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MONTHLY REVIEW BUSINESS CONDITIONS IN THE TWELFTH FEDERAL RESERVE DISTRICT Federal Reserve Bank o f San Francisco Review o f the Month In March and early April, business activity in the Twelfth District advanced at an accelerated rate, continuing the improvement noted in February after settlement of the maritime strike. Advances were particularly marked in private construction, in the output of products used largely in building, and in the sale of industrial equipment. W age rate increases were widespread and wage earner income expanded more rapidly than production of goods. Agricultural income, with long term fluctuations ordinarily differing markedly from those of trade and industry, has tended upward since the spring of 1933, thus reinforcing the general expansion of purchasing power which has accompanied the re covery movement. During March, agricultural in come continued appreciably higher than a year ago, largely because of increases in prices paid farmers for their products. Expanding consumer purchasing power has shown itself in a substantial increase in the value of retail trade. This bank’s seasonally ad justed index of the value of department store sales increased 12 percent during the past year, due in part to price increases, and was higher in March than in any other month since May 1931. Continued expansion of new construction and in creasing purchases of industrial equipment are among the more important current business de velopments. In the Twelfth District, as in the coun try as a whole, most of the advance in recent months has taken place at the initiative of private rather than public agencies. The value of contracts awarded for public works was only half as large in the first three months of 1937 as in the first quar ter of 1936. The value of permits issued for private new building in 18 large cities, on the other hand, increased 42 percent. Many industries have installed a substantial amount of new equipment during re cent months, thereby adding to existing facilities and replacing obsolete machinery. Particularly large gains have occurred in the con struction of new residences, and the value of per mits for such building is now at approximately the level of late 1929. Large increases in the output of lumber, cement, brick, tile, plaster, and other building materials have been induced by the recent gains in construction. Expanding industrial activity has been accom panied by increases in employment and working time. Factory employment in the three Pacific Coast states increased four percent between mid-February and mid-March, about twice the usual seasonal in crease. Average hours worked per week in Califor- nia industrial establishments advanced two percent during the same period. Effects of the expansion in employment hours on industrial pay rolls were amplified by numerous advances in hourly wage rates. A m ong the impor tant lines in which advances have been granted since the beginning of 1937 are the lumber, fruit and vegetable canning, steel, tin container, mining, automobile, and rubber tire industries. In California, hourly wage rates in mid-March were six percent higher than a year ago and two percent higher than in mid-February. As a result of these influences and the increase in employment, this bank’s seasonally adjusted index of Pacific Coast factory pay rolls advanced five percent in March. Retail trade increased considerably further dur ing March. An unusually large advance in depart ment store sales reflected partly the fact that Easter shopping was concentrated in March this year. Even after allowance for this and other seasonal influences, however, sales increased six percent to the highest value since 1931. Particularly large gains over the corresponding months of 1936 have occurred in department store sales of household furnishings and semi-luxury goods during recent months. Furniture store and mail order house sales also increased in March, after allowance for sea sonal influences. Intercoastal trade in March, the first full month of shipping since the end of the maritime strike, increased substantially. A huge volume of strike bound goods was released for shipment and total intercoastal tonnage was larger in March than in any month since November 1929. W estbound ton nage was the largest since the opening of the Canal. More frequent schedules were inaugurated by several companies and some rate increases became effective. Increased rail shipments in March partly offset the January and February decline from the Decem ber 1936 peak. In the first quarter of the year, carloadings were 13 percent higher than in the corre sponding 1936 period. A g r ic u l t u r e Additional snowfall at the higher altitudes and heavy rains throughout most sections of the Twelfth District during March retarded pasture and crop growth, and delayed early spring planting. Weather conditions were more favorable in April. Spring and summer range prospects improved during March, but the condition of ranges was below average on April 1. Snow surveys indicate that supplies of water will be adequate in all sections of the district where large acreages are irrigated. 18 May 1, 1937 FEDERAL RESERVE BA N K OF SAN FRANCISCO Income received by farmers from the sale of the principal products marketed at this time of the year was considerably larger than during the comparable period in 1936. Returns to orange growers in Cali fornia and Arizona during the first five months of the season beginning November 1 were seven per cent larger this year than last, although shipments were 15 percent smaller. Estimates as of April 1 indicate a crop of 26,600,000 boxes, compared with last season’s output of 33,300,000 boxes which ap proximated the 1928-1932 average. Lemon growers’ returns for the season to April 1 were seven percent less this year than last. W hile prices have averaged 13 percent higher, shipments have been 18 percent smaller than last season. Poultry and dairy products have brought higher returns to farmers this year than last. E gg produc tion during March and the first three weeks of April was 17 percent larger than a year ago, and prices were approximately 15 percent higher. On the basis of current butter quotations, it is estimated that prices received by district milk producers were also higher than in March last year. Prices of butter ad vanced contraseasonally in March, and averaged 19 percent above the level of a year ago. Production, however, was 10 percent smaller, indicating some curtailment in the supply of milk. High feed prices and the poor condition of pastures during recent months were important factors in the decline of milk production. California usually markets about 1,150,000 early lambs during the four-month period, March through June. Alm ost half of these are shipped to cities in the Middle W est and the East. The out-of-state movement has been delayed this year because of the poor condition of lambs. Through April 17 only 30,200 head were shipped, compared with 63,000 head shipped through April 18, 1936. Prices have advanced during recent weeks and in mid-April were more than 25 percent higher than a year earlier. Shearing of the 1937 w ool clip, delayed by storms in March, was well under way throughout the district late in April. The w ool market was active and buyers have contracted a large portion of the clip at prices averaging higher than in any season since 1928. Receipts of cattle during March in leading district markets were 17 percent larger than in March 1936. Prices paid to livestock grow ers were approximately 15 percent above those of a year ago. Bank C r e d it The moderate decline in earning assets of Twelfth District reporting member banks, in evidence dur ing the first three months of the year, was arrested early in April and was followed by a sharp increase in the tw o weeks ending April 21. The decrease in preceding weeks was the result of a substantial re duction in investments, which were lower in early April than at any time since December 1935. From December 30, 1936 to April 7, holdings of Govern ment securities declined four percent and other securities decreased 13 percent. In contrast, total loans continued to advance slightly, the increase being confined to loans in the “ all other” classifica tion. In the follow ing two weeks, however, invest ment holdings of reporting member banks advanced, the increase being confined entirely to United States obligations. In the same two-week period, loans on securities to others than brokers and dealers, and banks increased, and loans in the “ all other” classi fication advanced sharply further. That classifica tion, consisting chiefly of advances for commercial, industrial, and agricultural purposes, also includes personal and consumer instalment loans, a category which has become increasingly important. The decline in investments during the first quar ter of the year was not restricted to reporting mem ber banks, but, as indicated in the accompanying chart, extended to all district banks. This decline was the only appreciable reduction reported by dis Production and Employment— Index numbers, 1923*1925 average=100 Industrial Production Manufactures (physical volume) Lumber .............................................. Refined Oils* .................................. Cement* .............................................. M eat* ................................................... W heat Flour* ................................ Minerals (physical volume) Petroleum* ....................................... Lead ( U . S . ) * * ............................... Construction (value) Total C o n s tr u c tio n !...................... Urban Building Permits Residential .................................... Nonresidential ............................. Total (incl. alterations, e tc .). Public W o r k s f ................................ Miscellaneous Electric Power P rod u ction .. . . Factory Em ploym ent and Pay Rolls Pacific Coast Employment .................................... Pay R o l l s ............................................ California Em ploym ent .................................... Pay Rolls ......................................... Distribution and Trade— With Seasonal /—Adjustment —> /— 1937— x 1936 M ar. Feb. M ar. 82 — 115 122 72 153 98 — 121 — 59 89 89 72 86 60 124 118 72 — 102 114 122 77 — 97 110 124 — — 70 Without Seasonal Adjustment ^— 1937— s 1936 M ar. Feb. M ar. 77 152 — 53 153 91 — 65 73 76 62 66 73 — — — — — — — — — — — — 55 52 55 114 32 81 49 157 31 48 40 224 187 199 175 174 182 163 115 101 113 96 102 84 107 97 103 88 95 81 127 117 126 110 109 93 118 112 115 104 101 89 * D aily average. $ Prepared by Board of Governors of the Federal Reserve System. + Indexes are for three months ending with the month in dicated. Index numbers, 1923*1925 average=100 W ith Seasonal ^-Adjustm ent—* ,— 1937— 1936 M ar. Feb. M ar. Retail Trade Department Store Sales (value)* Twelfth District ............................. 102 109 California ............................................ 105 Los Angeles ................................ Bay Region .................................. 111 San Francisco ........................... 110 124 Oakland ......................................... 81 Pacific Northwest ........................ Seattle ............................................ 91 Spokane ......................................... 66 81 Salt Lake City ............................... 68 Department Store Stocks (value) f Furniture Store Sales (value) * $ . 90 Automobile Sales (num ber)* — — Passenger ....................................... Commercial .................................. — Carloadings (num ber)* 93 Merchandise and M isc................ Other ................................................... Intercoastal Traffic (volum e) 99 58 Eastbound W estbound 239 Without Seasonal /—Adjustment —% a— 1937— N 1936 M ar. Feb. Mar. 96 103 99 106 103 118 72 80 58 77 68 84 91 97 92 103 103 112 70 77 58 71 65 81 97 104 101 105 104 116 75 82 57 73 70 81 81 88 87 89 89 94 57 63 46 61 66 75 82 89 85 93 92 100 61 66 48 61 66 73 160 158 188 115 110 173 162 152 272 — — — — — 90 105 70 81 97 62 87 75 87 59 76 89 60 23 9 70 76 66 118 99 54 253 21 8 63 76 61 125 — *D aily average. + A t end of month. $1929 average— 100. May 1, 1937 M O N TH LY REVIEW OF BUSINESS CONDITIONS trict member banks in recent years and it followed a seven-year period of expansion during which securities holdings more than doubled. M ost of this advance came after mid-1933 and more than 85 percent o f it was confined to increased holdings of Government obligations, including those fully guar anteed by the United States. EARN ING ASSETS OF A L L MEMBER BANKS—-Twelfth District Call report data; March 31, 1937 figures preliminary. Investments expanded slowly between 1930 and mid-1933, but loans declined sharply. This reduction in loans was affected directly by numerous bank suspensions, and the drastic curtailment of business activity during that period of the depression also played its part. In mid-1933 the sharp decline in loans was checked, however, and the downward trend was moderate during the next two years. In the fall of 1935 a definite increase became evident, and on March 31, 1937, total loans of district mem ber banks amounted to $1,708,000,000, approxi mately $260,000,000 larger than on June 29, 1935. This expansion in total loans has been the result almost entirely of an increase in the “ all other” loan classification. A s shown in the chart in the next column, that group of loans increased moderately in the second half of 1934 and the first half of 1935. Thereafter a substantial expansion occurred, tem po rarily interrupted during the first quarter of 1936 by a decline which was largely seasonal in char acter. The increase between June 29, 1935 and March 31, 1937 approximated $184,000,000, or 34 percent. Loans on real estate have fluctuated with little net change since mid-1933, a decline in ad vances on farm land being practically offset by an increase in loans secured by other real estate. Com pared with 1929 and 1930, loans on securities, al though tending slightly upward since mid-1935, are lower than any other major classification of ad vances segregated in the condition statements of member banks. The third increase in reserve requirements or dered by the Board of Governors of the Federal Reserve System during the past ten months is 19 scheduled to become effective on May 1. In this district, the increase of 14.29 percent of present re quirements will amount approximately to $53,000,000 for banks in reserve cities and $6,000,000 for coun try banks. Excess reserves held by city banks dur ing the last two weeks of March averaged $86,000,000, and those held by other banks averaged $15,000,000. Although not distributed uniformly, these excess reserves are widely held. In late March about tw othirds of the member banks, both in reserve cities and in all other cities and towns of the district, re ported amounts sufficient to meet the increase in requirements. Between the end of March and April 28, member bank reserve balances increased $25,000,000. Since net demand and time deposits, against which re serves are required, advanced only slightly during this period, there was a further increase in excess reserves. Excess reserves alone, however, are not an in clusive measure of the amount and distribution of idle funds of district member banks. During the past several years, many local banks, particularly the reserve city institutions, have maintained larger balances with eastern correspondents than have been necessary for ordinary operating requirements. These balances are thus a ready source of funds for transfer to the reserve accounts of those banks at the Federal Reserve Bank of San Francisco. Many local country banks likewise have maintained large deposits with their city correspondents and they will probably withdraw funds from some city banks around May 1. In most cases, however, the city LOANS OF A L L MEMBER BANKS —Twelfth District (Excluding loans to banks) Call report data; March 31, 1937 figures preliminary. banks in this district have adequate idle funds to meet these withdrawals as well as the increase in their own reserve requirements. Extensive adjust ments prior to May 1 to enable district member banks to comply with the increase in reserve re quirements effective on that date do not appear necessary. May 1, 1937 FEDERAL RESERVE B A N K OF SAN FRANCISCO 20 National Summary o f Business Conditions Prepared by the Board of Governors of the Federal Reserve System M a r c h industrial activity continued to increase and pay rolls at factories and mines showed a substantial rise. Prices of basic commodities, after ad vancing rapidly in March, declined in the first half of April. I n P r o d u c t io n a n d E m p l o y m e n t IN DU STRIAL PRODUCTION Index of physical volume of production, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1929 to March 1937. F A CT O R Y EM PLOYM EN T AN D PAY ROLLS Indexes of number employed and pay rolls, without ad justment for seasonal variation, 1923-1925 average = 100. By months, January 1929 to March 1937. Indexes compiled by the United States Bureau of Labor Statistics. Industrial production increased from February to M arch and the Board’s seasonally adjusted index advanced from 116 percent of the 1923-1925 average to 118 percent. T he rise reflected a sharp increase in output of minerals, chiefly coal, and an increase of somewhat more than the usual seasonal amount in manufacturing. The larger output of coal in March was due in part to stock ing by consumers in anticipation of a possible strike at bituminous coal mines on April 1 when the agreement between mine operators and the miners’ union expired. A new agreement was reached on April 2 but, owing partly to the previous accumulation o f stocks, production in the first ten days of April showed a sharp decline. During March activity at steel mills increased season ally and in the first three weeks o f April was over 90 percent o f capacity. In the automobile industry output showed about the usual seasonal increase in March and the first three weeks of April, considerable fluctuations during this period being largely in response to developments in the labor situation. Lumber production expanded considerably in March, and there was a sharp rise in output o f nonferrous metals. Cotton consumption, which has been at an un usually high level in recent months, increased further in March and in actual amount was larger than in any previous month. Production at woolen mills and shoe factories continued in large volume. Value o f construction contracts awarded in March, as reported by the F. W . Dodge Corporation, was at about the same level as in February and substantially higher than a year ago. Privately-financed work increased, while the amount of publicly-financed work continued to decline. The increase ir privately-financed projects reflected a larger volume of residential building anc of factory and commercial construction. Employment and pay rolls increased by considerably more than the usua seasonal amount between the middle of February and the middle of March T he expansion in pay rolls was larger than in employment, reflecting in pari a further rise in wage rates. In manufacturing, the principal increases in em ployment were in industries producing durable goods, particularly steel machinery, and lumber. The number employed in the production of nondurabl< manufactures showed slightly more than the usual seasonal rise. D is t r ib u t io n Distribution o f commodities to consumers showed about the usual seasona increase from February to M arch. M ail order sales expanded considerably but the rise in department store sales was less than seasonal, considering th< early date of Easter this year. C o m m o d i t y P r ic e s Prices o f nonferrous metals, steel scrap, rubber, cotton, and wheat, whicl had advanced rapidly in March, declined considerably in the first half o f April Since the middle of March prices of coke, tin plate, and rayon have advancec and there have been smaller increases in a wide variety of other industria products. Dairy products have declined, reflecting in part seasonal developments W HOLESALE PRICES Indexes compiled by the United States Bureau of Labor Statistics, 1926=100. By weeks, 1932 to date. Lat est figure is for week ending April 17. Bank C r e d it In the four-week period from March 24 to April 21, excess reserves of mem ber banks increased from $1,270,000,000 to $1,590,000,000, reflecting principally disbursements by the Treasury from balances with Federal Reserve banks an< purchases of United States Government obligations by the Federal Reserv« System. The bulk o f the increase in excess reserves was at banks in Nev Y ork City and Chicago. Total loans and investments of reporting member banks, which had decline< sharply in M arch, reflecting sales of United States Government obligations showed little change in the two weeks ending April 14. Loans to brokers an< dealers in securities declined from the middle of M arch to the middle of April while other loans, which include loans for commercial, industrial, and agricul tural purposes, showed a substantial increase. These loans have increased almos continuously over the past year. Demand deposits, after declining in March, increased somewhat in the firs half of April, .and there was an increase in foreign bank balances, reflecting an inward movement of short-term funds from abroad. M o n e y R ates MEMBER BANK CREDIT Wednesday figures for reporting member banks in 101 leading cities. September 5, 1934 to April 14, 1937. The rate on prime commercial paper advanced from ¿4 percent to on percent in the latter part of March. Bond yields, which had advanced sharp! in March, showed no pronounced change in the first three weeks of April.
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