as of the beginning of the marketing year, but it is indicated that in no event will the price be allowed to fall below $4.75 per hundredweight for U. S. No. 1 beans, $5.25 per Distribution and Trade— Index numbers, 1923-1925 average=100 Retail Trade1 Automobile sales (num ber)2 Total .................................... Passenger ...................... C om m ercial................... Car loadings (num ber)2 Total .................................... Merchandise and misc. O t h e r ............................... With Seasonal Without Seasonal t------ Adjustment------ ,-------------Adjustment------ ^ 1942 ,--------1941--------, Jan. Dec. Nov. Jan. 1942 ,--------1941--------N Jan. Dec. Nov. Jan. — — — — — — — — — — — —- . . .. .. 92 81 207 78 73 137 139 134 183 130 140 117 114 132 91 110 128 89 105 109 100 103 117 84 100 117 79 111 128 91 83 91 72 d e p artm en t and furniture store indexes, customarily shown in this table, are in the process of revision. 2Daily average. March 1, 1942 FEDERAL RESERVE BANK OF SAN FRANCISCO hundredweight for U. S. No. 1 peas, and $2.10 per bushel for flaxseed, farm basis. All restrictions on rice acreage have been removed and conservation payments will be conditioned upon the planting of full allotments, with F a r m P r o d u c tio n G o a l s 1942— T in w elfth D is t r ic t (in thousands of units) Marketings, f------- Acreage or Production------- ^ Goal 1942 1941 1940 Livestock and Products— Marketings Cattle and calves (h e a d )........................... H ogs (pounds) .................................... Sheep and lambs (p ou n d s)........................ M ilk (thousands of p ound s)...................... Eg gs (dozen) ................................................ 2,762 454,121 545,937 10,404 290,582 3,275 498,416 542,750 444,978 12,002 10*, 846 285,167 313,334 Crops— Acreage or Production Barley (acres) .............................................. Corn (acres) ................................................... Cotton (acres) ................................................ Flaxseed (acres) ........................................... Grain Sorghums (a c re s)............................. H ay (acres) .................................................. Oats (acres) ................................................... Rye (acres) ..................................................... Rice (acres) ..................................................... W heat (acres) ................................................ 2,119 283 568 170 163 5,281 875 85 118 5,211 2,048 299 608 235 254 5,320 849 95 153 5,188 2,156 297 624 276 245 5,360 937 104 160 4,170 D ry beans (acres) ......................................... Dry peas (acres) ........................................... Potatoes (acres) ........................ .................. 537 183 306 570 217 300 705 470 327 Apples (bushels) ........................................... Apricots (tons) Cherries (tons) ............................... Grapes (tons) .................................. Peaches (bushels) .......................... Pears (bushels) ............................... Plums and prunes (fresh t o n s ). Prunes (dried tons) ...................... Grapefruit (boxes) ........................ Lemons (boxes) Oranges (boxes) ........................................... 42,220 116 74 2,267 28,426 20,469 151 178 4,633 17,099 49,978 43,535 217 76 2,426 26,587 20,094 160 188 4,990 14,580 49,884 39,430 283 87 2,405 28,200 19,914 147 220 5,000 16,000 47,600 Source : United States Department of Agriculture. heavy deductions made in cases where the planted acreage falls below the acreage allotment. In cotton, special pre miums will be offered on staples 1 inches long or over, to be grown, however, within present allotments. F a r m S P r ic e ch edu les E q u iv a l e n t for S of elected A l t e r n a t iv e A g r ic u l t u r a l M a x im u m C P r ic e o m m o d it ie s Per- Aver age Farm Farm Price Price Dec. 15 19191941 1929 centage Increase Per Farm Price mitted Jan. 15 Jan.15 1942 1942 1.74 0.93 17.04 50.36 0.66 1.02 0.67 0.45 0.56 0.58 1.78 1.44 16.23 44.65 0.83 1.33 0.89 0.47 0.69 0.95 2.34 1.27 21.40 36.17 1.24 1.06 0.73 0.50 0.61 0.65 1.95 1.58 16.93 43.24 0.98 33.8 41.8 27.7 63.5 77.3 39.5 0.90 0.86 8.14 37.00 16.20 18.20 31.00 10.59 0.87 1.09 9.43 36.00 15.80 20.90 34.10 10.21 1.34 1.46 13.53 44.00 21.10 28.80 33.20 9.77 0.93 1.16 10.15 36.30 17.00 20.50 31.30 10.55 51.6 32.8 87.8 22.9 24.1 40.5 8.9 9.9 Esti mated Percent Farm of Parity Price Jan. 15 Oct. 1 1942 1941 110 Commodity and Unit 1.42 1.03 0.64 0.99 1.16 2.72 Flaxseed ($ ) per b u .. 1.31 Rice ($ ) per b u .. . . , 19.91 Cottonseed ($) per ton. 36.21 1.14 Potatoes ($ ) per b u .. . . Sweet potatoes 1.41 ($ ) per bu..................... 1.54 19.06 Butterfat ($) Per lb .. . . 44.60 Chickens (4) per lb .. . . 18.30 23.10 32.80 H ogs ($) per 100 lb s ... 11.59 Beef cattle 8.37 Veal calves 10.85 9.43 Lambs ($ ) per 100 lbs.. 29.40 0.94 0.68 0.39 0.51 — 26.4 16.5 27.2 9.27 9.38 6.87 9.77 — 11.20 9.75 36.30 11.22 9.86 37.10 9.65 10.98 34.10 12.14 10.30 37.20 6.6 — ___ Source: United States Department of Agriculture. During the year ending February 14, 1942, prices of farm products as a group advanced 43 percent against an advance of 20 percent in prices of all commodities. For some important farm products, such as cotton, current prices are at the highest levels since 1929. Under terms 15 of the Emergency Price Control Act, prices of farm products are permitted to advance to the highest of the following four points before ceilings may be imposed: (1) 110 percent of parity, (2) the market price on Oc tober 1, 1941, (3) the market price on December 15, 1941, and (4) the average price between July 1,1919 and June 30, 1929. The accompanying table shows maximum prices allowed under each of the four alternatives for a number of products and indicates that further price ad vances for many farm products are permitted before price ceilings may be applied. For some farm products, including cotton, potatoes, chickens, and lambs, the 1919-1929 average price is the highest of the four alternative price ceilings and allows the largest increase; in others, including many livestock products, the October 1 or December 15, 1941 price is the highest; but for the majority of products, the most favorable price for farmers is the one based upon 110 percent of parity. With regard to prices established by the parity formula, it should be remembered that parity prices are continually changing in response to price movements in the commodities which farmers buy. In other words, ceiling prices established under the parity formula can not be fixed permanently at absolute levels, but must be revised upward in the event that prices paid by farmers advance. Banking and Credit The persistent and substantial expansion in loans of district city banks of the past year and a half was inter rupted late in December and was followed by a moderate decline during January and the first week of February. Loans for commercial and industrial purposes, which ac counted for much of the earlier increase, declined to $487,000,000 on February 4 from a peak of $511,000,000 on December 24. More recently, demand for bank credit from commercial and industrial enterprises has revived, and loans of this character had risen to $491,000,000 on February 18. Since the first of the year, loans to finance transactions in securities continued the small but persist ent decline of the past two years, while advances secured by real estate remained about unchanged. Other loans fluctuated lower, totaling $191,000,000 on February 18, compared with $197,000,000 on December 31. Personal and retail instalment loans are included in this group. District city banks added further to their investments in United States Treasury obligations during the first seven weeks of the year. Holdings of these securities were increased $24,000,000 to total $1,187,000,000 on February 18, an expansion of $174,000,000 over a year earlier. Investments in other securities have also been in creased moderately in recent weeks but in mid-February were about unchanged from a year earlier. Adjusted demand deposits have continued to expand since the first of the year and on February 18 were $42,000,000 larger than on December 31, 1941. Deposits of the United States Government with district city banks have likewise increased and were $20,000,000 larger on February 18 than seven weeks earlier. Time deposits de clined moderately during the period to $1,093,000,000 from $1,119,000,000 on December 31. A major factor in the expansion in total deposits of district city banks con tinues to be the substantial disbursements of the United States Treasury in the area in excess of local collections. 16 March 1, 1942 M O N T H L Y R EVIEW S u m m a ry o f N a tio n a l B u sin e ss C o n d itio n s Released February 21, 1942— Board of Governors of the Federal Reserve System activity rose further in January and the first half of February, re flecting continued sharp advances in output of military products. Retail trade was unusually active and prices, particularly of unregulated commodities, ad vanced. I n d u s tr ia l P r o d u c t io n I N D U S T R I A L P R O D U C T IO N Federal Reserve monthly index of physical volume of production, adjusted for seasonal variation, 1935-39 average=100. Latest figures shown are for January 1942. D E P A R T M E N T S T O R E S A L E S A N D ST O C K S Federal Reserve monthly indexes of value of sales and stocks, adjusted for seasonal variation, 1923* 25 average = 100. Latest figures shown are for January 1942. CLOTHING Y '' i RENT ............. 1 1936 1937 1938 ...J....... -..... J. 1939 1940 1941 Volume of industrial production increased in January, although usually there is some decline at this season, and the Board’s adjusted index rose further to 170 percent of the 1935-39 average. Continued rapid increases in activity were re ported in the machinery and armament industries and production of chemicals likewise rose sharply. Activity at cotton textile mills reached a new high level, following some decline in December. In the meatpacking industry, where activity had risen to record levels in December, there was a further advance in January and output of most other manufactured food products was maintained in large volume for this time of year. Production of steel and nonferrous metals continued near capacity in January and lumber production, which usually declines at this season, was sustained. In the automobile industry output of passenger cars and light trucks continued at about the December rate; in February, however, production of cars and trucks for civilian use was halted and the plants were shut down for conversion to arma ment production. Coal production increased in January, following a decline in December when demand was curtailed somewhat by unusually warm weather, and output of crude petroleum was maintained at record levels. Value of construction contracts awarded in January was some two-fifths be low the level of the last quarter of 1941, according to figures of the F. W . Dodge Corporation. Declines were reported in all classes of construction; the decrease in residential building being usual at this season. Total awards in January were slightly larger than last year, but public projects accounted for a much larger proportion of the total than a year ago. D is t r ib u t io n In January retail trade was stimulated considerably by widespread anticipatory buying of many products resulting from announcements that distribution of new tires and tubes, new automobiles, and sugar would henceforth be rationed and that the amount of materials available for use in various other goods would be re stricted. Sales at department stores, variety stores, and general merchandise stores declined much less than is usual after the Christmas season, while sales of tires and tubes were restricted to essential uses and sales of automobiles ceased pending the establishment of a rationing system. In the first half of February de partment store sales decreased somewhat from the high level reached in midJanuary. Total car loadings of revenue freight, which usually decline in January, showed little change this year and the Board’s seasonally adjusted index advanced from 137 to 140 percent of the 1935-39 average. Loadings of grain and forest products rose to unusually high levels for this time of year and coal shipments also in creased, following a decline in December. Shipments of miscellaneous freight, which include most manufactured products, declined less than seasonally. 1942 C O ST O F L IV IN G Bureau of Labor Statistics* indexes, 1935-39 average=100. Fifteenth of month figures. Last month in each calendar quarter through September 1940, monthly thereafter. Latest figures shown are for January 1942. C o m m o d i t y P r ic e s Prices of commodities and services continued to advance sharply in January and the first half of February. The Emergency Price Control Act of 1942 became a law on January 30 and former Federal maximum price schedules— approxi mately 100 in number— remained in effect under its terms. About one-half of these schedules were issued following the United States entry into the war. In this period, price controls were extended to a number of finished consumers’ goods and covered mainly items for which output for civilian use had been sharply cur tailed or prohibited by Federal order. Retail prices of foods and textile products, which are not subject to direct control, showed exceptionally large increases from December 15 to January 15 and, according to preliminary indications, have con tinued to advance since that time. Bank 1936 1937 1938 1939 1940 1941 1942 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. Commercial loans, which in clude industrial and agricultural loans, represent prior to M ay 19, 1937, so-called “ Other loans” as then reported. Latest figures shown are for February 11, 1942. C r e d it Since the beginning of the year loans and investments at banks in leading cities have increased, reflecting purchases of Government securities by city banks out side New York and increases in commercial loans by banks in New York. Demand deposits and currency in circulation have risen sharply. Member bank reserves have shown little change in recent weeks, and excess reserves have continued close to 3^2 billion dollars. 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 Prices of United States Government bonds declined somewhat in the first half of February, following little change during the previous month, while prices of short-term securities, which had risen in January, were steady.
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