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M o n th ly R e w ie u r FEDERAL RESERVE B A N K OF S A N F R A N C IS C O M ARCH 1, 1 9 4 3 Business C onditions in th e T w elfth Federal R eserv e District n u s u a l l y severe storms in mid-January in the Pacific Northwest occasioned some loss of vital war production. They were an important factor in the January decline in lumber production in Oregon and Washington, reflected in a decrease in the seasonally adjusted index to 123 percent of the 1935-39 average, compared with 134 in December and 154 in January 1942. Work at shipyards and other war plants was also interrupted. More disturb ing to the continued expansion in district war production and agriculture, however, is the increasingly serious man power shortage. Measures adopted early in February to extend control over the utilization of labor by the War Manpower Commission are among the more outstanding current developments of recent weeks in the Twelfth Federal Reserve District. U In the field of retail trade, department store sales de clined less than seasonally in January and preliminary data indicate a marked increase in February. Much of the February increase was the re sult of active buying of footwear and apparel following the O PA announcement on Feb ruary 7 of shoe rationing. Rationing of shoes, like that of sugar, coffee, and gasoline, will be administered on the unit system. Ration ing of canned foodstuffs, however, presents different problems to those encountered in the controlled distribution of items for which there are no significant substitutes, and these items will be rationed, effective March 1, on a “point” system. Pending the large scale financing drive planned by the Treasury for April, United States Government securities offered during January and February were confined to weekly issues of Treasury bills, one issue of % percent certificates of indebtedness, and war savings bonds and tax notes. Sales of war bonds Series E in January amounted to $814,930,000 in the United States and to $100,250,000 in the Twelfth District. They were up 22 percent in the country and 36 percent in the district over those of a year earlier. Sales of war savings bonds Series F and G totaled $425,520,000 in the United States and $43,160,000 in the Twelfth District compared with $461,700,000 and $41,760,000 respectively in January 1942. The increases in sales of Series E bonds over the year period is gratifying, especially since sales in January 1942 had increased sharply under the stimulus of the outbreak of war. The need for still larger security purchases by individuals, however, is more pronounced than ever as war expenditures of the United States Government con tinue to mount. Lack of Seasonal D e clin e in Factory Em ploym ent A substantial decline in factory employment usually takes place in the Twelfth District during the fall and winter months as fruit and vegetable can neries complete their packs and other in dustrial operations are curtailed by seasonal influences. This year, however, absorption of laid-off seasonal workers by other indus tries and continuous additions to the labor force, mostly of local women and of mi grants to district centers of war production, have prevented the customary reduction, and over-all industrial employment was maintained through January close to the September level of 1.4 million workers. District factories employed 1.0 million workers in January of last year and 0.7 million in January 1941. C o n tro l O v e r the Utilization of M anp ow e r The shortage of manpower has become the foremost problem in the continued ex pansion of industrial production and agri cultural output. During the past two years industrial employment in the district has WAR FINANCE Tax Receipts of the Federal Government (fiscal year) . . 1942 1943 (Estimated) Increase . $13 Billion $24 Billion $11 Billion War Expenditures of the Federal Government (fiscal year) . $28 Billion $77 Billion $ 4 9 Billion We must keep pace with the increased cost of war. ★ * Save more money now. B U Y G O V E R N M E N T B O N D S W ITH ALL S U R P L U S E A R N I N G S A N D ID LE F U N D S * * FEDERAL RESERVE BANK OF SAN FRANCISCO 18 risen sharply despite large withdrawals of workers from the labor force to enter the armed services. These gains have been made possible almost entirely by the absorption of unemployed labor, by migration of workers to this district from other parts of the country, and by drawing upon women and others not customarily a part of the labor force, but further over-all expansion in employment will be increasingly difficult. Unemployment is approaching the irreducible minimum, migration to the coast has declined considerably, and demands of the armed services will con tinue to be heavy. The problem is accentuated, moreover, by difficulties of providing housing and other facilities for workers and their families in centers of war produc tion which have already experienced a large inflow of population. Inadequate living accommodations in such localities have for months been a factor in the high labor turnover that has detracted from the productivity of the available labor force. Under these conditions, more efficient utilization of labor has become essential to further expansion of neces sary production. Accordingly the War Manpower Com mission has attempted to speed up the shift of workers to more essential occupations, to check labor piracy and hoarding by employers, to reduce labor turnover and absenteeism among employees, and to lengthen the work week. Recent Orders of the War Manpower Commission Measures adopted by the Commission and affecting the Twelfth District during 1942 have been discussed in earlier issues of this Review. In early February two addi tional measures were announced, and the President, by executive order, established a minimum wartime work week of 48 hours in areas to be designated by the War Manpower Commission. The first of the recent orders of the Commission, dated February 2, announced that men in a specified list of activities and occupations will be considered as subject to the draft regardless of dependents unless they have ob tained work in essential activities by April 1 or are regis tered with the United States Employment Service by that Production and Employment— Index numbers, 1923-25 average=100 With Seasonal /-------- Adjustment-------- s 1943 ,-------- 1942--------- N Industrial Production1 Jan. Dec. N ov. Jan. Lumber2 ............................. p l23 134 143 154 Refined o i l s ........................ — — — — Cement ............................................ 254 197 218 W heat flour........................ 144 137 114 112 Petroleum ........................... — — — — Electric p o w e r ............................. p369 354 306 Factory Employment and Payrolls3 Employment Pacific C oast............................. p335 p310 California ................. 404 383 354 Oregon ...................... . . p292 p283 W a s h i n g t o n ........................ p262 p238 Payrolls Pacific C oast............................. p583 p557 California ................. 680 624 598 Oregon ...................... . . p541 p582 W a s h i n g t o n ........................ p520 p459 237 279 195 177 352 408 286 268 1 Daily average. 2 Converted to 1935-39 base. Back figures will be su] 3 Excludes fish, fruit, and vegetable canning, p Preliminary. Without Seasonal /---------Adjustment1943 ,-------- 1942Jan. Dec.. N ov. Jan. p 85 103 136 112 p l9 4 191 196 148 154 186 197 144 137 125 112 p ll8 117 95 110 p349 334 283 381 633 p326 p314 377 361 p277 p280 p249 p238 220 263 169 160 p568 p558 622 604 p487 p570 p499 p455 317 380 238 227 on request. March 1, 1943 date, in which event they will be allowed until May 1 to secure such employment. The obvious purpose of this measure is to induce further shifts of workers to occupa tions regarded as essential to the war effort. Two days later, on February 4, the Commission issued a list of 32 war production centers in the United States, considered to be areas of critical manpower shortage, and announced plans to control all hiring for certain jobs in those areas. 'Existing hiring channels, in addition to the United States Employment Service, will be utilized, and the Commission hopes to be able through hiring control to direct the distribution of available labor to specific plants and occupations where the shortages are most serious. The following five Twelfth District areas are included in the list of 32 areas of critical shortage: Las V eg a s: Boulder City, Las Vegas, Midway, North Las Vegas, Whitney. O gd en: Brigham, Ogden. P ortland : Hillsboro, Oregon City, Portland, St. Helens, Salem, O re.; Camas, Vancouver, Wash. San D ie g o : Chula Vista, Coronado, Escondido, La Mesa, National City, Oceanside, San Diego. S ea ttle: Auburn, Bremerton, Enumclaw, Kent, Fort Orchard, Renton, Seattle, Shelton. Lengthening of the Work Week On February 9, the President issued an executive or der, to be administered by the War Manpower Commis sion, establishing a minimum wartime work week of 48 hours. The Commission has announced that for the time being the order applies to the 32 areas of critical labor shortage, including the five Twelfth District areas listed above, and to the entire non-ferrous metal mining and lumber industries. The order applies to all employment in those areas and activities with the following exceptions: establishments employing less than 8 workers, farms, states and political subdivisions, persons under 16, and individuals not available for full time work on account of other duties or physical limitations. Establishments in which a work week of 48 hours would be impracticable because of the nature of their operations, or would not contribute to the reduction of labor requirements, or would conflict with Federal, state or local laws or regula tions limiting hours of work, are to operate the greatest number of hours under 48 which may be feasible. Other areas may be designated as critical and brought within the purview of the order at a later date. Over 100 communities in the country as a whole have already been classified as “stringent” or near-critical labor shortage areas. Among them are 11 Twelfth District localities centered in Everett, Spokane, Pocatello, Provo, Salt Lake City, Phoenix, Los Angeles, Sacramento, San Bernar dino, San Francisco, and Stockton. The purpose of establishing a 48 hour work week is to economize on manpower and to conserve the largest pos sible share of man-hours for those activities which con tribute directly to the war effort. The areas to which the order now applies not only have shortages of labor, but are also lacking in facilities to accommodate any large additions to their populations. To the extent, therefore, that fuller utilization of available labor will meet the March 1, 1943 pressing demands of industry, problems of providing housing, transportation, and other facilities for net addi tions to the working population are relieved. In many cases, particularly in war plants, the adoption of the longer basic schedule will not lead to a substan tial increase in the utilization of manpower, since the work week is already approximating 48 hours. Data are not available on the average number of hours worked per week in each industry for the entire district. Figures are available, however, for a number of California industries and they show a definite tendency over the past year toward a longer work week. Average hours worked per week in January exceeded 47 in the structural steel and machinery industries, in steam railroad repair shops, and in electric railway and bus operation, while in the aircraft, shipbuilding, and petroleum refining industries, and in mining, the average exceeded 45. (These figures, more over, tend to underestimate the length of the scheduled work week since they are calculated by dividing the num ber of workers on payrolls by the actual number of manhours worked, without allowance for absenteeism.) A v e ra g e W e ekly Earnings of Factory W orkers The longer work week with overtime pay for work in excess of 40 hours, relative gains in employment in indus tries paying higher wage rates, increases in basic wage rates, and extra shift work at premium rates have all con tributed to sharply higher average weekly earnings of industrial workers over the past two years. In Pacific Coast states, it is estimated that average weekly earnings of wage earners in manufacturing establishments were $47 in December 1942 compared with $36 a year earlier and $29 in December 1940. Retail Trade Although declining sharply in January, sales of depart ment stores were better maintained after the Christmas shopping season than in most recent years. As a result this bank’s seasonally adjusted index advanced to 195 percent of the 1935-39 base, compared with an average of 192 percent for November-December. In February, sales of these stores increased substantially. Buying of foot wear and apparel became particularly active immediately following the announcement of shoe rationing by the OP A on February 7. Preliminary data indicate that the seasonally adjusted index of department store sales ad vanced to more than 240 percent in that month, attaining a new record. Unit and Point Rationing On February 9 the O PA issued Ration Order No. 13, to govern the distribution of canned, bottled, and frozen fruits and vegetables and dried fruits. This regulation, which became effective on February 21, and under which actual rationing begins on March 1, is a departure from the unit rationing system previously used for the distri bution of sugar, coffee, gasoline, and shoes. Under the unit system available supplies of goods are in effect di vided equally among the population. This system is satis factory when applied to individual commodities for which 19 M O N T H L Y R EVIEW demand is general, for which there are no significant substitutes, and which are in sufficient supply to permit limited distribution to all. The situation is different with preserved fruits and vegetables. Since there are many varieties of these foods, since considerable differences exist in available supplies, and since there are marked differences in consumer preferences, a fair and flexible distribution of the total supply can be realized only by rationing these foods as a group and allowing the element of consumer personal preference to determine how par ticular varieties will be consumed. The point system of rationing involves fixing point values for each item and allowing each consumer to exercise selection among the items rationed under this plan up to a maximum total of points each month. Ration C o u p o n s as Purchasing Power Ration coupons have become a necessary supplement to money for the purchase of a growing list of commodi ties. With unit rationing, the decision to purchase up to the amount allowed is made with reference to relative monetary values. With point rationing, however, the con sumer must budget his points as well as his money. “ Coupon purchasing power” is a requisite for the re tailer and the wholesaler also, since their purchases to replenish stocks of rationed articles are limited, for the most part, to the amounts represented by coupons they have received from customers. In placing orders for processed fruits and vegetables, they too must consider point values, for dealers may use point stamps either to re-order foods sold or to buy entirely different items on the ration list. Ration Banking A further analogy to money appears in the handling of ration coupons after presentation to the retailer. Under the ration banking plan, begun on a nationwide scale on January 27, most transactions in ration coupons beyond the retail stage are or will be made through facilities pro vided by banks. Ration stamps, coupons, and certificates are deposited by dealers in ration bank accounts, and payments are made by ration checks drawn against such accounts in addition to money payments with ordinary checks. Such ration accounts and checks are expressed in units of measure, not dollar value. Checks are drawn in favor of the supplier, and are non-negotiable. They are Distribution and Trade— Index numbers, 1935-39 daily average=100 Retail Trade W ith Seasonal Adjustment-------- \ 1943 f------- -1942Jan. Dec. Nov. Jan. Department store sales (value) Twelfth District........ pl96 Southern California. . pl94 Northern California. . pl75 Portland .................... pl86 Western Washington. p238 Eastern Washington and Northern Idaho pl93 Southern Idaho and Utah ...................... p221 P h oen ix ...................... p220 Carloadings (number)1 Total .............................. Merchandise and misc. Without Seasonal -Adjustment --------^ 1943 /---------1942Jan. Dec. Nov. Jan. 173 175 152 188 209 210 200 184 228 282 167 172 144 164 215 pl51 pl58 pl36 pl52 pl75 296 300 274 288 364 219 205 200 237 291 129 141 112 134 158 pl23 246 217 94 pl50 pl79 306 309 245 230 112 141 96 103 88 106 120 89 97 113 76 160 208 148 175 174 218 201 165 173 109 116 101 106 120 87 110 127 88 11923-25 daily average = 100. p Preliminary. 20 March 1, 1943 FEDERAL RESERVE BANK OF SAN FRANCISCO cleared through the same channels, including local clear ing house associations and the Federal Reserve System, as ordinary checks. The deposit of his receipts in coin and currency by a merchant and the use of checks in making payments eliminates both the counting out of cash each time a payment is made and the risk involved in holding and transmitting cash. Similarly in the handling of cou pons, labor is saved and risk eliminated through ration banking. Banks are to be reimbursed for the cost of this service by the O PA, according to a schedule of charges. Participation in the program is already widespread. Sugar, coffee, and gasoline checks drawn against deposits in about three-fourths of the banking offices in the area served by the Head Office of the Federal Reserve Bank of San Francisco have been received by that Office. Cost of Living For seventeen months following the outbreak of war in Europe in September 1939 the cost of living of wage earners and lower salaried workers in major Pacific Coast cities, as measured by indexes of the United States 1935 1936 1937 1938 1939 1940 1941 1942 1943 C O S T O F L I V I N G — M A J O R P A C IF IC C O A S T C IT IE S Bureau of Labor Statistics indexes for Los Angeles, San Francisco, Portland and Seattle combined. By months, January 1935 to January 1943 (total, food, clothing) and January 1935 to December 1942 (rent). Department of Labor, showed practically no change. In the subsequent 22 months the cost of living of this group rose continuously to the end of 1942 when it was 22 per cent higher than in February 1941. The increase was par ticularly sharp in late 1941 and early 1942, but tapered off moderately after May when the General Maximum Price Regulation became effective. Advances in living costs since that month are traceable largely to increases in prices of foods not subject to regulation. Prices of retail foods included in the indexes rose 43 percent from February 1941 to December 1942. Almost two-thirds of the increase occurred before May 18, 1942, when prices of about three-fifths of the food bought by lower income families came under O PA control. Prices of clothing and housefurnishings rose substantially until May 1942, but have since shown little change. Rents were relatively stabilized late in 1942 under rent control insti tuted by the O PA. At the end of 1942 prices of most goods and services bought by consumers were under reg ulation, with the exception of foods accounting for about 10 percent of the average moderate income family food budget, personal services, newspapers, theater admis sions, and the like. Farm Prices and the Cost of Living Average prices received by farmers for their products continued to increase in January. In that month, the index of prices paid farmers in the country as a whole, prepared by the Bureau of Agricultural Economics, advanced to 182 percent of the 1909-14 average, compared with 178 in December and 149 in January 1942. The Bureau estimates that the farmer’s share in the consumer’s food dollar had risen to 55 cents in December 1942 from 52 cents a year earlier and an average of 42 cents in the five years 193539, indicating that prices paid farmers for foodstuffs have risen more rapidly than retail prices paid by consumers. Rising prices paid farmers have created an increasingly difficult problem of maintaining established ceilings on prices of foods at the wholesale and retail levels. Existing statutes prohibit the imposition of ceilings on farm prices below certain specified minimum levels. In recent weeks ceiling prices have been ordered on an increasing number of farm products, but the entire list remains small. Prod ucts important in the district and now under maximum price control include hops, beans, early onions and pota toes, citrus fruit, milk for resale as fresh milk, alfalfa (in California, Oregon, and Washington), dried prunes, rai sins, and wool. In some cases the Office of Price Admin istration has been forced to raise ceilings on food prices at the retail and wholesale levels; in others, efforts have been made to reduce costs of processors and distributors by curtailing services. Two measures designed to protect retail price ceilings, but at the same time to provide increased returns to farm ers and thereby encourage maintenance or expansion of output have been proposed by the Department of Agri culture since the first of the year. These two programs would provide for subsidies on certain canning crops and for incentive payments to farmers on any acreages plant ed to specified essential crops in excess of 90 percent but not over 110 percent of their individual farm goals. Banking and Credit— Averages of Wednesday figures (millions of dollars) 1943 Feb. Condition Item s of W eekly Reporting Member Banks 967 T o ta l l o a n s ......................... ............ Co m m ercial, in du strial, and 440 a gric u ltu ra l lo a n s ...................... 12 O p e n m arke t p a p e r......... ............ L o a n s to finance securities 39 tran saction s ............................. 354 R e a l estate lo a n s......................... A l l other lo a n s ............................. 122 T o ta l in v e s t m e n ts ........................... 2,592 U n ite d States G overn m en t securities ................................. 2,299 293 A l l other se cu ritie s........................ A d ju ste d dem and d e p o s its.............. 2,187 T im e d e p o s its .................................. 1,131 172 U n ite d States G o vern m en t d eposits. Coin and Currency in Circulation T o ta l (c h an g e s o n l y ) ....................... Federal R eserve notes of F . R . B . of S. F ........................................... 1,335 Member Bank R e se rv e s............................. 1,274 Change From 1943 ,--------1942--------\ Jan. Dec. Feb. — 23 — 50 — 169 — 14 + 1 — — 25 — — 0 __ 4 — 6 —]—68 — 1 — 6 — 7 — 34 — 16 — 71 + 2 4 5 + 1 ,0 7 0 + 70 — 2 +42 + 6 — 39 + 2 5 5 + 1 ,1 1 3 — 10 — 43 + 116 +687 + 26 + 34 — 18 + 31 +53 + 88 +631 +47 + 87 +598 — 11 + 4 +295 1 50 8 March 1, 1943 21 M O N T H L Y REVIEW 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 itio n s Released February 25, 1943— Board of Governors of the Federal Reserve System d u s t r i a l activity rose further in January and the first half of February. Retail sales I ncontinued in large volume in January and were at an exceptionally high level early in F ebru ary. 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 figure shown is for January 1943. D E P A R T M E N T ST O R E SA LE S A N D STOCKS Federal Reserve monthly indexes of value of sales and stocks, adjusted for seasonal variation, 192325 average = 100. Latest figures shown are for January 1943. P r o d u c tio n Volume of industrial production showed another marked gain in January, reaching a level of 200 percent of the 1935-1939 average, according to the Board’s adjusted index, compared with 197 in December. The increase reflected largely a growth in activity in the munitions industries, including production of chemicals for war purposes. Activity at shipyards and in aircraft and machinery plants continued to expand sharply. Deliveries of completed merchant ships in January were somewhat less than in Decem ber but were still at the high level of over 1 million deadweight tons. Total iron and steel production rose to the level of last November, but was still slightly below the October peak, and electric steel output, important for munitions manufacturing, reached a record level Sy2 times as large as in the 1935-1939 period. Operations at steel mills were near capacity during the first three weeks of February. Nondurable manufactures, as a group, continued to show little change. Production of meats under Federal inspection, except beef, declined sharply from the high level in December. Output of most other foods was maintained; production for military and lend-lease needs, particularly of highly processed foods, rose further and there was a corresponding decline in output of these products for civilians. Newsprint consumption declined in January as a result partly of a Federal order restricting newsprint use. Mineral production declined slightly in January, reflecting a small reduction in output of crude petroleum. Output at coal and metal mines showed little change. Anthracite production in the first half of January was reduced by an industrial dispute, but for the month of January as a whole, output was only 3 percent lower than in December. Value of construction contracts awarded, according to figures of the F. W . Dodge Corporation, was much smaller in January than in other recent months, but was still slightly higher than a year ago. Reductions occurred in all types of public awards, which now account for most of the total. A decline has been indicated for some time as a result of actions of the W ar Production Board designed to limit construction activity to projects that are essential. On October 23, 1942, it had established a committee to review proposals for new construction; through February 12, work on projects esti mated to cost 1.3 billion dollars was stopped either by the W ar Production Board or by the Government agencies initiating them. D is t r ib u t io n Distribution of commodities to consumers was in large volume in January and the first half of February. Retail sales of merchandise declined less than seasonally in January and rose sharply in the first half of February when a buying wave developed, particularly in clothing. A t department stores, sales increased considerably in the first week of February and then reached an exceptionally high level during the second week, stimulated partly by the announcement of shoe rationing. Freight carloadings declined somewhat less than seasonally in January and the ad justed index increased 1 percent. Miscellaneous loadings accounted for most of the rise. Substantial increases in loadings of most types of commodities occurred in the first two weeks of February. ~ C M E M B E R B A N K RESER VES A N D R E L A T E D IT E M S Wednesday figures. Latest figures shown are for February 17, 1943. o m m o d it y P r ic e s The average level of wholesale commodity prices continued to advance in January and the early part of February. Prices of most farm products showed further increases. Maximum wholesale and retail prices were raised for a number of miscellaneous com modities including coal, while reductions were effected in maximum prices for some items like rayon tops and waste. Retail prices of foods continued to rise from mid-December to mid-January with in creases largely in meats, dairy products, and processed fruits and vegetables. B a n k C r e d it Excess reserves of member banks declined from an average level of about 2.2 billion dollars in the last half of January to 1.6 billion early in February, but increased some what around the middle of the month. Increases in currency in circulation continued to be the major factor responsible for the decline, although substantial fluctuations occurred in Treasury balances and Reserve bank credit. Most of the decline in excess funds was at banks in New York City and Chicago, where reserves have recently been close to legal minimum requirements. Over the five-week period ending February 17, the cur rency drain amounted to 520 million dollars, bringing total currency in circulation to 15.8 billion on February 17. Holdings of Government obligations at reporting banks in leading cities outside New York and Chicago increased by 640 million dollars over the five-week period ending February 17. A t banks in New York and Chicago, holdings of Government securities declined by 360 million, principally through sales to the Reserve banks for the purpose of restoring reserves. Government deposits at banks were reduced in the period, while other deposits increased. E X C E S S R E SE R V E S O F M E M B E R B A N K S Wednesday figures, partly estimated. Latest fig ures shown are for February 17, 1943. U n it e d S tates G overnm ent S e c u r it y P r ic e s Following a rise in the first half of January, prices of United States Government securities have been steady. VICTORY LOAN DRIVE No. 2 1943’s first call for FIGHTING DOLLARS scheduled for April ★ Let’s be r eady . . . Victory Fund Committee Twelfth Federal Reserve District EVERY INVESTOR— EVEN THE SMALLEST CAN BUY WAR BONDS SERIES E AND SAVINGS STAMPS
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