The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY REVIEW B U SIN E SS 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 November 1,1941 over the first nine months of the year, a large expansion has taken place in Twelfth District indus trial production and employment. Expansion, although still continuing, was less pronounced in August and the retarded rate of increase was somewhat more evident in September. In the field of construction, value of permits issued for private residential building decreased in Sep tember for the second successive month, although some seasonal expansion is customary at this time of year, and the value of nonresidential building was also lower. Pre liminary data for October, however, indicate a smaller than seasonal decline in private residential construction. Retail trade was somewhat less active than in the pre ceding month, seasonal influences considered, but the decline was from an unusually high level. Activity in local defense industries, centering prin cipally about aircraft production and shipbuilding, ex panded further in September, while operations in other major district industries were generally well maintained. Lumber production in September, after allowance for seasonal influences, was about unchanged from the pre vious month, a small decline in output in the Douglas fir region approximately offsetting an increase in the west ern pine area. For the second successive month, new or ders received by mills decreased and were smaller than output. Prices for Douglas fir have weakened recently, quotations for several items declining below the ceiling established by the Office of Price Administration, effec tive October 1. Output of crude petroleum was about unchanged in September, but refinery operations declined slightly. Mining and smelting of non-ferrous metals con tinued highly active with encouragement to further ex pansion in zinc output provided by action of the O PA in raising the ceiling price of this metal from 7.25 cents to 8.25 cents per pound in October. Pulp production in the Pacific Northwest continued unabated at effective capacity. Early in October the Supply Priorities and Allocations Board recommended that annual steel producing capacity in the United States should be increased by 10,000,000 tons. The report on which the recommendation was based indicated that for strategic reasons it would be desirable to make the West Coast substantially independent of eastern mills for its steel supply. Under plans previously submitted by Coast steel producers, production in the Twelfth District would be approximately tripled. On Oc V ie w e d tober 22, the Defense Plant Corporation announced the execution of a lease agreement with a western steel con cern for construction of a $35,000,000 pig iron plant in Utah. Two days later the OPM formally recommended that the Defense Plant Corporation finance a $36,000,000 steel plant in California for the production of plates and castings. While activity in defense industries expanded, and output of the other major district industries was well maintained, there was some evidence in September and early October that operations and employment in a num ber of small plants using metals but manufacturing prod ucts not essential for defense had been curtailed because of lack of materials. Total factory employment and pay rolls in Pacific Coast states, however, increased further in September, allowing for customary seasonal influ ences. Retail trade, as measured by department store sales, declined in September on a seasonally adjusted basis. This decline, however, followed the sharp increase in sales in the preceding month. The abrupt August increase in consumer buying reflected fears of shortages, par ticularly of items containing silk, and was also induced by the announcement of regulations, effective September 1, designed to curb installment buying. Department store sales of major household appliances, which had risen markedly in August, declined in September but showed a larger year period gain than in any month other than August. In September, consumers actively purchased goods such as radios, furs, jewelry, and liquors on which new Federal taxes became effective on October 1. De partment store sales of furs, for example, were more than twice as large as in September 1940. New passen ger car sales declined in September to the lowest figure for any month since 1938. Part of this decrease may re flect the fact that 1942 models were not in dealer hands throughout the month, but trade comment indicates fairly widespread buying indifference in recent weeks. Prices of new cars are higher, and the active buying dur ing the past model year may, in part, have represented sales “ borrowed” from the present model year. Pro visions of the regulation of consumer installment credit, the most important of which relate to the size of the mini mum down payment and the maximum length of time over which contracts may be written, adopted by the Board of Governors of the Federal Reserve System ef fective September 1, were also a factor. This issue of the Review also contains discussions of: Priorities Unemployment - - - - Private Residential Building in Defense and Non-Defense Areas Agriculture - Page 54 - 55 56 Banking and Credit - - - National Business Conditions Defense Savings Bonds and Payroll Deduction Plans - - - Page 57 59 60 54 N o v e m b e r 1,1941 FEDERAL RESERVE B A N K OF SAN FRANCISCO P r io r ity U n e m p lo y m e n t The threat of depressed areas marked by idle men and closed plants resulting from the inability of certain in dustries to obtain materials shows few signs of mate rializing in the Twelfth District, although an increasing proportion of supplies is being diverted from ordinary uses to defense as priority regulations and allocations are extended. Individual dislocations have occurred and will continue to occur, and the future course of employment in particular plants is uncertain, but layoffs of men and plant shutdowns have so far been of proportions in no way indicating the development of depressed areas. The relatively fortunate position of the district in this respect is occasioned by two factors. The first is the com parative unimportance of vulnerable industrial activities in the economy. The second is the distribution of those activities, which are, for the most part, located in in dustrial areas where defense production continues to ex pand. National attention has been directed primarily toward consumer goods industries which use scarce materials and toward the communities in which those industries are dominant sources of employment. In this district, however, such industries are not a large part of the total and there are no communities dependent primarily upon them as is the case in certain other sections of the coun try, notably the Middle West. Automobile assembly plants employ a considerable number in California and the manufacture of heating equipment is of some im- P rod u ction and E m ploym ent— Index numbers, 1923-1925 average=100 Industrial Production1 Manufactures (physical volum e) Lum ber .......................................... Refined oils...................................... Cement .......................................... W heat flou r................................... With Seasonal Adjustment—\ 1941 — v 1940 Sept. Aug. Sept. 108 — 180 106 108 92 — — 169 98 124 105 Without Seasonal t— Adjustment—> t— 1941— v 1940 Sept. Aug. Sept. 126 176 191 126 129 189 189 98 107 167 132 125 98 152 97 116 129 152 93 112 107 136 87 90 65 55 158 118 419 72 76 59 69 66 120 204 289 241 Minerals (physical volum e) Petroleum ..................................... Lead (U . S .)2-3.......................... Silver (U . S .)2............................. Copper (U . S .) 2-3........................ — — — 154 116 125 155 112 109 137 Construction (value) Residential building permits4 Twelfth D istrict...................... Southern California........... N orthern California........... O regon ................................. W ashington ........................ Intermountain states......... Public works con tracts............. 75 71 73 39 111 133 — 87 92 67 55 137 106 65 69 54 58 61 91 — — 83 78 79 46 120 175 373 Miscellaneous E lectric power p rod uction. . . . 248 264 230 259 Distribution and Trade— Factory Employment and Payrolls5 Employment Pacific C oast................................. California ................................. O regon ...................................... W ashington ............................. 188 225 136 141 180 217 132 130 129 148 107 103 196 233 147 148 185 224 138 133 135 154 116 108 Payrolls Pacific C oast................................. California ................................. Oregon ..................................... W ashington ............................. 239 284 160 186 225 269 160 167 136 158 105 105 248 289 178 197 236 279 178 176 140 160 116 111 aDaily average. 2Prepared by Board of Governors of the Federal Reserve System. (1935-1939 = 100). _ 3Seasonal factors revised. in c lu d e s figures from 197 cities and Los Angeles County, unincorporated. 5Excludes fish, fruit, and vegetable canning. portance throughout the district, but the manufacture of silk products, aluminum ware, refrigerators, washing ma chines, vacuum cleaners, metal furniture, and other products using scarce materials, although represented, is not extensive. Altogether, employment in consumer goods industries which might be affected, is about three percent of total factory employment in the district. The trend of employment in automobile assembly plants, which hire the largest number of workers among the vulnerable consumer goods industries in the district, has been uncertain in recent weeks. Drastic layoffs on account of shortages of materials and parts have not yet occurred, but rehiring after the changeover to new mod els, although substantial, did not raise employment to the high level reached in the summer prior to the end of the model year. Both the partial conversion of plants to de fense production and their proximity to defense indus tries, however, should prevent significant unemployment in the areas where such plants are located even if auto mobile production should be restricted more severely in the future. Small metal-working shops are being affected, and con struction employment may be curtailed as non-defense building and other construction projects are restricted, but many of the workers in those fields have skills which will enable them to shift more or less readily to defense employment. Some distributors, particularly small re tailers, are faced with the necessity of reducing their staffs because of inability to maintain stocks. Whether or not the problem of so-called priority un employment will reach imposing proportions throughout the country in the future depends upon the demands of defense, the distribution of defense contracts, the extent to which labor and other resources released from nonessential employment can be shifted into emergency ac tivities, and the development of substitute materials. In evaluating the effects of these factors in the Twelfth Dis trict, it must be remembered that a major part of the nonagricultural resources of the area is devoted to the pro duction of copper, lead, and zinc, so-called strategic ma terials; lumbering; petroleum production and refining; fruit, vegetable, and fish canning; and motion picture pro duction. None of these activities have been restricted ap preciably by the defense program; for the most part they have increased under its impetus. At the same time the industrial areas on the Pacific Coast are the scene of con tinuing rapid expansion in aircraft production and ship building which have already attained the status of major sources of employment in the district. Index numbers, 1923-1925 average=100 W ith Seasonal Adjustment—N / — 1941— x 1940 Sept. Aug. Sept. r~ Retail Trade1 Autom obile sales (nu m ber)2 Passenger ............................ Commercial ........................ Carloadings (nu m ber)2 T otal ......................................... . . . Merchandise and m is c.. . . O t h e r ................................... Without Seasonal ^—Adjustment—\ (— 1941— s 1940 Sept. Aug. Sept. — — _ — - - — — — .. 53 .. 118 104 270 84 75 170 103 114 89 102 112 89 89 96 80 118 134 99 118 126 107 102 113 89 — d e p a rtm e n t and furniture store indexes, customarily shown in this table, are in the process of revision. 2Daily average. N ovem b er 1,1941 Private Residential B u ild in g in Defense and Non-Defense Areas New private residential building declined in August and September, although a substantial seasonal increase is customary in those months. This decline was from the musually stable and high levels of the preceding four months to which new private residential building had pressed forward in the second half of 1940 and early 1941. Preliminary data for October indicate, however, that value of permits for this class of building will not show any large change from the September total, al though a substantial seasonal decline is usual. Expansion in dwelling construction in late 1940 and early 1941 largely reflected efforts to meet sharply in creasing demand for housing near defense industrial cen ters and important military and naval bases. In a press release dated September 19 the OPM announced a list of localities (shown on page 56) which it has classified as critical defense housing areas, and the marked increase in value of private residential building permits in these areas as a group in 1940 and particularly in the first half of 1941 is shown in the accompanying chart. The chart also indicates that the increase in new residential building in other areas, referred to in this discussion as non-de fense areas, was much more moderate. The August-September downturn in new residential building was common to both defense and non-defense areas, classified on the basis indicated in the preceding paragraph. In the district as a whole, about the same percentage decline occurred in both categories, but on a regional basis some variation was apparent. This vari ance is shown in the accompanying table, which com pares average monthly valuation of building permits issued in August and September with those issued in April-July, inclusive. The percentage figures shown in the table represent the aggregate change in residential build ing. Changes for many cities varied considerably from the average. For example, Bakersfield and Stockton are both classified as defense housing areas in the northern California region, yet the monthly average values of new dwellings started in these cities were 17 and 47 percent lower in the later period than in the preceding four months. N ew P r iv a t e R e s i d e n t i a l B u il d in g — T w e l f t h D is t r ic t August-September average compared with April-July average, 1941 Percent change in Value of Permits Defense H ousing Areas Average Seasonal Change Other Areas Total 5o. California........................— 16 No. California........................— 11 Oregon ...................................— 20 Washington ..........................—- 3 [nterm ountain....................... — 7 — 13 — 8 — 32 — 34 + 3 — 15 — 10 ■— 23 — 7 — 3 —7 Twelfth D istrict............... ....—-13 — 12 — 13 —2 Region —1 —4 —3 — 7 General attention has been directed to the restriction upon residential building that is expected to follow the recently established priorities on critical building mate rials, but, as indicated above, there is evidence that a decline was already under way in most parts of the dis trict before action in regard to priorities was taken. The purpose of the housing priority order was to obtain a more efficient distribution of the critical metals and metal products used in housing. Shortages of these materials were not solely responsible for the recent decline in pri 55 M O N TH LY REVIEW OF BUSINESS CONDITIONS vate residential building. The demand for skilled labor in industrial construction and in shipyards has resulted in a decreased labor supply available for home building, a more rapid turnover of employees, and the utilization of less efficient labor. Many smaller contractors as well as workmen have shifted to industrial employment. Building costs have risen. Not only have the costs of materials and labor advanced, but uncertainty over the availability of labor and materials has caused an increasing number of contract builders to build only on a cost plus basis or to include a considerable margin of safety in their bid prices. Uncertainty over the length of the construction period itself has been a deterring factor for both operative builders and owner-builders. (939 1940 1941 N E W P R IV A T E R E S I D E N T I A L B U I L D I N G —Twelfth District Indexes of permit valuation, not adjusted for seasonal variation, 1939 average=100. By quarters, January 1939 to September 1941. Decreasing availability of credit has been another fac tor in the situation. Although interest rates have not risen and terms of repayment have been made no stricter (installment credit controls of the Board of Governors of the Federal Reserve System do not apply to loans secured by improved real estate), appraisals, both of the F H A and of private lending agencies not making in sured loans, have not risen to an extent comparable with costs. In part this is a typical lag, but the F H A in its valuations has not recognized the increase in costs since the inception of the defense program except in a very few areas in which such changes have been considered to reflect more permanent conditions. The result has been to discourage potential borrower-builders since the ratio of loan to cost has declined. With operative build ers, the fact that there is considerable buyer resistance to a price above the appraised value has also played a part. Uncertainty over the possibility of rent controls, the permanence of population shifts (a landlord cannot amortize his “ plant” for tax purposes in five years), and the level of building costs after the emergency is over also may have had some effect. The requirements for housing in the district in the 56 immediate or near-term future are indeterminable at this time. The population of many defense areas is still increasing, but the rate of increase probably has declined in some districts and may do so before long in others. As the influx of workers declines, the need for addi tional housing also falls off. A related factor is the like lihood that to a greater extent than in the past, further gains in defense employment will take place through the transfer of workers from local non-defense employ ment and through the hiring of persons, including women, not normally engaged in gainful occupations within the community. As far as governmental restrictions upon the avail ability of building materials are concerned, it should be clearly recognized that, although priorities on critical housing materials affect their distribution as between defense and non-defense housing, the more basic factor which necessitates such restriction is the competition for metals between construction on the one hand and indus trial and armament production on the other. Thus the interpretation of the comparative needs of those two types of activities by SPAB and the Priorities Division of the OPM will be the fundamental factor in the dis tribution of critical building materials. Priority regulation o f critical building materials for defense housing, announced by the Priorities Division of the OPM , went into effect on September 22. Under this regulation, a builder, upon approval, is given a project preference rating which may be used in his pur chases of critical building materials for that project. A rating is not in itself a guarantee of delivery, nor is the absence of a rating a prohibition of purchase, although the difficulty of replenishing stocks may deter sales by dealers to buyers without ratings, since a dealer can extend a buyer's rating to his own purchases. The holder of a priority rating merely has a claim ahead of those with lower ratings or no rating who may have orders pending or who may be seeking to purchase at the same time. Highest ratings are to be given to projects under con struction as of September 1 and to remodeling and re habilitation. Lower ratings are to be given new con struction for rent, and still lower ratings to new con struction for sale. Urgency with respect to time and location will also affect the rating granted. Preference ratings apply only to those building mate rials on the defense housing critical list, which is limited almost entirely to metal and metal products, not to all building materials. Steel and iron products, plumbing and gas distribution systems, heating and ventilating equipment, certain metal household equipment, electrical supplies, and land development items such as pipe lines make up the list. Lumber and cement are not included. To be granted a rating, the proposed construction must be located in a defense housing critical area, and must be intended primarily for defense workers. The esti mated market price is not to exceed $6,000 nor can the proposed rental exceed $50 per month per family unit. T o economize on scarce materials, approval is further conditional upon plans calling for the use of minimum quantities of metals. In this connection, SPAB has asked that building codes be altered wherever such action would eliminate the otherwise unnecessary use of those mate rials. N o v e m b e r 1,1941 FEDERAL RESERVE BA N K OF SAN FRANCISCO In the Twelfth District, the following areas, whose outer limits are defined in terms of reasonable commut ing distance from defense employment, have been so designated. California Bakersfield Fresno L os Angeles M onterey Oceanside-Fallbrook San Diego San Francisco and East Bay Cities San Luis Obispo San M iguel-Paso Robles Stockton Vallejo W ashington Idaho Bremerton Boise Everett Keyport Nevada L ongview -K elso Hawthorne Las Vegas Seattle Spokane Tacom a Utah Ogden Oregon Salt Lake City A storia Herm iston Arizona Pendleton Litchfield Park Portland Although the OPM priority regulation of critical building materials is being applied to housing only, on October 9 the SPAB issued a statement of policy indi cating that no public or private construction projects of any sort which use appreciable quantities of critical mate rials, may be started during the emergency unless they are necessary either for national defense or essential to public health and safety. A griculture Prices paid farmers for their products in the United States advanced substantially in the six months ending in mid-September but about that time the continuous increase in the average of these prices was halted, tem porarily at least. In general, these prices fluctuated dur ing the following month slightly below the level prevail ing in mid-September. At that level they averaged 40 percent higher than a year earlier and higher than at any time since 1930. This average for the first time in the past 21 years, exceeded the average of prices farmers paid for the items they purchase, including taxes and interest on indebtedness. Farm products produced in considerable volume in this district which showed the largest price advances over a year ago in mid-September included cotton, cotton seed, wheat, barley, eggs, flaxseed, butter, deciduous fruits sold fresh to consumers, and sheep and lambs. Products which showed more moderate but nevertheless substantial gains over the period included apples, cattle, chickens, corn, hay, potatoes, sweet potatoes and most other vegetables, citrus fruit, prunes and walnuts. Prices paid United States farmers for both cotton and cotton seed have risen steadily since early this year, and in mid-September were higher than at any time in the last decade. Notwithstanding record or near-record crops of most grains, farm prices of grains as a group averaged over 37 percent above those of September 1940. A l though the production of milk, cheese, and butter are at record levels and September 1 stocks of butter and cheese were 49 and 29 percent, respectively, larger than on September 1, 1940, farm prices for all principal dairy products advanced more than seasonally during the fol lowing month. At 140 percent of the 1909-1914 level in mid-September, dairy products prices averaged over 26 percent higher than a year earlier and were higher than in any other September since 1929. The index of citrus and deciduous fruit prices, after reaching 100 percent of the 1909-1914 base in August, declined to 89 percent in September. This was the only group of farm products selling at lower prices than in the 1909-1914 period. N o v e m b e r 1,1941 M O N T H L Y REVIEW OF BUSINESS CONDITIONS Exports of farm products from the United States, which had been severely curtailed as a result of war de velopments, have recently revived under the impetus of the lend-lease program. From September 1940 through January 1941 exports were at an annual rate of about $240,000,000, but in June they had risen to an annual rate of some $740,000,000. At this level, they approxi mate the average of recent years, but are considerably below the average of the 1920’s. A g r ic u l t u r a l P r o d u c t io n — T w e l f t h D is t r ic t (in thousands o f u nits) Grain and Field Crops Barley (b u .) . . . . ...................... Beans (b a g s )............................... Corn ( b u .) ................................. Cotton (b a le s )............................. Flaxseed ( b u .) .......................... Grain sorghums ( b u .) ............. Hay, tame (t o n s ).................... H ops (b a le s )............................ Oats ( b u .) ................................. Potatoes, all ( b u .) .................... Early ..................................... Late ....................................... Rice ( b u .) ................................... Rye ( b u .) ................................... Sugar beets (t o n s ).................... Sweet potatoes ( b u .) ............... W heat, all ( b u .) ...................... Spring wheat........................ W inter w heat........................ Citrus Fruit Crops Grapefruit (b o x e s )........... Lemons ( b o x e s )............... Oranges, all (b oxes) . . Navel ............................ Valencia ........................ Average 1930-39 42,032 5,503 7,576 492 745 4,308 11,618 174 26,968 55,973 5,411 50,562 8,176 811 2,897 1,204 105,916 39,295 66,621 1939 49,116 5,532 7,198 645 2,085 3,651 11,507 176 34,577 1940 Indicated 1941 98,620 26,640 71,980 52.917 7,227 7,636 740 3,166 5,584 12,229 213 27,714 75,142 10,260 64.882 8,968 1,306 4,448 1,440 100,908 30,991 69.918 1,635 3,435 1,560 128,496 25,395 103,101 2,271 8,813 37,448 16,055 21,393 4,624 11,106 41,850 18,400 23,450 4,875 11,963 44,924 18,041 26.883 4,574 17,072 47,692 19,972 27,720 14 Alm onds ( t o n s ). . . .................. 43,949 Apples ( b u .) ........... ............... 248 A oricots (tons) . . . ................. 61 Cherries (t o n s ). . . . ................. 2,002 Grapes (t o n s )......... ................. 497 W ine .................... .................. 362 T a b l e .................... ................. 1,143 Raisin ................. ................. 25,000 Peaches, all (bu.) . ................. 15,143 Clingstone ........................... 9,857 Freestone ........... ................. ................. 18,277 Pears, all (b u .) 13,584 Bartlett ............. ................. 4,693 Other ................. ................. 65 Plums (t o n s )......... ................. 677 Prunes, all (tons) . ................. .................. 69 Fresh ................. 232 Dried ................... ................. 46 W alnuts (t o n s ) ........................ Livestock and Related Products ................. 45,452 Chickens (head) E ggs (d o z e n )......... ................. 313,330 1,877 H ogs (h e a d )........... ................. 8,564 Lambs (h e a d )......... ................. 4,102 Turkeys ( h e a d ) ... ................. W ool ( l b s .) ............. ................. 101,121 19 39,893 323 88 2,238 569 373 1,296 26,651 15,501 11,150 20,730 14,529 6,201 71 674 91 213 59 10 39,720 116 69 2,264 607 448 1,209 26,306 14,709 11,597 20,164 13,407 6,757 69 519 67 178 46 7 40,872 217 72 2,434 590 423 1,421 24,851 13,626 11,225 19,731 14,081 5,650 71 624 86 199 58 47,037 260,080 2,560 8,892 6,470 99,093 39,641 290,600 2,383 8,465 6,632 97,049 46,131 291,670 2,435 8,705 6,880 98,745 79,323 11,089 68,234 9,000 975 4,375 1,200 49,246 7,323 8,472 680 3,576 7,264 13,061 203 30,626 69,798 10,335 59,463 10,212 57 break of the present war. Shipments have been com prised chiefly of essential foodstuffs which are concen trated and of high nutritive value. The result has been that products previously not exported in large volume have accounted for a considerable part of the expansion in ex ports during recent months. These products include items such as condensed, evaporated, and dried milk, eggs, cheese, canned and pickled meats, rice, and cornstarch. While agriculturists in the Twelfth District have shared in the recent improvement in exports of the com modities mentioned in the last paragraph, important for eign outlets for deciduous fruits (fresh, dried, and canned), and walnuts, which were lost earlier, have not been recovered. Purchase programs of the Federal Gov ernment and increased domestic demand, however, have provided an active market at prices substantially higher this season than last for these items. As shown in the accompanying tabulation, output of deciduous fruits and walnuts, of grains, and of citrus fruits in this area is larger than in 1940 and of near-record proportions. Only the production of almonds, sugar beets, hops, and barley is expected to be much smaller than the large crops of 1940. It is estimated that the district output of beans, cotton, flaxseed, grain sorghums, oats, rice, wheat, grapes, lemons, oranges, walnuts, butter, cheese, eggs, milk and milk products, and several vegetables for can ning will be exceeded by output in only one or two pre vious years. B a n k in g and Credit Source : United States Department of Agriculture. While exports have revived in the aggregate, the dis tribution of items making up recent shipments abroad has been markedly different from that prior to the out- Loans of member banks in the seven larger district cities continued to expand during the four weeks ending October 22. As in recent months, this expansion reflected a further large increase in loans for commercial and industrial purposes which advanced an additional $19,000,000 during the four week period to $487,000,000, 39 percent higher than a year earlier. Other classes of loans fluctuated narrowly with little net change at about the levels of the mid-year. Reflecting allotments of bonds in the recent Treasury issue dated October 20, invest ments of these banks in United States Government obli gations increased further. The expansion in loans and investments of district city banks in recent weeks is a continuation of the per sistent increases in both classes of earning assets re ported by all district member banks as a group during the previous two years and more. As shown in the accompanying table, loans of all district member banks increased from $1,872,000,000 on June 30, 1939 to $2,386,000,000 on September 24, 1941, a gain of 27 per cent. Investments in United States Government obliga- U n it e d S t a t e s E x p o r t s of S elec ted A g r ic u l t u r a l P r o d u c t s — Q u a n t i t y B a s i s (in thousands of tons) Cotton2 Y ear1 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 1939-40 1940-41 ... ... .., ,. ... ..„ .. .. 8,739 7,239 7,180 9,134 8,865 8,582 5,328 6,702 6,062 6,252 3,874 6,903 1,283 1Beginning July 1. r--------Fresh Fruits Apples Oranges Pears 505 247 488 433 330 303 193 294 162 263 290 77 21 2Thousand bales. 148 129 139 124 119 121 143 191 108 208 265 135 146 41 31 67 45 60 56 50 62 66 67 85 47 12 t---------------------Canned Fruits /------------------------Dried Fruits-----------Apples Apricots Prunes Raisins Total 25 12 19 16 18 19 12 16 11 12 16 8 1 3Less than 500 tons. 12 10 12 19 17 18 8 13 15 16 14 16 1 137 71 148 122 91 101 76 109 82 107 107 60 19 I ll 64 63 61 56 47 47 55 56 71 77 63 43 303 167 258 234 199 204 157 210 179 223 236 162 70 Fruits for Apricots Salad Peaches Pears 13 17 10 12 10 12 5 13 12 13 17 17 (3) 16 15 16 16 13 20 16 20 19 16 22 23 2 51 37 38 33 38 41 25 51 30 128 48 43 2 Source : LTnited States Department of Agriculture. 41 27 37 36 30 39 36 41 33 30 39 31 1 Total Wheat 164 142 136 125 119 149 118 170 136 128 175 168 8 3,093 2,765 2,291 2,896 627 564 90 9 95 2,512 2,538 709 324 FEDERAL RESERVE B A N K OF SAN FRANCISCO 58 tions were increased $240,000,000 during the same period, a gain of 18 percent. Approximately half the increase in total loans in the two-year period from June 30, 1939 to June 30, 1941 was accounted for by loans for commercial and indus trial purposes which rose $202,000,000. (A breakdown of loans of all district member banks by types is not available for the latest call report date, September 24, 1941.) This expansion in commercial and industrial loans partly represents the extension of bank credit to finance defense activity. On April 30,1941 member banks in the seven larger district cities reported defense loans of $34,100,000 outstanding and available information suggests that, as of that date, defense loans of all mem ber banks in the district amounted to slightly less than $40,000,000. By June 30, 1941 defense loans probably substantially exceeded this total, and consequently ac counted directly for more than 20 percent of the total increase in commercial and industrial advances in the two years ending on that date. E a r n in g A ssets of on T w elfth D is t r ic t M em ber Banks S elected C a l l D a t e s (in m illio n s ) June 30, 1939 Total loans............................................ $1,872 United States Govt, secu ritie s... 1,354 527 Other securities.................................. Total ................................................... $3,753 June 29, 1940 $1,978 1,405 558 June 30, 1941 $2,279 1,553 562 Sept. 24, 1941 $2,386 1,594 550 $3,941 $4,394 $4,530 An expansion of $123,000,000 in loans on real estate, accounting for approximately 30 percent of the increase in total loans during the two-year period was traceable entirely to an expansion in advances secured by residen tial properties. Advances secured by farm lands de clined $8,000,000 and loans secured by other real estate (excluding residential properties) decreased $18,000,000. Expansion in loans in the miscellaneous “ other” loan classification likewise increased considerably during the two-year period, rising $90,000,000. Loans in this clas sification consist principally of personal and retail in stallment loans. In contrast to the substantial expansion in member bank credit to finance commercial and industrial activity, the purchase of residential real estate, and consumer purchases, loans to finance securities transactions de clined $16,000,000. Loans for agricultural purposes (ex cluding advances on farm lands), and holdings of open market paper of district member banks were about un changed from June 30, 1939 through June 30, 1941. Gains in investments of district member banks prin cipally reflected additions to holdings of United States Government securities. Investments in these securities increased $199,000,000 from June 30, 1939 to June 30, 1941 and rose $41,000,000 further by September 24. Recent developments may have the effect of curbing, to some extent, further expansion in loans to finance transactions in residential real estate and to finance con sumer purchases. The August and September declines in new residential building in the Twelfth District and the extension of priorities control to building materials have been discussed in another section of this issue o f the Review. These developments may well result in some lessening in the demand for bank credit in this area to finance the construction and purchase of new housing N o v e m b e r 1,1941 and it has been this demand that has occasioned much of the increase in loans of district member banks secured by residential properties over the past two years. An Executive Order of the President, dated August 9, directed the Board of Governors of the Federal Re serve System to regulate the terms of consumer credit. Shortly thereafter the Board adopted Regulation W , most of the provisions of which became effective on Sep tember 1. Under this regulation, control is exercised over the extension of installment credit for financing or re financing the purchase of consumers' durable goods. Principal provisions of the regulation cover the mini mum size of required down payments and the maximum length of time over which installment loan contracts may be written. To the extent that this regulation, by increas ing, in a number of cases, the required down payments and the size of the monthly installment payments serves to curb buying of durable consumers’ goods, it will tend to check further expansion in miscellaneous “ other’’ loans. Loans in this classification, it has already been noted, increased $90,000,000 in the two years ending June 30, 1941. On that date, the aggregate of these loans reported by Twelfth District member banks amounted to $440,000,000, of which $329,000,000 consisted of personal and retail installment loans. This total of $329,000,000 represented an increase of $59,000,000 dur ing the first half of 1941, a period during which total loans in the miscellaneous “ other” loan classification in creased only $44,000,000. It is consequently evident that in two o f the broad directions in which credit expansion of district member banks has taken place since shortly before the outbreak of the present war, (the extension of loans to finance new private residential construction and consumer buy ing of durable goods) direct measures have recently been instituted which may check the rate of expansion in the immediate future. O f a somewhat different character is the increase in reserve requirements announced by the Board of Gov ernors of the Federal Reserve System on September 24, to become effective on November 1. The action taken by the Board was explained at the time of announce ment as “ a further step in the Government’s program for combating inflation.” Its effect in the Twelfth Dis trict will be to absorb some $91,000,000 of excess re serves of local member banks. The existence of large excess reserves constitutes something of a potential threat of an excessive use of bank credit and the reduc tion in excess reserves tends to lessen that threat. As a credit control measure, an increase in reserve require ments has a broad or blanket application and contrasts, in this respect, with the more selective application in herent in measures such as Regulation W . Even after the increase in reserve requirements on November 1, district member banks as a group will con tinue to hold a substantial amount of excess reserves, an amount ample or more than ample to meet all local credit needs of the defense program and all legitimate requirements of their customers. During the first half of October, total reserves of district member banks aver aged $916,300,000 of which $325,000,000 consisted of excess reserves. Based on these figures, the banks will hold excess reserves of approximately $234,000,000 after the November 1 increase in requirements. M O N T H L Y REVIEW OF BUSINESS CONDITIONS ovem ber 1,1941 59 S u m m a r y o f N a tio n a l B u s in e s s C o n d itio n s Released October 20, 1941— Board of Governors of the Federal Reserve System activity continued at a high rate in September and the first half of October. Further advances in the output of defense products were accompanied by curtailment in some lines of civilian goods, particularly automobiles, rubber, and silk. Prices of industrial products increased but agricultural prices declined after mid-September, and on October 16 dropped sharply in response to interna- I n d u str ia l tio n a l d e v e lo p m e n ts . I N D U S T R I A L P R O D U C T IO N Federal Reserve index of physical volume of production, adjusted for seasonal variation, 1935-39 average=100. By months, January 1935 to September 1941. 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 indexes of value of sales and stocks, ad justed for seasonal variation, 1923-25 average = 100. By months, January 1935 to September 1941. j '•A 1 FOODSTUFFS \ 1 A'v*VA. s / V . A X,V\ |__lvs 1935 IM N D U SR TIR IL A L A T E A S 1936 1937 1938 /| \ ___ -, 180 if 1 160 ¡J 140 y 120 100 1939 1940 .1941 W H O L E S A L E P R IC E S O F B A S IC C O M M O D I T IE S Bureau of Labor Statistics’ indexes based on 12 foodstuffs and 16 industrial materials, August 1939=100. Thursday figures, January 3, 1935 to October 16, 1941. P r o d u c tio n Industrial output increased by about the usual seasonal amount in September and the Board’s adjusted index remained at 160 percent of the 1935-1939 average, the same as in July and August. Continued increases in activity were reported in the machinery, aircraft, and shipbuilding industries. At steel mills activity in September and the first half of October was maintained at about 97 percent of capacity. Output and deliveries of nonferrous metals likewise remained at about capacity levels, while lumber production declined somewhat from the high August rate. Automobile production increased less than seasonally in September, follow ing the changeover to new models, and, according to preliminary estimates, output in September was considerably below the maximum quota that had been author ized by the Government. In the textile industry activity declined somewhat in September, reflecting mainly a further sharp reduction at silk mills. Activity at wool mills rose to a new high level, while at cotton mills there was little change from a rate slightly below the peak reached last May. Shoe production continued in large volume, and output of manufactured food products was maintained near the peak August level. Output of chemicals likewise continued at earlier high rates, but at rubber plants activity was considerably below the level of last summer owing to curtailment programs ordered by the Government. Coal production, which during the summer months had been unusually large, increased less than seasonally in September, owing in part to temporary work stoppages at some bituminous and anthracite mines. Crude petroleum production advanced to record levels in September and the first half of October, and output of metals and shipments of iron ore down the Lakes continued at about capacity. Value of construction contract awards declined in September, according to figures of the F. W. Dodge Corporation, reflecting chiefly decreases in awards for public projects which had been exceptionally large in August. Awards for private residential building also declined, while contracts for other private work increased somewhat further. Total awards in September, as in August, were 80 percent larger than in the corresponding period last year. This higher level reflected mainly a greater amount of public construction, which was nearly three times as large as a year ago, compared with an increase of about 10 percent for private construction. On October 9, the Supply Priorities and Allocations Board announced that, effective immediately, no public or private construction projects which use critical materials could be started during the emergency unless these projects were either necessary for direct national defense or essential to health and safety. Distribution of general merchandise showed less than the customary seasonal rise in September, following an unusually large volume of sales in August. During the past three months sales have been larger than in the corresponding period of any previous year. In the first half of October sales at department stores declined from the peak reached in late September when there were considerable consumer purchases, particularly of articles subject to higher taxes on October 1. Loadings of revenue freight in September increased less than seasonally, par ticularly those of miscellaneous freight, which have been high in recent months, and loadings of coal, which were curtailed during part of the month by work stoppages at some mines. Shipments of forest products declined from the high August level. ^ C o m m o d ity P r ic e s Prices of industrial products continued to advance in September and the first half of October and Federal price ceilings were announced for additional com modities, including leading types of lumber, coke, wastepaper, paperboard, acetic acid, alcohols, and carded cotton yarns. In some cases these ceilings were below previously existing market quotations. Price advances were permitted, however, for some other commodities under Federal control. Prices of cotton and of food stuffs increased further in the first half of September, but subsequently declined, owing partly to seasonal influences. On Thursday, October 16, prices of these commodities dropped sharply. B a n k C r e d it a n d G o v e r n m e n t S e c u r i t y M a r k e t M E M B E R B A N K S IN 101 L E A D I N G C IT IE S Wednesday figures, January 2, 1935 to October 8, 1941. Commercial loans, which include industrial and agricul tural loans, represent prior to M ay 19, 1937, so-called "O ther loans” as then reported. Commercial loans at member banks continued to rise during September and the first half of October, reflecting in part defense demands. Increases were sub stantial both in New York and in other leading cities. Holdings of United States Government obligations decreased, mainly at banks in leading cities outside of New York. Excess reserves of member banks showed little change in this period. Following a slight decline in the first half of September, prices of long-term Treasury partially tax-exempt bonds increased during the latter half of September and in the first part of October. The yield on the 2^4 percent bonds of 1960-65 reached a new record low of 2.01 percent in October. Prices of taxable bonds moved within a relatively narrow range during the period with yields slightly above previous low levels. 60 FEDERAL RESERVE BA N K OF SAN FRANCISCO N o v e m b e r 1,1941 D e fe n s e S a v in g s B o n d s a n d P a y r o ll D e d u c t io n P la n s American economy is currently undergoing a major transition in the shift of productive capacity from peace-time to war-time industries. With idle produc tive capacity now practically eliminated, further expansion of defense output, apart from that resulting from con tinued additions to existing plant, is possible only through increasing interference with the production of consumer goods. Priority regulations and allocations are diverting more and more materials from ordinary to emergency uses, and conversion o f plants to defense production is continuing apace. The point cannot be overemphasized that, even with production expanded to the maximum, sufficient goods cannot be produced to satisfy both civilian and defense demands, and that in such a situation the civilian demand is obviously the one which must give way. The only real question, therefore, relates to how the necessary restric tion in civilian consumption is to take place. Only three alternatives exist: (1 ) voluntary restriction; (2 ) re striction achieved by taxation and other forms of legis lative compulsion; and (3 ) inflation, that more insidious form o f “ compulsory” restriction which limits consump tion by the simple but arbitrary process of reducing the purchasing power of the consumer’s dollar. Dollar in comes of consumers are rising, but this situation does not alter the physical fact that fewer automobiles, fewer stoves, and fewer refrigerators will be produced next year. If fewer goods are to be produced, it inevitably follows that fewer goods are to be consumed. Should consumers continue to spend all their increased income in the face of this restricted output, the result would be a rise in prices with no appreciable change in the physical volume of goods available for consumption. There can be no doubt that the first alternative is the most acceptable in a free economy such as the United States, and, to the extent that voluntary restriction of consumption is embraced and practiced by the public, the necessity for legislative restriction is lessened and the threat o f compulsory restriction by inflation is ob viated. Not only is voluntary restriction on consumption in greater accord with our concept of individual liberty, but it also alleviates the problem of post-war adjustment. T h e A pattern of war-time saving which places a vast army of consumers in a position later to obtain spendable funds will enable them to purchase goods and thereby tend to sustain demand during that critical post-emergency period when defense requirements are drastically curtailed. For these reasons, it is most desirable that the general public voluntarily restrict its consumption. The resulting savings can be practically and profitably invested in United States Defense Savings Bonds. While Defense Savings Stamps and Bonds may be obtained at post offices, most banks, building and loan associations, and other designated issuing agencies, and stamps may be obtained at many retail stores as well, the most con venient method of purchase for many people is through a Voluntary Payroll Deduction Plan. Under such a plan, an employee may authorize a specified deduction from his or her salary for the purpose of purchasing Defense Savings Bonds when accumulated deductions are ade quate to effect such purchases. Voluntary Payroll Deduction Plans have already been established by many industrial, financial, and govern mental institutions. Their extension should be widely approved and encouraged. Through such programs the following desirable results are achieved: 1. Restriction of consumption, something which must occur in any event, is placed on a voluntary rather than a compulsory basis. 2. The diversion of consumer income from purchase of goods to purchase of bonds lessens the upward pressure on the price level, and thereby aids in keeping down both the cost of living and the cost of rearmament. 3. Savings invested in Defense Bonds aid the govern ment in meeting the cost of defense. 4. Purchasing power withheld from civilian expen diture at this time, when industrial facilities are fully employed and unable to meet all demands, will be available for expenditure at some future date when curtailment of defense demands threat ens to lead to decreased production and employ ment.
@FedFRASER