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MONTHLY REVIEW OF B U S IN E S S C O N D IT IO N S Federal Reserve Bank of San Francisco Vol. X X San Francisco, California, November 20,1936 No. 11 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 C O N D IT IO N S Industrial activity, building, retail sales of general merchandise, and industrial employ ment and pay rolls continued to increase in the Twelfth Federal Reserve District during October. V olum e of industrial output was larger than in any October since 1929, and the number of workers engaged in manufac turing operations was close to the monthly average for that year. Industrial pay rolls, however, continued somewhat below pre-de pression levels, largely as a result of a net reduction in the length of the work week. The volume of marketings of agricultural products in the Twelfth District declined dur ing October and farm prices averaged some what lower than in September. In addition to seasonal influences, a reduction in marketings of some crops is reported to have resulted partly from anticipation of difficulties in ship ping commodities by water because of the maritime strike. Cash income of district farm ers from crops, livestock, and livestock prod ucts is estimated by the United States D e partment of Agriculture to have totaled $680,000,000 during the first nine months of 1936 compared with $597,000,000 in the com parable period last year and $412,000,000 in !932. Improvement in business activity this year has been accompanied by a moderate expan sion in loans by banks for commercial, indus trial, and agricultural purposes. The increase in loans for these purposes was negligible be tween October 21 and November 18, but the volume of such loans outstanding at city banks is currently about 10 percent larger than a year ago. Other earning assets of reporting member banks showed little change in the fourweek period, but deposits continued the in crease in evidence since early 1933. A decline of $3,200,000 in member bank reserve balances during the four weeks ending November 18 reflected unusually large trans fers of United States Treasury balances from depositary banks to the Treasury’s account at the Reserve Bank. Other factors tending to reduce Twelfth District member bank reserve balances included net commercial and financial payments of funds to other districts by banks and their customers, as well as seasonal with drawals of currency from local banks by busi ness concerns and individuals. Agriculture Harvesting of late field and fruit crops had been largely completed by the middle of N o vember. A seasonal reduction in marketing was accompanied by a slight decline in prices from September levels, but crops sold on the average about 11 percent higher than a year ago. Growers’ income from the relatively small California grape crop is estimated at $33,000,000, approximately 18 percent larger than last season and the highest in the past six years. Weather conditions during the harvesting and drying period were favorable, in contrast with the 1935 season when early rains and frosts damaged the fruit considerably. Throughout the marketing season, which terminated in mid-November, the quality of grapes was much better than last season. Prices paid for grapes in eastern auction markets and by wineries in California during the shipping season were considerably higher than a year ago, and raisin prices are also above those received in 1935. Production estimates of the United States prune crop, which is grown in the three Pa cific Coast states, declined during October and at the end of the month indicated a crop of 177,000 tons. Output in 1935 was 298,000 tons and the average for the five years 1928-1932 was 226,000 tons. W ith a heavy carryover from the near record production in 1935 and a larger crop in important prune producing countries in Europe, prices received by grow ers were only moderately higher than a year ago. Growers, where financially able to do so, are holding their prunes in anticipation of ad vances during the coming winter and spring months after 1935 crop fruit is off the market. Purchases by the Federal Government of large 82 MONTHLY REVIEW OF BUSINESS CONDITIONS tonnages of last year’s prunes for noncom mercial distribution have been of considerable aid to the industry. Commercial apple crop prospects declined almost 7 percent in the Twelfth District dur ing September and October, principally be cause of insect damage and the failure of apples to develop satisfactory size. Latest estimates indicate that this year’s output will be 10 per cent smaller than last year’s crop, 29 percent below average production during the five years 1928-1932, and smaller than any crop harvested since 1920. Apple prices paid growers have advanced since the beginning of the season and in O ctober were higher than in any O cto ber since 1930. M IL L IO N S OF D O L L A R S T H O U SA N D S Or C A R S R E T U R N IS T O G R O W E R S is c , M.E ON L EF T ) A A \ K // a f . « Y i f /\/ C A R S S H IP P E D (s c a l e on r ig h t ) .1 . 1920 1 1. 1 ----1925 1930 1935 INCOM E A N D SHIPMENTS—CITRUS FRUITS California and Arizona For crop years beginning November 1 of years shown Returns to growers of citrus fruits in Cali fornia and Arizona were approximately 15 per cent larger in the season ending October 31, 1936, than in the preceding year. This increase reflected entirely higher average prices, inas much as the volume of fruit shipped was about 12 percent smaller than in the year ending October 31, 1935. Estimates based on data re ported by the California Fruit Growers E x change indicate that lemon growers’ income was approximately 50 percent higher than in the 1934-1935 season, while returns to orange growers increased only slightly. As will be seen from the accompanying chart, total re turns to growers during the season just ended approximated $113,000,000, an amount sub stantially larger than in any year since 1929. Cotton picking was seasonally heavy during October, and it is estimated that nearly half November 1936 the crop had been ginned by November 1. Production is expected to total 580,000 bales, by far the largest cotton crop grown in the Twelfth District and about 55 percent above production in 1935. On the basis of current prices, which are slightly higher than a year ago, it is estimated that growers’ income from cotton this season should be from $30,000,000 to $35,000,000. Twelfth District cotton returned growers about $20,000,000 in 1935. W ith yields of sugar beets turning out better than had been expected in California, it is now anticipated that the district will har vest the second largest crop on record. Out put was estimated at 3,212,000 tons on N o vember 1, compared with a 1928-1932 average annual output of 1,930,000 tons. The 1933 crop of 3,367,000 tons was the largest ever produced in the Twelfth District. Growers’ income is expected to be approximately 25 percent larger than last year when the crop returned about 12 million dollars. The outlook for California rice growers dur ing the 1936-1937 marketing year which began on October 1 is relatively unfavorable. The new crop is the largest since 1919 and carryover of old crop rice was estimated on O ctober 1 to be unusually heavy, reflecting slow demand during the past year. This year’s production plus rice carried over from last season now totals about 4,513,000 bags, or 1,242,000 bags more than total market supplies a year ago. Rough rice prices to growers, which had been $2.02 per hundred pounds for several months, declined in September to $1.58^2 per hundred. Large production and stored stocks of but ter during October were reflected in a decline of about 10 percent in prices during October and early November. On November 16, the San Francisco wholesale quotation for 92 score butter was 33 cents per pound, compared with 36Y cents on October 1 and 34^2 cents a year ago. A gricultural M arketing A ctivity— t------- October--------\ (---- Season to Date---- > Carlot Shipments 1936 1935 1936 1935 Deciduous fruits.. 19,440 25,773 68,869 66,405 Citrus fr u it s ___ 4,134 6,351 78,620 89,723 8,556 8,052 78,667 74,816 Vegetables ........ Exports Wheat (b u .)........ 903,912 833 1,544,812 11,832 408,708 571,707 3,265,828 4,186,702 Barley (b u .)........ Receipts* Cattle .................. 107,786 112,612 929,625 822,043 Hogs .................. 173,862 102,103 1,462,109 1,196,200 Sheep ................ 368,434 418,998 3,727,507 4,410,350 Eggs (cases)___ 145,025 135,575 1,759,806 1,675,227 Butter (pounds). 5,167,096 5,018,010 62,560,686 63,724,081 Wheat (carlots). 5,773 8,051 31,468 34,890 Barley (carlots). 1,163 970 5,695 4,732 Storage Holdings* t----------- 1936----------- ,----------------- 1935------------> (end of month) October September October September Wheat ( b u . ) . . . . 4,710,000 4,916,000 6,299,000 5,595,000 Beans (b a g s)___ 2,669,000 2,115,000 2,613,000 1,061,000 Eggs (c a s e s ).... 272,000 464,000 349,000 516,00C Butter (pounds) . 8,487,0009,847,000 5,058,000 7,872,000 *At principal district markets. November 1936 FEDERAL RESERVE B A N K OF SAN FRANCISCO Shipments of eggs by producers were con siderably larger in October this year than last, a result of unusually good demand in the New York market. Prices advanced contra-seasonally during October and November, and are now about 18 percent higher than a year ago. The position of livestock producers con tinues relatively favorable. Cattle and sheep are in good condition, the prospect for range forage during the com ing winter is fair to good in all states of the district, and supplemental feeds are adequate though comparatively high in price. Sales of cattle during October continued heavy. Prices to growers in California and Arizona, where marketing is now most im portant, averaged about $6.30 per hundred pounds. This figure is about the same as in September and is slightly higher than a year ago. Marketing of lambs was slow during O cto ber, as in earlier months of the season, despite a considerable increase over last year in the supply of lambs on northern ranges. Producers in Oregon, W ashington, and Idaho are receiv ing about $6.90 per hundred pounds, which is somewhat above prices received at this time last year. Industry Volum e measures of industrial output, build ing, manufacturing employment and pay rolls, advanced somewhat further in October, con tinuing the recovery which has been in prog ress for nearly four years. Total industrial out put has been higher in the past three months than in the corresponding months of any year since 1929. Production of a number of manu factured goods, including cement, pulp and Industry— Indexes of daily average production, adjusted for seasonal variation (1923-1925 daily average—100) Oct. General Carloadings — Industrial*. 83 Electric Power Production. 190p Manufactures Lumber ............................. , 78p Refined Mineral O ilsf. . . 159p Flour .................................. 100p Cement .............................. 114 Wool Consumption!........ Slaughter of Livestock. . ,! 113 Minerals Petroleum ( California) f .., 88p Lead (United States) Silver (United States) Building and Construction# Total .................................. 72 Building Permits— Value Larger Cities ................ 45 Smaller Cities .............. 64 Engineering Contracts Awarded— V alue Total .........................., 99 Excluding B uildin g s. 168 1936----------- N -1935------- X Sept. Aug. July Oct. Sept. Aug. 60 72 75 78 62 66 190 187r 182 169 168 168 71 159 107 119 101 117 71 165 134 105 106 111 72 152 130 105 91 116 69 158 110 69 169 101 64 150 114 65 127 97 64 145 113 60 139 99 88 60 88 60 88 87 71 101 98 68 75 97 59 71 91 60 59 71r 66 63 56 51 49 44 62 42 59 40 59 22 35 24 36 25 33 110 164 106 158 93 137 96 169 82 148 79 147 fN ot adjusted for seasonal variation. $Prepared by Board of Governors of the Federal Reserve System. #Indexes are for three months ending with the month indicated. pPreliminary. rRevised. *Revised series. paper, glass, tin, and fibreboard containers, and processed agricultural products such as butter, beet sugar, flour, and meat, was at a higher level than in the late summer and early fall of most pre-depression years. In the lumber, oil producing and refining, copper, and steel industries, however, operations were still considerably below previous record highs. In dustrial employment, after allowance for sea sonal influences, was at the highest level since 1929, and pay rolls were approximately as high as in late 1930. Monthly average value of building permits issued in the past three months in twenty of the larger cities was nearly five times as large as in the compar able months of 1932 and was only 21 percent lower than in the fall of 1929, although it was still somewhat less than half the record 1923 monthly average. This bank’s seasonally adjusted index of fac tory pay rolls in the three Pacific Coast states advanced 6 percent in October, and in that month was approximately 120 percent above the low level to which it had fallen in early 1933. In March 1933 this index was 63 percent below the 1929 average and the index of indus trial employment was down 44 per cent. The greater shrinkage in pay rolls resulted from reductions in both the average number of hours worked per week and hourly wage rates. As a result of advances since March 1933, wage rates are now about as high as in 1929. The length of the working week has also increased since 1933, although it is still considerably Em ploym ent— f --------Californiia-------- \ (---- ------- Oregon No. of No. of No. (—Employees— No. f— Employees — \ of Oct. Oct. of Oct. Oct. Industries Firms 1936 1935 Firms 1936 1935 All Industries* . . . 1,631 174,963 162,046 101 22,257 21,262 (+8.0) (+4.7) Metals and Metal P ro d u c ts.......... 259 21,910 17,705 8 578 510 ( + 23.8) ( + 13.3) Transportation Equipment . . . . 79 28,211 21,534 ( + 31.0) Lumber and Allied P ro d u cts.......... 106 12,578 12,276 33 10,158 9,594 (+ 2 .5 ) ( + 5.9) Stone, Clay, and Glass Products. 68 6,653 5,540 3 172 158 ( + 20.1) (+ 8 .9 ) Textiles and Their Products .......... 102 7,342 7,350 8 1,223 1,815 (— 32.6) (— .1) Tires and Rubber Goods .............. 17 5,089 3,470 (+ 4 6 ,7 ) Food and Kindred Products .......... 375 42,951 45,527 28 5,245 4,807 (— 5.7) ( + 9.1) Paper and Printing 163 8,418 7,722 6 1,462 1,272 ( + 9.0) ( + 14.9) Petroleum, Chem icals, and Allied Products .......... 322 23,372 22,625 (+ 3 .3 ) Miscellaneous . . . . 140 18,439 18,297 15 3,419 3,106 ( + 0.8) ( + 10.1) Public Utilities. . . 760 50,251 46,149 (+ 8 .9 ) Wholesale and Retail ..............1,860 44,870 40,786 ( + 10.0) *Public utilities, wholesale and retail figures not included in total. Figures in parentheses indicate percentage change from October 1935. 84 M O N T H L Y REVIEW OF BUSINESS CONDITIONS shorter than in pre-depression years. The ad vances in wage rates and increases in the work ing week have resulted in a rise of 22 percent in average weekly earnings per employee since March 1933, although average earnings are still 18 percent below the 1929 average. The expansion in earnings per employee, together with a large gain in the number of workers has been reflected in a considerable increase in the index of total factory pay rolls which in October was within 20 percent of the 1929 average. This index and the adjusted index of industrial employment are shown on the ac companying chart by months since 1930. For comparative purposes, the average levels of pay rolls and employment in industrial estab lishments in the three Pacific Coast states are also indicated on the chart biennially from 1923 through 1929. Total value of building permits issued in the twenty larger district cities increased 22 percent in October to the highest monthly total since December 1930. Permits issued for nonresidential projects, which fluctuate widely from month to month, increased more than 50 percent to $7,200,000. In the residential classi fication, advances occurred in practically all reporting cities, and the total increased from $6,600,000 to $7,500,000. Contracts awarded for public works construction also increased and were larger in value than in any other month since January of this year. Daily average lumber output advanced somewhat in October, although seasonal cur tailment usually takes place at this time of year. Expansion also occurred in the volume 1927 November 193É of new orders received by district mills, which was higher than in any month in six years. It is reported that active demand for lumber in recent months was only partially a result of purchases in anticipation of the maritime strike, and that actual consumption, particu larly in the building industry has advanced considerably. Expansion in copper output continued in October and reports received from leading dis trict producers indicate that production was substantially larger than in the same month last year. The advance in output has been accompanied by gains in employment and by a general increase of 5 percent in wages at mines and smelters, effective September 1, 1936. In recent months, sales of copper for domestic consumption and for export have in creased substantially, a development reported to reflect increased actual consumption in this country and abroad. A ccom panying the expan sion in sales, domestic quotations have in creased from 9.50 cents per pound in July tc 10.50 cents in November. In October 1935 the price was 9.25 cents per pound. The recent increases in production and in prices of copper indicate continued recovery o' the industry from the extremely low levels tc which it had declined during the depression Mine output in the seven western states fel' from 664,728 tons in 1929 to 109,342 tons in 1933 while prices declined from 24 cents per pounc in March 1929 to a low of 5 cents per pounc in 1932. Currently, output is approximately ai 1931 levels and prices are higher than at an) time since September 1930. 1932 E M P L O Y M E N T A N D PAYROLLS IN M A N U F A C T U R IN G INDUSTRIES-Pacific Coast States Biennial indexes 1923 to 1929 inclusive, (1923‘ 1925 average=100). Monthly indexes, January 1931 to October 1936, adjusted for seasonal variation. November 1936 Trade Value of Twelfth District department store sales continued to increase during October, and other seasonally adjusted measures of trade were generally well maintained. The value of district department store sales, while fluctuating from month to month within a comparatively narrow range, has tended to expand throughout the first ten months of the current year. In October, this bank’s sea sonally adjusted index was 95 percent of the 1923-1925 average, a level higher than in any month since August 1931. Sales expansion during October was general throughout Cali fornia. In Portland, a reduction of approxi mately seasonal proportions was reported, while RETAIL TRAD E—Twelfth District Percentage changes in value of sales and stocks ,------------1936 compared with 1935------------ N ,-------- NET SALES-------- v STOCKS Jan. 1 to end October* of October October 10.6 6.8 ( 59) Department S to r e s .... 10.7 ( 85) 5.4 ( 6) 11.1 11.4 ( 6) Los Angeles ............ 14.7 ( 8) Other So. California 10.2 ( 11) 7.1 10.8 11.5 ( 5) Oakland .._................ 11.4 ( 5) San Francisco ........ 10.5 4.9 ( 7) 13.7 ( 8) Bav Region ............ 10.5 6.6 ( 16) 12.3 ( 18) 6.9 8.5 ( 4) 9.4 ( 5) Central California . . 20.2 ( 8) 16.3 9.9 ( 9) Portland! .................. 10.9 1.4 ( 4) Seattle ...................... 9.3 ( 5) 12.2 ( 6) 11.3 11.1 ( 6) Spokane .................... 13.9 ( 5) 11.4 Tacoma! .................. 2.3 ( 6) 3.4 ( 4) 7.3 3.1 ( 4) Salt Lake C ity........ 11.9 ( 39) 17.6 13.0 ( 27) Apparel S to r e s ............ 19.4 ( 26) Furniture Stores ........ 21.5 ( 35) 26.6 All Stores .................... 12.2 (159) 13.3 9.1 (112) tIncludes five apparel stores in Portland and four in Tacoma which are not included^ in district department store total. Figures in parentheses indicate number of stores reporting. * October 1936 had the same number of trading days as October 1935. in Seattle and Salt Lake City declines in sales from September were considerably in excess of the customary seasonal amounts. Value of sales of Twelfth District furniture stores was practically unchanged from the September level but was approximately 21 percent larger than in October 1935. Distribution and Trade— ,----------- 1936------------, ,--------1935--------s Oct. Sept. Aug. July Oct. Sept. Aug. Indexes adjusted for seasonal variation Carloadingsi* (1923-1925 average=100) Total .............................. 86 86 85 88 72 75 72 Merchandise ................ 93 98 94 96 80 83 83 Intercoastal Trade Total .............................. 75 76 77 68 71 69 62 Westbound .................. 97 127 128 130 102 77 100 Eastbound .................... 66 61 62 52 61 66 51 Retail Trade Automobile SalesJ Total .......................... 103p 109 122 136 83 77 97 Passenger ................ 95p 99 111 129 75 69 87 Commercial .............. 184p 209 216 219 158 157 179 Department Store Sales? ........................ 95 93 92 94 88 85 83 Stocks^ .................... 65 66 64 64 61 63 62 Collections# ,------------------ Actual Figures------------------N Regular ................ 52.1 49.0 49.2 49.3 51.0 46.5 48.1 Installment............. 17.7 18.0 18.4 18.0 19.1 18.3 18.9 JDaily average. 0A t end of month. #Percent of collections during month to amount outstanding at first of month. pPreliminary. *Revised series. 85 FEDERAL RESERVE B A N K OF SAN FRANCISCO Registrations of new m otor vehicles during October were 23 percent lower than in Sep tember, reflecting the usual sharp decline in sales immediately prior to the introduction of new models by major producers. New auto mobile sales were, however, 24 percent larger than in October 1935. W HOLESALE TRAD E—Twelfth District Percentage changes in value of sales Automobile S up p lies........ . , . Dry Goods ........................ . . . Electrical Supplies .......... Hardware .......................... ... Paper and Stationery........ . , October 1936 z----- compared with----- N Sept. 1936 Oct. 1935 — 5.6 7.9 11.3 — 1.0 5.6 7.2 27.0 - 6.4 1.4 10.0 2.4 24.8 — 20.3 25.8 — 24.7 21.8 1.3 14.8 Cumulative 1936 compared with 1935 13.6 11.9 7.7 34.1 — 0.1 9.7 24.3 16.5 12.7 15.6 M onthly intercoastal shipments through the Panama Canal have fluctuated with little net change, other than of a seasonal character, since February of this year at an average level about 10 percent higher than in the corre sponding months of 1935. During October, eastbound traffic increased considerably, while westbound shipments declined. A strike of longshoremen and maritime workers on the Pacific Coast which commenced on October 30 had been considered likely for several weeks prior to that date. In anticipation of that dis turbance, activity on the waterfront was defiBank Debits* — Arizona Phoenix ............ $ California Bakersfield B erk eley ............ Fresno .............. L ong Beach . . . Los Angeles . . . Oakland ............ Pasadena .......... Sacramento San Bernardino San Diego ........ San Francisco . . San Jose .......... Santa Barbara . Santa Rosa . . . . Stockton .......... Idaho Oct. 1936 39,405 $ Oct. t— First ten months — N 1935 1936 1935 30,393 $ 351,260 $ 292,605 21,714 19,498 38,818 35,226 931,348 103,688 25,095 104,746 10,853 48,860 936,586 28,040 12,436 5,616 22,569 14,746 17,628 27,822 29,413 702,867 76,269 22,886 113,929 7,218 41,648 863,599 26,362 9,787 4,490 18,183 145,803 182,719 254,247 333,574 8,314,444 903,634 241,427 979,076 91,505 465,522 8,691,006 227,936 117,021 46,572 187,683 111,359 153,358 206,619 288,979 6,513,748 687,498 209,236 1,050,619 72,606 404,846 7,748,924 193,897 95,719 38,142 155,750 19,950 17,155 164,056 146,523 10,556 9,574 96,019 83,866 7,455 183,896 17,227 5,833 154,951 13,473 62,491 1,613,275 142,155 48,542 1,397,780 118,423 16,785 70,629 18,030 60,448 144,300 612,095 137,663 526,878 6,759 8,067 218,079 53,009 36,196 6,873 19,475 5,665 6,321 167,301 41,440 29,125 5,905 15,277 60,099 72,094 1,908,812 435,016 320,934 55,582 129,109 49,584 54,287 1,528,798 363,070 245,244 48,825 114,246 Nevada Oregon Eugene ............. Portland ........... Utah Salt Lake City. Washington Bellingham . . . . Everett ............. Spokane ............ Tacoma ............ Walla Walla . . . Yakima ............ Total .............$3,059,454 $2,557,738 $27,349,466 $23,087,634 *In thousands of dollars. 86 nitely stimulated in late September and the first half of October. M ost cargoes loaded at that time passed through the Canal during October and eastbound shipments conse quently increased by more than the usual sea sonal amount. On the other hand, westbound shipments declined, probably in expectation of difficulty in having cargoes removed upon ar rival at Pacific Coast ports. Daily average freight carloadings increased seasonally during October and were 19 percent higher than a year ago. In the Pacific North west, rail shipments were larger than in any month since April 1930, and were also 19 per cent higher than in October 1935. Large gains have taken place over the year period in rail shipments of forest products, ore, coal and coke, and merchandise and miscellaneous com modities. Daily average freight carloadings in California advanced further in October, con tinuing the seasonal expansion in evidence since February. Practically none of the expan sion in carloadings during October reflected diversion of water-borne traffic to railroads, since the strike o f longshoremen did not take place until O ctober 30. Cost o f Living Average living costs for families of wage earners and lower salaried workers in large dis trict cities increased slightly between mid-July and mid-September. Advances in rents and SOURCES OF FUNDS Week Ending 1936— Sept. 16........ 23........ 30........ Oct. 7 ........ 14........ 21........ ¿o . . . Nov. 4. . . .. 11, , 18. . . .. Reserve Bank Commercial Treasury CreditOperations Operations + 2.4 + .3 — 10.1 — 4.2 + 1 .7 +- 6.2 — .7 — 11.9 +15.3 + .3 — 10.7 +17.9 + 2 .2 + 1.6 +10.1 — 1.5 + 1.0 + .5 + 1 .8 — .4 + .2 — [l + LI — 1.9 — 9.6 + 10.1 — 1.1 Total Supply — 7.4 +- 3.7 + 2.7 + 7.5 +13.9 — 7.9 + 10.8 — 2.8 USES OF FUNDS Week Ending 1936— Sept. 1 6 ... . , 23, . 30, . .. Oct. 7 .. . 14, , 21 28, Nov. 4. . . .. 11 .. 18. , Demand for Currency — 7.7 — 3.8 + 1.0 — 1.2 — 4.8 + 9 .5 + 1 .8 — 5.2 *Change less than $50,000. Member Bank Reserve Deposits + -1 + 4.5 + 3.7 + 1.2 + 15.0 — 2.0 + 2.4 — 17.1 + 7.0 + 4.5 Other F.R.B. Accounts + -2 + 1.9 + 3.0 — 2.0 — .2 + -1 — .5 — .3 + 2.0 — 2.1 housefurnishing goods, which account for about a quarter of total costs, were important factors in the higher cost of living. Increases in the past year ranged from 1.0 to 3.3 per cent. Although advances over October 1935 occurred in most of the com m odity groups, the most significant development was an increase in the price of food, expenditures for which amount to nearly one-third of the total. The Credit Situation Discussions of United States Government borrowing have shown considerable misunder standing of its effect upon member bank re serve balances. Contrary to a widespread im pression, member bank reserve balances are neither increased nor decreased by Govern ment borrowing and subsequent disbursement of the proceeds. T o the extent that the bor rowing is from banks, deposits are increased, and since the additional deposits require the usual legal reserves, reserve balances in excess of legal requirements are reduced. If the bank ing system did not have excess reserves, it would either be unable to absorb the additional securities, or would find it necessary to obtain the needed reserves, probably through borrow ing from the Reserve banks. Although the process of Government bor rowing to finance expenditures does not affect the total volume of member bank reserves, Treasury operations frequently do have an important influence upon reserves of banks CONDITION OF FEDERAL RESERVE BANK OF SAN FRANCISCO (Amounts in millions of dollars) SOURCES A N D USES OF BANKING RESERVES Twelfth District Changes in millions of dollars during the weeks indicated November 1936 M O N T H L Y R EVIEW OF BUSINESS CONDITIONS Total Demand — 7.4 + 3.7 + 2.7 + 7.5 + 13.9 * — 2.9 — 7.9 + 10.8 — 2.8 Total Bills and Securities. Bills Discounted .......... Bills B o u g h t .................. United States Securities Total Reserves .................. Total Deposits .................. Reserve Note Circulation. Ratio— Reserves to Deposit and Note L iabilities.... Nov. 18 1936 216 Nov. 11 1936 216 Oct. 21 1936 216 Nov. 2 1935 201 214 616 484 332 214 616 480 335 214 623 493 330 Ì99 422 332 273 75.5% 75.5% 75.7% 69.! CONDITION OF REPORTING MEMBER BANKS Twelfth District (Amounts in millions of dollars) Nov. 18 Nov. 11 Oct. 21 Nov. 20 1936 1936 1936 1935 Loans and Investments — Total. 2,180 2,184 2,177 2,076 Loans to Brokers and Dealers.. 16 17 15 8 Loans on Securities to Others (except Banks) ...................... 159 159 160 168 Acceptances and Com’l Paper.. 22 23 23 25 Loans on Real Estate................ 364 365 362 369 Loans to Banks .......................... 2 1 1 1 Other Loans ................................ 384 386 384 352 U. S. Gov. Direct Obligations. 713 716 709 669 Obligations Guaranteed by U. S. 158 159 160 130 Other Securities ........................ 359 361 363 354 Reserve with F. R. Bank.......... 285 281 287 196 Due from Domestic Banks........ 257 242 279 240 Demand Deposits— A d ju sted .... 897 881 876 797 Time Deposits ............................ 1,022 1,024 1,020 989 U. S. Gov. Deposits.................... 57 71 102 66 Deposits of Other Banks . . . . . . 325 319 327 278 Borrowings .................................. November 1936 FEDERAL RESERVE B A N K OF SAN FRANCISCO within specified regions of the United States. (T he term “ Treasury operations” is here used to describe the net difference between Treas ury disbursements and collections.) W ithin the Twelfth District, for example, Treasury oper ations have been by far the most important factor contributing to the marked growth in member bank reserve balances since 1932, and for several years prior to 1932 Treasury oper ations were a major source of reserve funds for banks in this district. This reflects the fact that for more than seven years, total United States Government disbursements in the Twelfth District for wages, purchases of sup plies, loans, relief, and other purposes have almost continuously exceeded the aggregate Treasury collections in this district through taxes, borrowings, and other receipts. Thus, the Treasury has constantly been transferring funds collected in other regions, such as New York, where there is a concentration of receipts from income taxes and from sales of Govern ment securities, into the Tw elfth District to help meet its disbursements in this section of the country. Treasury payments to individuals and busi nesses throughout the Twelfth District have a direct effect upon business activity. Their in fluence upon the volume of member bank re serve balances is also of importance to busi ness, in that a net excess of Treasury pay ments over collections such as has been cus tomary in this district since 1929 helps to pro vide banks with reserves which can be used to support additional credit. During the four weeks ending November 18, the influence of the United States Treasury 87 upon reserve balances was the reverse of what has been usual since 1929, in that Treasury collections totaled $1,600,000 more than dis bursements in the Twelfth District. This un usual relationship reflected the transfer of $49,000,000 of Treasury funds from depositary banks to the Treasurer’s account at the Fed eral Reserve Bank of San Francisco, a trans action which is classed as a Treasury collec tion. The deposits with member banks pre viously had been built up by sale of Govern ment securities to those banks, which cus tomarily pay for part of such security pur chases by giving the Treasury deposit credit, payable upon demand. Another factor which increased Treasury collections during this pe riod was the return by member banks of more than $8,000,000 of postal savings funds which the Postal Savings System had previously de posited with them. Collection of these funds by the Treasury, although not representing a contraction in Federal Government purchases of materials or payments of wages or relief, did tend to reduce member bank reserve balances. Earning assets of Twelfth District reporting member banks were slightly higher in midNovember than a month earlier. Loans in the “ all other” classification, which consists prin cipally of advances for commercial, industrial, and agricultural purposes but also includes personal installment loans, showed little change between mid-October and mid-November. Real estate loans advanced but continued slightly lower than a year earlier. Investments in United States Government direct obligations increased moderately, while holdings of other securities declined. N A T IO N A L S U M M A R Y O F BU SIN ESS C O N D IT IO N S Prepared by the Board of Governors of the Federal Reserve System Volum e of industrial production increased seasonally in October and there was a sub stantial rise in employment and pay rolls. Prices of a number of industrial raw materials and finished products have advanced. Production and Employment. In October the Board’s seasonally adjusted index of industrial production was at 109 percent of the 1923-1925 average, about the level of the three preceding months. Steel production was in larger volume than in any other month since 1929, and the rate of activity was sustained in the first three weeks of November. Output of automobiles rose sharply from September to October. The increase in this period was less than a year ago, reflecting the fact that this year the date of the shift to production of new models was less uniform among the leading producers, but in the first three weeks of November produc tion increased further and was larger than last year. Activity at textile mills, which usually increases in October, declined slightly from the high level of September. In the meat pack ing industry output showed a further increase. Coal production increased seasonally, and pro duction of crude petroleum continued at recent high levels. Factory employment increased by more than the usual seasonal amount between the middle of September and the middle of October. In creases in employment were general among the durable goods industries, with the largest expansion reported at factories producing auto mobiles and machinery, while changes in em ployment in the nondurable goods industries were largely of a seasonal character. Factory 88 November 1936 M O N T H L Y REVIEW OF BUSINESS CONDITIONS pay rolls rose by considerably more than the usual seasonal amount. Value of construction contracts awarded, as reported by the F. W . D odge Corporation, was slightly smaller in October than in September, with a decline in publicly-owned projects partly offset in the total by an increase in awards for private nonresidential construction. Distribution. Sales by department stores and Bank Credit. Member bank reserves increased in the four weeks ended November 18, chiefly as the result of transfers of gold to the United States. On that date member bank reserves were $2,700,000,000 larger than legal require ments, the highest level since the increase in reserve requirements which became effective in the middle of August. Adjusted demand deposits at weekly report- W HOLESALE PRICES IN DU STRIAL PRODUCTION Index of physical volume af production, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1929 to October 1936. by mail order houses serving rural areas in creased from September to October by a larger amount than is usual at this season. Variety store sales showed a less than seasonal rise. Freight carloadings increased further in O cto ber, reflecting chiefly a larger volume of ship ments of miscellaneous freight and of coal. Com modity Prices. The general level of whole- Indexes compiled by the United States Bureau of Labor Statistics, (1926=100.) By months 1929 to 1931; by weeks 1932 to date. Latest figure is for week ending November 21,1936. ing member banks in leading cities have con tinued to increase, and on November 18 amounted to about $15,400,000,000. Since the end of last May these deposits have increased by over $800,000,000 reflecting a rise in deposits outside New York City. Tim e deposits at re porting banks have remained at about the $5,000,000,000 level. BILLIONS OF DOLLARS 1932 1934 1935 1936 DEPARTM EN T STORE SALES MEMBER BANK REQUIRED AND EXCESS RESERVES Indexes of value of sales, 1923-1925 average=100. By months, January 1929 to October 1936. Wednesday figures of total member bank reserve balances at Federal Reserve banks, with estimates of required and excess reserves, January 6,1932 to November 18,1936. sale com m odity prices advanced somewhat dur ing the first three weeks of November, follow ing two and a half months of little change. Since the middle of O ctober prices of a number of industrial raw materials, particularly nonferrous metals, hides, rubber, silk, and wool, have shown a considerable rise and there have also been substantial increases in the prices of some finished products, including automobile tires, glass, woolen goods, and cotton goods. 1933 Holdings of United States Government obli gations at reporting banks have recently de clined somewhat further. Since the end of June the decline has amounted to about $300,000,000 and has been at New Y ork City, with little change elsewhere. Holdings of other securities have declined in recent weeks, reflecting chiefly a reduction in the amount held by New York City banks. Loans to customers have shown some further increase.
@FedFRASER