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Review' Monthly FEDERAL RESERVE B A N K OF S A N OCTO BER FR A N C ISC O 1948 CONSTRUCTION ACTIVITY upward trend in recent months in expenditures on construction in the United States was reversed in Sep tember. The Bureau of Labor Statistics reported a slight decline in total expenditures for that month. A seasonal drop in farm construction in September and a very slight drop in non-farm residential construction more than off set small increases in some types of business construction and other non-residential building to account for a decline in September expenditures for privately-financed con struction of $8 million from the August level of $1,354 million. Public construction totaled $447 million in Sep tember, about the same as the total dollar volume reported for August. As the accompanying table indicates, total expendi tures for new construction during the first nine months of this year exceeded those of last year by more than a third. The increase in expenditures for privately-financed h e T E x p e n d it u r e s for N e w C o n s t r u c t io n P u t i n P l a c e 1— U n it e d S t a t e s (amounts in millions) Expenditures r— first 9 months of—>. Type of construction 1948 2 Total new construction3 ................................. , $13,029 Private con struction......................................... . . Residential building (nonfarm) ........... Nonresidential building (nonfarm )4. . , Industrial ..................................................... . Commercial ................................................ . Other ............................................................ . Farm construction ....................................... Public utilities ............................................... Educational ..................................................... Hospital and institutional ........................ Highways .......................................................... Other .................................................................. 10,117 5,175 2,650 1,052 664 426 1,866 131 1,129 1947 Percent increase $9,728 34 7,526 3,430 2,285 1,295 569 421 360 1,451 34 51 16 — 19 64 58 18 29 2,202 187 56 871 1,088 32 101 134 30 17 JJoint national estimates of the Bureau of Labor Statistics, U . S. Depart ment of Labor, and the Office of Domestic Commerce, U . S. Department of Commerce. Estimated construction expenditures represent the mone tary value of the volume of work accomplished during the given period of time. 2 Prelimnary. 3 Includes major additions and alterations. 4 Excludes nonresidential building by privately-owned public utilities. construction was due mainly to the large increase in ex penditures for new homes. Approximately half the dollar increase in public construction occurred in nonresidential building, particularly in educational and hospital projects. As usual, the amount of expenditures on highway con struction exceeded that for any other type of public con struction, and constituted 39 percent of all publiclyfinanced work. Employment by construction contractors in both Au gust and September was estimated at 2,257,000 workers, the highest level since October 1942. This is about onequarter of a million less than the wartime peak reached in August 1942. Corresponding data on construction activity for the Twelfth District are published only on a quarterly basis, and the results for the third quarter of this year are not yet available. On the basis of the experience in the first half of the year, however, it is reasonable to assume that the trends in construction activity in the Twelfth District during the third quarter have been similar to those in the country as a whole. In California and Washington, which have monthly data on construction employment, the vol ume of such employment has risen to progressively higher levels in each of the first seven months of this year, and has been at a substantially higher level than in the cor responding period a year ago. Housing starts decline While current construction activity is at an all-time high, there are some indications of a possible decline in its volume in the near future, particularly in residential building. For the country as a whole, August housing starts, totaling 83,000 units, fell 12 percent below those of July of this year, and 4 percent below those of August 1947. This was the sharpest month-to-month drop so far this year, and was also the first time in 18 months that housing starts had dropped below those of the corre sponding month of the previous year. Preliminary esti mates by the Bureau of Labor Statistics indicate a further small decline in September. The estimated 81,000 units started in that month represent a decline of 14 percent from the corresponding month a year ago. It should be noted in this connection, however, that housebuilding in 1947 departed rather drastically from the normal seasonal pattern, which is characterized by a peak of activity in the spring and early summer. The peak last year came in September and October, when about 94,000 family dwell ing units were started in each of those months. In 1948, on the other hand, the peak, in terms of present estimates, will probably be the 99,400 started in May. Another factor which helped to produce the difference in the tim ing of these two peaks was the rush this year to secure commitments for loans insured by the Federal Housing Administration before the expiration on April 30 of the liberal terms of Title V I of the National Housing Act. Even though housing starts should continue to decline for the remainder of this year, it is certain that the number 86 of houses started during the full year 1948 will exceed that for 1947 and may equal the record total of 937,000 units started in 1925. It is estimated that 729,500 houses had been started through September of this year, which is 113,000 above the corresponding period of last year, and only about 120,000 short of the 849,000 houses started in the full year 1947. Corresponding data are not published for the Twelfth District. The Bureau of Labor Statistics indicates, how ever, that housing starts in California reached a peak in April and since then have declined continuously through August, the latest month for which data are available. This is of considerable significance because California has accounted for a sizable portion of the national total of new houses started during the past three years. Urban residential building permits also decline The number of urban residential building permits issued also appears to have turned downward in recent months. Part of the downturn is a reaction from the un usual March-April peak induced by the rush to secure commitments for Title V I F H A loans before April 30. In addition to this rather artificially-induced decline, there appears to be a more fundamental decline taking place. This reflects an increasing sluggishness in many areas of the sale of houses, both old and new. This slug gishness is the result of several factors which will be indi cated below. Residential building permits issued in urban areas have been declining in the country as a whole since the April peak. In July, the latest month for which complete data have been published, permits were issued for about 47,800 family dwelling units. This was about one-fourth below the April peak. Their value was 21 percent less than the April total, bringing the total value of building permits for all types of construction in July to 10 percent below the April peak, although the value of permits issued for nonresidential construction in July was the third high est for any month so far this year. Preliminary reports indicate a very slight drop in residential permits issued in August, and a further small decline in September. In the first seven months of this year, permits issued for family dwelling units increased 33 percent in number and 50 percent in value over the corresponding period of 1947. The value of permits issued for all other types of construction was about 46 percent higher. In the Twelfth District, the number of urban resi dential building permits issued has declined continuously since the March-April peak, with the exception of Au gust. The total for that month even exceeded by a sub stantial margin the March-April peak, but solely because it included permits for a very large apartment project, embracing 2,700 family dwelling units, in Los Angeles. Without this large project, District urban residential building permits, both in value and in number of dwelling units, would have reached the lowest level in August for any month so far this year. The value of permits for other types of construction have also shown a general, but more irregular, downward October 1948 FEDERAL RESERVE B A N K OF S A N F R A N C ISC O trend in the District since the March-April peak. In August, their value rose above the July level but was still substantially below the earlier peak. The value of District urban building permits issued for all types of construction in the first eight months of this year was 53 percent above that for the corresponding period a year ago. The value of building permits issued U rban B u il d in g P e r m i t s I s s u e d 1— T w e l f t h (dollar amounts in millions) Period April ........................................ M ay ........................................ June ......................................... July ......................................... A u gust2 ............................... .. AH building con struction $115.4 112.8 151.5 147.5 139.8 139.1 117.3 153.9 Total first 8 months of 1948. . . 1,077.3 Total first 8 months of 1 9 4 7 ... 701.9 Percent increase, 1948 over 1947 D is t r ic t Other new ,— New dwelling units—.v con Number Value struction 9,873 $67.7 $ 32.0 11,093 74.6 24.4 12,220 88.4 46.2 12,132 86.4 44.0 11,627 82.0 38.6 10,843 80.5 41.1 9,193 69.2 31.3 10,984 100.8 38.0 87,965 649.6 295.6 53 65,256 35 396.5 193.0 64 53 1 These tabulations pertain only to permits issued for building construc tion within urban areas. Urban, as defined by the Bureau of the Census, covers all incorporated places of 2,500 population or more in 1940 and, by special rule, a small number of unincorporated civil divisions. Building outside of these city limits is excluded, even when it is located in populous suburban areas that may be an integral part of a city’s economic and social life. 2 Preliminary. Source: United States Department of Labor. in urban areas for all types of construction rose substan tially in the first eight months of this year compared with the same period a year ago in all states of the District except Nevada, where it declined somewhat more than 20 percent. This decline was common to both residential permits and permits for other types of buildings. In Idaho, on the other hand, the increase of 65 percent in the value of permits for all construction activity, and 93 per cent in the value of residential permits, led all the states in the District. The percentage increases in California were somewhat larger than for the District as a whole. In the first eight months of this year, California accounted for 80 percent of the total value of urban residential per mits issued in the District and 75 percent of the total value of those issued for other types of construction. Probable decline in residential construction expenditures If the declines in housing starts and in residential build ing permits continue, a reduction in the volume of expen ditures for this type of construction activity is inevitable. Because of the time lag between the issuance of a permit and the start of construction, and because of the time required for construction, the reduction in expenditures will not make itself apparent immediately. Although the volume of expenditures has declined from August, it is not likely to drop significantly below the level of the final quarter of last year. The volume of work currently under way is still quite large and will prevent any great decline in expenditures for at least the remain der of this year. By early next year, however, the cumu lative effect of the downward trend in housing starts, if not reversed soon, will begin to reflect itself in a more sharply declining volume of expenditure for residential construction activity. October 1948 M ON TH LY The trend of total construction expenditures in the near future is more difficult to predict. In addition to the probable decline in residential construction, there may also be some decrease in expenditures for nonresidential construction. In the Twelfth District, building permits authorized in urban areas for nonresidential construction have shown a generally downward trend from April through August. For the country as a whole, however, no definite trend is discernible, though in June and July they were nearly equal in amount to the March peak. Publiclyfinanced construction, on the other hand, will undoubt edly rise above current levels. There is a large backlog of urgently needed projects in this field, of which schools and highways are two important examples. In all prob ability, the expected increase in public construction will prevent any appreciable drop in total construction ex penditures. Housing market relatively slow It is reported from many areas in the Twelfth District and throughout the country that the sale of houses, both old and new, has slowed down substantially within recent months. So far, at least, this slowness has not resulted in any general decline in the prices of houses. Instead, it has meant that they have had to remain upon the market for a substantially longer period of time before they have been sold. Several factors help to account for this situa tion. The more urgent postwar demands for housing have been met. Although many people are still interested in buying new houses, their needs are relatively less urgent than were the needs of many people in the earlier postwar period. These people, therefore, are in a position to be more selective in their choices of houses, which means that they can wait longer to find the type of house that they want. Some potential buyers of houses have been forced out of the market within the past year due to the rise in prices, both in houses and in the general cost of living. Building costs have probably risen more than 1.0 percent and the over-all cost of living about 10 percent during the past year. The incomes of many people have failed to rise cor respondingly in the same period, with the result that they cannot afford to buy a house now even though their need may be fairly urgent. Another important factor on the financial side has been the tightening of credit terms in recent months. Because of a gradual rise in other interest rates, lending institu tions have become increasingly reluctant to make mort gage loans at 4 percent, which has been the prevailing rate for most of the postwar loans guaranteed either by the Federal Housing Administration or the Veterans’ A d ministration. With the expiration on April 30, 1948 of Title V I of the National Housing Act, which contained liberal terms for insured mortgages for the purchase of individual homes, F H A financing shifted to Title II. The interest rate under Title II is 4.5 percent and the amount of the mortgage which will be insured is a smaller per centage of the current market value than was the case REVIEW 87 under Title VI. The interest rate on V A loans is still 4 percent, but many lending institutions are not willing to make loans now at that rate. An increasing proportion of the V A loans now being made are combination FH A and V A loans. The max imum FH A loan is obtained as a first mortgage at 4.5 percent and in addition the V A will guarantee a second mortgage, which carries a rate of 4 percent, not to exceed 20 percent of the purchase price or $4,000, whichever is smaller. Of the total loans approved by the V A in August of this year, 30 percent were of the combination FH A-GI type. In contrast, in the same month a year ago only 10 percent of all the V A loans approved were of this type. The ratio is substantially higher in the Twelfth Dis trict. In California, for example, the ratio of combination loans was about 45 percent for August of this year. Since California has a larger volume of new residential con struction than any other state in the nation, relatively more of the mortgage loans made in that state are for the purchase of new homes as distinct from old ones. Conse quently, on the average, larger mortgages are required in California. The rise in construction costs has accentuated this need for larger mortgages. Increasingly they are being obtained in the form of combination FH A-GI loans. Among non-veterans, there is increasing use in some areas of second mortgages obtained from private sources, in many cases from the builder. This is especially true with respect to houses selling in what might loosely be termed the medium price bracket. Many builders are find ing that these houses can readily be sold only with the aid of second mortgages. The larger down payments now required, as compared with a year or two ago, exclude many potential buyers from the housing market. Many people may be able to meet the somewhat higher monthly payments that have been occasioned by the shift from Title VI to Title II financing, but these same people may not be able to meet the larger down payments that have been the product, on the one hand, of rising prices for houses and, on the other, of the shift from Title VI to Title II provisions. Housing credit liberalized in August In the special session of Congress which adjourned in August of this year, the terms for insuring mortgages under certain sections of the National Housing Act were liberalized. The changes appear to have two primary ob jectives : (1 ) to provide more liberal financing terms for single and multiple-unit homes in medium- and low-price brackets; (2 ) to encourage the construction of large-scale rental projects. In general, the changes took the form of providing larger insured mortgages both for lower-priced houses to be offered for sale and for multiple-unit rental projects. A system of “yield insurance” was also estab lished for the latter. In a few cases, maturities for mort gages were lengthened and low interest rates (4 percent) established or maintained. In several cases, however, there is provision for an increase in interest rates by administrative regulation if conditions in the mortgage 88 FEDERAL RESERVE B A N K OF S A N F R A N C ISC O market demand it. Included in the latter is an authoriza tion permitting the Veterans’ Administrator to raise the interest rate on GI loans to a maximum of 4.5 percent if that is necessary to secure a supply of funds for such loans. The scope of the secondary market for mortgages maintained by the Federal National Mortgage Associa tion was enlarged substantially.1 The Federal Housing Administration received more applications for mortgage insurance in September than in any month since April of this year, although it is too soon for the recent changes in F H A insurance terms to have had too great an effect. The maximum F H A insured mortgage for small owner-occupied homes was increased from $8,600 to $9,500 under Title II. Such loans carry an interest rate of 4.5 percent, plus 0.5 percent for mort gage insurance, and may run for 25 years. Due to higher building costs, this increased loan maximum still leaves a down payment sufficiently large to exclude many poten tial buyers from the market. The new law added a provision to Title II which estab lishes even more liberal terms than those above for insur ing mortgages not in excess of $6,000. The maximum rate of interest on these loans is 4 percent, except that the Federal Housing Administrator may raise it to not more than 5 percent if necessary to meet conditions in the mort1 For a more detailed discussion of the provisions for F H A and G I mort gage loans and recent changes therein, see the article, “ Trends in Housing Finance and Residential Construction,” in the June issue of the Monthly Review, and also page 67 in the August issue. October 1948 gage market. The rate has actually been set at 4.5 percent. A new section was added to Title V I providing for insur ance of mortgages covering properties upon which 25 or more single-family houses are to be constructed. The in terest rate on these loans is set at 4 percent, with authori zation to increase it to 4.5 percent. As indicated previous ly, however, there is a growing scarcity of 4 percent mort gage credit, so this new section may not have much prac tical effect unless the rate of interest is raised above 4 percent. Some of the provisions for insurance of mortgages on multiple-unit rental projects also specify a rate of 4 per cent. Reports indicate that some builders are interested in undertaking rental projects under these provisions, but they also are confronted with the scarcity of 4 percent money. In this connection, it should be noted that rental hous ing in recent months has accounted for a greater propor tion of all new residential construction than was true a year or two ago. Rental-type units numbered one out of five of all new units started in the first five months of 1948, compared with one out of ten in the corresponding period of 1947. The ratio in 1947 was abnormally low compared with the prewar average. It is rather generally recognized that the housing needs of many people are better met by renting than by buying. The trend this }^ear towards a larger proportion of rental units is therefore a desirable one. BASIN G POINTS, FREIGHT ABSORPTION, AN D THE PACIFIC COAST STEEL INDUSTRY in July of this year the basing point system of price quotation was abandoned by the steel industry. Playing a large part in this changeover to an f .o.b. system were the decisions of the Supreme Court on the basing point system, particularly in the cement case, and pressure exerted by the Federal Trade Commission on the steel industry. Two questions are of particular concern to west ern industry at this time: first, how were Pacific Coast steel prices affected, and second, is freight absorption barred in each and every case. a r l y E How the basing p d n t system operated Under the basing point system as used by the steel and cement industries, prices were quoted at specified places known as basing points. A buyer paid the price at the nearest basing point plus rail freight from that point to his plant, regardless of where the seller was located. This resulted in a uniform price to a buyer from all sellers. It did not, however, result in the same prices to all buyers, but only to those located at the same market point or having identical freight rates from a common basing point. Two practices resulted from this system, referred to by the industry as “ freight absorption” and “ phantom freight.” If a buyer bought from a mill farther away than the nearest basing point, the mill charged only the price plus freight from the nearest basing point; the difference in freight cost was absorbed by the seller and was referred to as freight absorption. Phantom freight resulted if the buyer purchased from a nonbase mill closer than the nearest basing point and paid the full freight from the basing point. Phantom freight also arose when water shipments from an established basing point were involved. Rail freight, which exceeds water freight for comparable distances, was charged the consumer from the basing point to his plant even though the steel was shipped by water. The basing point system differed from an f.o.b. system in that the buyer in one case paid freight from a pre determined point regardless of the location of the seller, while in the other case he paid freight from the actual point of shipment. The more basing points there were created and the more users bought from the nearest bas ing point, however, the more the basing point method resembled an f.o.b. system. The basing point and f.o.b. systems on the Pacific Coast During the N.R.A. the Pacific Coast ports became basing points for steel products. Delivered prices at each of the major ports were the same. The base price for these ports was arrived at by adding to the Sparrows Point, Maryland base price water freight and switching charges to the Pacific Coast. This system was in effect until Janu ary 9, 1947, except for the war period. In order to illus M ONTHLY October 1948 trate the structure of prices, the following table gives the lowest Eastern basing point quotation and the Pacific Coast ports price for five items as of January 9, 1947. Sheets— hot rolled ..................................................... Sheets— cold rolled ................................................... Sheets— galvanized ................................................... Carbon plates ............................................................... Structural shapes ....................................................... Lowest Pacific Coast Eastern Ports (dollars per cwt.) 2.50 3.085 3.20 3.885 3.55 4.135 2.65 3.235 2.50 3.185 (W a ter rate from Sparrows Point, Maryland 68.5 cents per cwt. including “ arbitraries” and insurance. Lowest Eastern price plus water freight will not add to Pacific Coast ports prices in each instance because of a differ ence in price between basing points.) Pacific Coast mills charged the Pacific Coast ports price for delivery at the respective ports. For delivery to inland points freight was computed from the nearest port. In some cases, for example, when an inland mill sold to a customer at its door, the mill “ earned” phantom freight. This plan was abandoned during the war because com mercial shipments via the Canal were restricted. The O.P.A. permitted California buyers to be billed at the Eastern base price plus actual freight. Since the end of the war, however, some producers, especially in the Middle West, refused to resume the Pacific Coast basing points. They would accept Pacific Coast business only on a straight f.o.b. basis. Even then, the pressure of demand in areas adjacent to Middle Western mills reduced their shipments to this area considerably. After January 9, 1947 the Pacific Coast ports base was abandoned by the industry. Pacific Coast mills in some cases adhered to the old base while others quoted only for the port nearest them. In effect, the Pacific Coast was on an f.o.b. basis long before the Supreme Court decision in the cement case. The effect of the changeover can best be illustrated by comparing prices for a few items, on a national basis, S t e e l P r ic e s i n t h e U n i t e d S t a t e s for S e l e c t e d I t e m s and D ates Sheets— hot rolled , Sheets— cold rolled1 ................. Sheets— galvanized ................... ...................... ...................... 3.45 3.85 2.90 2.75 Lowest U . S. mill price July 13, July 21, 1948 1948 (dollars per cwt.) 2.75 3.25 3.45 4.00 3.85 4.40 2.90 3.40 2.75 3.25 Increase per ton July 13-21 10.00 11.00 11.00 10.00 10.00 before July 13 when the basing point system applied, July 13, the first available quotations under f.o.b., and July 21 after prices were increased generally. P r ic e s 1 of S t e e l i n San Between June 24 and July 13 there was no change in the quoted prices, but freight had to be paid from the actual point of shipment rather than from the nearest base mill. For the large number of users who customarily pur chased from the nearest basing point which was also the nearest mill, no change occurred since the freight involved remained the same. For the users who bought from mills more distant than the nearest basing point, the cost of steel increased by the amount of freight formerly ab sorbed by the seller. But other users experienced a reduc tion in price between June 24 and July 13 because they had been paying phantom freight either because they had been buying from a nonbase mill closer than the nearest basing point or because they had been paying rail freight whereas shipment was actually made by water. No reliable estimates of the extent of freight absorption or phantom freight are available. On balance, it appears from industry statements that freight absorption under the basing point system tended to exceed phantom freight somewhat in recent years. This assumption is based on the location of the major fabricating centers relative to basing points. A slight increase in the over-all price of steel to steel-users may have resulted from the change over to an f.o.b. system. The changeover from a basing point system to an f.o.b. system can hardly dictate, how ever, any permanent change in cost independent of de mand and supply conditions. Thus the general increase in price between July 13 and July 21 reflects not a change in the method of quoting prices, but increased labor and material costs plus the fact that since the end of the war, the demand for steel has been and no doubt still is in excess of supply. Since the Pacific Coast had been substantially on an f.o.b. basis for some time, little change occurred. Com parison of the price schedules confronting a firm in San Francisco buying both from the East and from Pittsburg, California, is of interest, nevertheless. The changeover to an f.o.b. system Lowest U . S. basing point June 24,1948 For shipments from mills outside the coastal area, no change occurred as a result of the adoption of the f.o.b. quoting method. The only evident difference between June 24 and July 13 arises from the fact that San Fran cisco was no longer a basing point, and freight was charged from Pittsburg, California instead of from San Francisco. Thus, for hot rolled and galvanized sheets the price went up 8 cents per cwt. or an increase of $1.60 a ton. East Bay users, on the other hand, closer to Pitts burg (California) than to the port of Oakland probably F r a n c i s c o , C a l i f o r n i a fo r S e l e c t e d D a t e s a n d I t e m s r Lowest deliv. price 6-24-48 Lowest deliv. price 7-13-48 89 R E V IE W Lowest deliv. price 7-21-48 ----------- Cost from selected points on July 21--------Pittsburg, t------Chicago------^ Mill price Total t— Sparrows Pt.2—^ Mill Price Total f-------Geneva-------N t— California— N Mill Price Mill Price Total 4.280 4.604 3.480 3.330 3.53 4.28 4.68 3.48 3.33 4.03 4.98 5.23 3.98 3.83 3.25 4.00 4.40 3.40 3.26 1 Excluding 3 percent tax on freight. 2 These prices apply to all Pacific Coast ports because water freight is uniform. 4.61 5.36 5.76 4.76 4.61 3.30 4.10 4.50 3.45 3.30 Total _ . \ u u n a io j j c i l w u ; Sheets— hot rolled ................... Sheets— cold rolled ................. ................. Sheets— galvanized ................... ................. Carbon p la t e s ................................ ................. Structural shapes ...................... ................. 4.18 4.98 5.38 4.33 4.18 3.40 3.25 3.98 3.83 3.95 4.03 5.15 5.23 FEDERAL RESERVE B A N K OF S A N F R A N C ISCO 90 experienced a slight price reduction when the f.o.b. sys tem was introduced. But the impact on prices for items acquired from non-coast mills was nil, and the $1.60 in crease was dwarfed by the $10.00 to $11.00 per ton in crease a wreek later. May freight be absorbed? The question of freight absorption or price competition in distant markets is the central problem posed by advo cates of a legalized basing point system. On April 26,1948 the Supreme Court sustained an order of the Federal Trade Commission against the Cement Institute and 73 cement companies. There were two counts on which the order was based. The first dealt with the basing point system as a means of unfair competition in violation of the Federal Trade Commission A c t; the Commission was sustained here as well as on the second count. The second count, charging price discrimination, is the one of real significance in this discussion. Price discrim ination is forbidden by section 2 (a) of the Clayton Act as amended by the Robinson-Patman Act which declares it to “ be unlawful for persons engaged in commerce . . . either directly or indirectly, to disciminate in price be tween different purchasers of commodities of like grade and quantity . . . Where the effect of such discrimination may be substantially to lessen competition in any line of commerce, or to injure, destroy, or prevent competition with 1 any person who either grants or knowingly received the benefit of such discrimination . . .” Proof of such dis crimination makes out a prima facie case of violation, but the seller may rebut the charge in accordance with section 2 (b ) of the act if he can show that the lower price “ was made in good faith to meet the equally low price of a competitor.” October 1948 The Commission held, and the Supreme Court sup ported, the view that the basing point system, since it involved freight absorption and phantom freight and therefore resulted in significantly different net returns to a seller on business with different and competing buyers, constituted a prima facie case that discrimination existed. The rebuttal of the charge— that the prices were made in good faith to meet competition— was not accepted by the Court. It ruled “ . . . but this does not mean that section 2 (b ) permits a seller to use a sales system which constantly results in his getting more from some customers than from others . . . The A c t . . . places emphasis on individual competitive situations1 rather than upon a general system of competition.” In effect the Supreme Court ruling re quired that if one buyer is given a lower price than other competing buyers, a specific situation must exist where a competitor’s lower price is being met. The question still remains, however, whether or not freight absorption is permissable. Although discussion on this question reflects a variety of opinions, the remarks of the Supreme Court in the cement case are of interest. “ Most of the objections to the order appear to rest on the premise that its terms will bar an individual cement pro ducer from selling cement at delivered prices such that its net return from one customer will be less than from an other, even if the particular sale be made in good faith to meet the lower price of a competitor. The Commission disclaims that the order can possibly be so understood. Nor do we so understand it . . .” If the decision can be taken literally, it would appear that an individual firm may absorb freight provided there is no collusion with others and competition among buyers or their customers is not adversely affected. 1 Ita lics ours. COMMERCIAL FISHERIES OF CALIFORNIA a l if o r n ia has for many years led the nation in fish Clanded by commercial fishermen and in canned fishery products and byproducts, in terms of both quantity and value. In 1915 the total catch of fish and shellfish in the state amounted to 100 million pounds. Increased exploita tion of the sardine fishery, which began during World War I, resulted in a rather steady rise of the total catch until 1929 when it reached 857 million pounds. Both the sardine catch and the total catch fell by more than 50 per cent during the following two years, indicating clearly the influence of the depression on the industry. Soon there after the industry began to expand again. During the 1934-44 period, the greatly increased catch of sardines, which averaged 1.1 billion pounds annually, kept the total catch of fish in the state at the extremely high average of 1.4 billion pounds annually. Due to the failure of the sar dine fishery during the past two years, total California landings of fish and shellfish have been reduced to a level below a billion pounds for the first time since 1933. The 1947 total catch amounted to 793 million pounds, of which only 255 million were sardines. Thus the total vol ume of fish landings in California is closely related to the success of the sardine fishery. The fishery industry of California is greatly diversified, exploiting commercially about 50 species of fish and shell fish. Both fishermen and processors derive the bulk of their incomes from the sardine (pilchard) and tuna. These species represent the most important marine re sources of the state, producing between 1928 and 1945 an average of 71 percent of the total income of California fishermen. Shellfish play only a minor role in the total picture, and the value of landed shellfish during the period 1941-45 averaged only 2.8 percent of the total. Small whaling operations have long been conducted in Cali fornia, but none during the period 1944 to 1946. In 1947 the increased numbers of whales in nearby waters led to the resumption of whaling. Landings by regions and fishing grounds The landings of fresh fish and shellfish for processing and other uses are concentrated in the regions of San Francisco, Monterey, Los Angeles, and San Diego. The O ctober 1948 C a l if o r n ia M ONTHLY F is h and S h e l l f is h L a n d in g s by R e g io n s , V olu m e an d V alu e (in millions of pounds and thousands of dollars) Areas E u rek a ...................... Sacram en to ............ San F ra n cis co . . . M o n te re y ................. Santa B arbara . . . L o s A n g e le s .......... San D ie g o ............... T o ta l C a li f o r n ia ... 1941-44 ,— average— N ,-------1945-------, V o lV o lume Value ume Value 11.9 $1,513 28.8 $2,376 86.6 1,194 43.2 1,356 211.8 3,366 161.9 3,270 461.1 4,989 339.6 4,640 10.0 573 5.5 706 482.5 10,177 531.1 15,057 83.5 7,363 105.9 11,266 1,347.2 29,175 1,216.0 38,670 ,-------1946-------N 19471 V o lV o lume Value ume 32.4 $3,129 31.1 8.1 1,082 4.0 17.7 2,296 15.4 123.1 3,010 76.1 3.9 734 22.6 593.1 18,662 476.1 141.1 16,433 167.9 919.3 45,346 793.3 1 V a lu e figu res not yet available. S o u r c e : State o f C aliforn ia, D e p a rtm e n t o f N a tu ra l R e so u rce s, D iv isio n o f F ish and G am e, The Commercial Fish Catch of California, fo r the years 1941 and 1942, 1943 and 1944, 1945 and 1 9 4 6 ; F ish B u lletin s N o s . 59, 63, 67. D ata for 1947 fro m Statistical Report on Fresh and Canned Fishery Products, Year 1947, C ircular N o . 22. great differences in the relationship between the volume and the value of landings in various regions, shown in the accompanying table, are due to the composition of land ings. Wherever landings of sardines predominate, the quantity-value ratio is very low as sardines fetch a rela tively much lower price per pound than do other impor tant species, particularly tuna and salmon. The California fishery industry exploits not only waters off the California coast, but also large stretches of the Pacific Ocean off the Latin American coast. Thus of the total landings of fish and shellfish of 793 million pounds in 1947 not less than 240 million pounds or 30 percent came from the waters off the Latin American coast, representing more than 50 percent of all landings in terms of value. Practically the whole catch of yellowfin tuna, skipjack, bonito, and yellowtail, a large part of bluefin tuna, and some albacore come from these distant fish ing grounds. Expansion of fishing in these parts has been one of the most important and interesting features of the California fishery industry in recent years, and, according to all indications, future expansion may continue in the same direction. A small amount of fresh fish processed in California is caught in the waters north of the California state boundary, most of which is landed in the Eureka region (1.6 million pounds in 1947). Some tuna was shipped in 1947 to California for can ning not only from waters north of the state boundary, but also from Mexico, from South America, and a token quantity from the United States Atlantic coast. The total amount of tuna brought into the state in this fashion amounted in 1947 to 1.8 million pounds. Before the war some frozen tuna was imported from Japan for canning in the Los Angeles area. These shipments were resumed in 1948, with canneries at Monterey, San Francisco, and Los Angeles receiving frozen albacore from Japan. The sardine fishery— development of the catch During the period 1928 to 1947 the California sardine or pilchard accounted on the average for 75 percent of total annual landings of fish and shellfish in the state. Be tween 1928 and 1945, an average of 29 percent of the total annual income of California fishermen was derived from the sardine fishery. This percentage fluctuated between 15 percent in 1932 and 41 percent in 1941. 91 R E V IE W As shown in the accompanying table, the total catch of sardines for processing has dropped by exactly four-fifths during the past three years.1 But while sardines almost completely disappeared from the San Francisco and Mon terey regions, the landings in San Pedro and San Diego were not affected until the 1947-48 season. The catch in S a r d in e s : C a t c h b y R e g io n s a n d S e a s o n s , 1941-42 to 1947-48 (in tons) 1944-45 1945-46 San F ra n cis co 185,921 115,586 126,132 136,337 M o n te re y ____ 249,717 183,158 212,383 234,613 San P e d ro . . . 146,285 199,750 132,317 174,701 San D ie g o . . . 1,540 2,847 2,690 2,764 Region 83,483 142,282 169,380 945 T o ta l 1941-42 ............ 1942-43 1943-44 1946-47 1947-48 383 2,846 26,818 14,492 193,295 92,950 2,412 4,757 583,463 501,341 473,522 548,415 396,090 227,716 110,237 N o t e : Sardine fishing fo r p ro ce s s in g is lim ited to the open season. T h e season in the San F ra n cis co and M o n te re y re g io n s lasts from A u g u s t 1 to F eb ru ary 15 o f the fo llo w in g year, and in the San P e d ro and San D ie g o re g io n s from O cto b e r 1 to M a rch 1. I n these m onths sardines are at their best w ith regard to the tex tu re o f m eat and the con ten t o f oil. T h is table does not in clu d e sardines ca u g h t fo r the fresh fish m arket, bait, salting, cu rin g , sm ok in g , and the so-ca lled quarter oil pack. F ish in g fo r sardines fo r these purposes is allow ed th ro u g h o u t the year, b u t the catch is very sm all com p ared w ith that d u rin g the open season. T h e spaw ning season o f the C aliforn ia sardine is F e b ru a ry to July. S o u r c e : State o f C aliforn ia, D e p a rtm e n t o f N atural R e so u rce s, D iv ision o f F ish and G am e, Statistical Report on Fresh and Canned Fishery Products, fro m 1941 to 1947. Southern California in 1947-48 was less than half that in the previous season, but it represented the result of a greatly increased fishing effort, as measured by the num ber of sardine fishing craft. The fishing effort in the sar dine fishery has increased throughout the state despite greatly reduced catches during the past three seasons. The number of boats employed increased from 224 in the 1945-46 season to 290 in the 1947-48 season. In the San Pedro region the number of sardine fishing boats rose from 69 in the 1945-46 season to 149 in 1946-47 and to 180 in 1947-48. The explanation for the increased fishing effort is to be found in the continuing high demand for canned sardines and fish oil and steadily rising prices. The price of fresh sardines During the 1930’s sardine prices fluctuated consider ably, moving between $4 per ton in the 1931-32 season and $13 per ton in the 1937-38 season. In 1940-41 the price was $11 per ton. The stoppage of fish oil imports from Japan at the end of 1941 led to a rise in the price of sardines in the 1941-42 season to $17 per ton. From the 1942-43 season through the 1945-46 season, O PA ceil ings kept the price of fresh sardines at $22 per ton. At the beginning of the 1946-47 season the situation was con fused. Until August 19, 1946, O PA maintained the ceil ing of $22 per ton, in spite of the industry-fishermen agreement setting the price at $30 per ton, and no fishing was done as long as the price was $22. Owing to the small catch and the removal of O PA ceilings on canned sar dines, meal, and oil in mid-October 1946, the price in the San Francisco and Monterey areas rose for the remainder of the 1946-47 season to $60-$65 a ton. In Southern Cali fornia it remained throughout that season at about $40 a ton. The contract price throughout the state for the 19471 D u r in g the first tw o and a h alf m on th s o f the cu rren t season the sardine catch in the M o n te r e y area w as 27,054 tons, o r ap p ro x im a te ly tw ice the ca tch o f the entire 1947-48 season. D u r in g the sam e period this year the ca tch in the San F r a n cis c o area w as o n ly 396 tons. I n the sou th the catch d u rin g the first fo u r days o f sardine fishing w as 25,130 tons, sligh tly m ore than in the o p e n in g days last year. 92 FEDERAL RESERVE B A N K OF S A N FRA NC ISCO 48 season was $45 a ton. Due, however, to a complete lack of fish in the two northern regions, the competition among buyers raised the price much higher, and certain lots of choice sardines reportedly have been sold at a price as high as $115 a ton. The contract price for the 1948-49 season was set at $67.50 a ton. Certain difficulties in con nection with the enforcement of the size-limit regulations of the newly-established sardine conservation scheme (see below) which affected the pricing of fish in the Mon terey area led to a strike of the fishermen early in Octo ber. The weakened market for canned sardines led to the refusal of the packers in the south to pay the contract price, thus resulting in a strike there. A new agreement concluded toward the end of October reportedly estab lished a price of $60 a ton. The “ disappearance” of the sardine The “ disappearance” of the sardine is a heavy blow to the sardine fishermen and processors, and, in view of the outstanding significance of the sardine fishery, a heavy blow to the whole fishery industry of the state. As sar dines are one of the cheapest sources of good protein food and fish oil and meal, the failure of this fishery acquired particular significance because it came at a time of rela tively short supply of these products. The factors responsible for the failure of the sardine fishery are not yet explained. Some government officials who have been studying the fishery for years are of the opinion that the sardine fishery has met the fate of a number of other important commercial fisheries; that is, that it has been depleted through over-fishing. Other fishing authorities connect the fluctuating abundance of sardines with changing hydrographic conditions. It cannot be denied that the intensity of effort in the sardine fishery has been extremely great during the past 15 years. Whether or not it was more intensive in the south or in the Monterey and San Francisco areas is un important, since the same sardine population is involved. One of the signs of falling abundance was the progres sively smaller size of the fish caught. Soon the seasonal catch in the fishery became fully dependent upon a single year class (three-year-olds), and future abundance upon the survival of spawners from that class. Those who feel that changing hydrographic conditions have played a major role in the failure of the sardine industry base their view upon the rather close direct cor relation between the salinity of water in the sardine spawning waters of Southern California and the abun dance of sardines three years later. The salinity of water depends upon upwelling (vertical movements of water masses in the ocean) which brings to the surface strata salts and minerals on which the plankton feeds. Plankton, in turn, serves as food for young sardines. Thus the re duced amount of upwelling leads to a poorer growth of plankton and consequently a smaller population of sar dine year classes. Investigations of some important fish eries in Europe have proved that abundance of year classes depends directly on the conditions controlling the survival of young fish, especially in the critical phase October 1948 when they start to provide food for themselves. Chances of survival are directly related to the availability of food, and this in turn is a function of hydrographic changes. Other hydrographic changes which may be of similar im portance for sardine propagation are shifts in ocean cur rents which, by influencing the salinity and temperature of water masses, affect also the location and abundance of feeding grounds. The differences of opinion regarding the causes of the sardine disappearance will perhaps not be settled until several years hence when the results of the research work now under way are obtained. It is also only on the basis of full information on the life cycle and habits of the sar dine that a scientific method of management of this fishery can be developed. Realizing, however, that the state of the sardine fishery requires immediate action, the state authorities and the industry have elaborated and put into operation a conservation program for the 1948-49 season. This program is as follows : (1 ) fishing allowed only five days a week; (2 ) fishing season reduced from 6 /l 2 months to S y 2 months in the San Francisco and Monterey areas and from 5 to 4 months in the south; (3 ) a five-day closure during the full moon ( which up to now was com mon practice but not a state rule) ; (4 ) legal size-limit established at 8 inches with a 25 percent leeway for fisher men; and (5 ) all operators required to deposit a $5,000 performance bond. The program is being enforced by the California state authorities. Of course, the sardine fishing fleet and sardine canners have been trying to adjust themselves to conditions cre ated by the failure in the sardine fishery. San Francisco and Monterey sardine fleets operated during the past two seasons most of the time in Southern California waters. Some sardines caught in the south have been shipped or trucked for processing by the Monterey and San Fran cisco plants. The off-season pack of sardines was in creased. The sardine fleet and the sardine processors utilized more substitutes. Furthermore, in and out of the sardine season, part of the sardine fleet engaged inten sively in other fisheries, such as Pacific and jack mackerel, tuna, and the trawl fishery to compensate for the falling income in the sardine fishery. Utilization of the sardine catch The sardine catch in California is used for two basic purposes: for canning and for reduction into oil and fish meal. State laws require that every plant using sardines for reduction have a special permit for each season, but no permission is required for canning sardines. According to state law, packers cannot divert more than 32.5 percent of the sardines received for canning to reduction plants.1 This limitation on diversion of sardines was considered necessary, since for many years before the war higher profits in production of oil than in canning produced a tendency to utilize an undue share of the total sardine catch for reduction. In addition to fish reduced under special permits and fish diverted from canning into reducJThe law assumes that a ton of sardines will yield 960 one-pound can s; consequently, for every ton of sardines received for canning, a cannery must pack at least 648 one-pound cans. O ctober 1948 S A R D IN E S : C A T C H A N D U T IL IZ A T IO N B Y SE A S O N i Thousand tons 93 M O N T H L Y REVIEW Thousand tons The number of sardine canneries (most of these are also equipped to can mackerel, tuna, and other fish) as well as the number of reduction plants has been increasing over the past two decades. The number of plants canning sardines was 28 in 1928, 31 in 1938 and 42 in 1946. Also their capacity increased relatively more than their num ber. The number of reduction plants which operated in creased during the same period in the following w ay: 30, 60, and 109. The average yield of both canned sardines and of oil per ton of sardines varies both by season and by area depending on the size and quality of fish. The tuna fishery R ea so n beginning August 1 and ending February 15 of following year. Source: State of California Department of Natural Resources, Division of Fish and Game. tion plants, these plants utilize the offal of canned sardines for the production of oil and meal. During the period 1932-33 to 1945-46, as shown in the accompanying chart, a relatively much larger share of the sardine catch was reduced. Since 1945-46 when the price differentials favored canning, a larger portion of the catch has been canned than in previous years.1 During the last season only fish not fit for canning were sent to the reduc tion plants. During the 20 seasons 1928-29 to 1947-48, the California sardine industry canned on the average only 34 percent of the sardine catch, reduced into oil and meal 64.7 percent, and otherwise utilized the remainder. Prior to the 1940-41 season, allocations of sardines to reduction plants varied according to their capacities, but since then all plants have been put on an equal basis. Be tween the 1930-31 and 1938-39 seasons a considerable quantity of sardines was delivered by the sardine fishing fleet for reduction to the floating plants operating off the coast in the Monterey and San Francisco areas, but out side the jurisdiction of the state control authorities. At the peak of their operations in 1936-37 there were nine such plants. In that year they processed their largest quantity, 235,590 tons, but the average for the nine seasons of their operation was 87,000 tons. The accompanying chart shows the three products of the California sardine industry: pack of canned sardines, production of sardine oil, and production of fish meal be tween 1928 and 1946, with their respective values. The bulk of the sardine oil is used in the production of soap, paints, and linoleum. Until about 1935, large quantities of meal were used for fertilizer. Since about two years prior to the war, all of it has been used as feed for livestock and poultry. The increase in the value in recent years, in spite of reduced production, reflects the rise in prices of the respective products. 1 Part of the sardines caught off-season is also canned, but the quantity has been small until this year, and the law provides that they must be packed “ in cans commonly known as quarter-pound or square cans less than 10 ounces in net weight.” This pack amounted to 55,265 cases in 1945, 17,880 cases in 1946, 112,795 cases in 1947, and 419,000 cases in 1948, in terms of 48 one-pound oval cans. During the period 1928 to 1945 the tuna and tuna-like fishes contributed on the average 10.8 percent of all fish and shellfish landed in California. Owing, however, to the relatively high value of this type of fish, it accounted for an average of 41 percent of the value of total landings, ranging from 30 percent in 1929 to 55 percent in 1940. Because of the great increase in the catch of tuna during 1946 and 1947, the high prices received for them, and the failure of the sardine fishery, the tuna fishery’s share in the value of total landings was 56 percent in 1946 and probably more than 60 percent in 1947. Thus the tuna fishery has become by far the most important component in the whole fishery industry of California. There are five different types of tuna (belonging to the mackerel family— Scombridae) which are caught in large quantities by California fishermen: albacore, yellowfin, S A R D IN E P R O D U C TS A N D T H E IR V A L U E S Millio cases' Thousand tons Mlllicn dollars Million dollars *In standard cases of 48 one-pound cans. Source: Fish and W ildlife Service of the United States Department of the Interior. _ These figures, unlike the State figures (which do not contain information of value), are 011 the basis of calendar years. The Fish and W ildlife Service figures on the Pacific Coast sardine (pilchard) pack combine data for California and Oregon, but O regon’s share is negligible. 94 FEDERAL RESERVE B A N K OF SAN FRANCISCO bluefin, skipjack, and bonito. But according to Federal law, only the first four types can be labeled and marketed as tuna. From the industry’s point of view, a member of the jack family (Carangidae) called yellowtail should be included in this group because it is caught by tuna fisher men and processed by tuna packers, and serves as a tuna substitute. Because of this fact yellowtail is included in our tuna statistics. The differences in value of these various types of tuna and tuna-like fishes are indicated by ranges existing soon after the expiration of O PA legis lation in the fall of 1946. The following were then prices paid per ton of round fish landed at cannery docks : albocore $410, yellowThn $240, bluefin $230, skipjack $220, bonito $195, and yellowtail $145. These differences in price are, however, only a general indication of quality differences, as sizeable changes in demand and supply affect these price spreads. Landings of tuna and tuna-like fishes (including yel lowtail) rose from 65 million pounds in 1928 to its peak of 260 million pounds in 1947. Value increased from $3.9 million in 1928 to $25.6 million in 1946. Because of the large increases in catch and in prices in 1947, the value in that year showed a further large increase, but details on value are not yet available. Throughout the period 1928-46 the catch of yellowfin tuna, as shown in the accompanying table, accounted for somewThat over 50 percent of the total. The catch of the O ctober 1948 in the fresh fish market. Offal is used for the production of oil and fish meal. Unlike sardine and salmon, tuna is caught and packed throughout the year, although the pro duction peak is in the summer. Considering the role of the tuna fishery in Southern California and the fact that the sardine failure in that area was not complete, the position of the fishery industry in Southern California during the past two or three years has been satisfactory, while in the San Francisco and Monterey areas, where the industry is based principally on sardine exploitation, the situation lias been extremely critical. T U N A A N D T U N A -L I K E F I S H E S : P A C K A N D IT S V A L U E Million c a se s5 xIn standard cases of 48 half-pound cans. Source: United States Department of the Interior, Service. Million dollars Fish and W ildlife P e r c e n t a g e D is t r ib u t io n of C a t c h of V a r io u s T y p e s of T u n a a n d T u n a - L ik e F is h e s (annual averages in millions of pounds) T otal Period catch 1 9 28 -32.................... 76 1933-37 .....................123 1938-42 .....................153 1943-46 .....................160 A lb a - Y e llo w core fin 0.4 52.4 0.9 57.5 4.6 55.0 12.4 51.1 B lu efin 12.6 12.3 9.4 11.4 S k ip jack 26.7 19.9 22.7 20.8 Y e llo w Bonito tail 4.3 3.6 4.6 4.8 4.6 3.7 1.8 2.5 Source: Data until 1942 from the U . S. Department of the Interior, Fish and W ildlife Service, Fishery Statistics oj the United States, annually; for later years from the Service’s various mimeographed reports on current fish ery statistics. high-priced albacore has shown a relatively large increase, while the catch of lower-valued types either fell or kept relatively stationary. In 1947, the catch of both bonito and yellowtail greatly increased, while that of albacore fell. This year, however, the albacore catch through Sep tember has already reached 35 million pounds, a figure more than 2 y2 times the catch for the entire year 1947. As considerably more than half the catch of tuna and tuna-like fishes comes from the waters off the Latin American coast, and the remainder from Southern Cali fornia waters, tuna packing is concentrated in Southern California and is the mainstay of the fishery industry of that region. San Diego and Terminal Island are the twro main landing ports, and plants located in those areas pack practically the whole output. About 25 plants canned tuna in California in 1947. Concentration appears to be greater in tuna packing than in any other important fishery in dustry, as it is reported that over 90 percent of the pack is put up by four companies. The overwhelming portion of the catch of tuna and tuna-like fishes is canned and only a small quantity is sold The tuna pack, as is indicated in the accompanying chart, has increased more than fourfold in the past 20 years. Judging from the results through the end of August 1948, when this year’s pack stood at 4,029,597 cases as against 3,741,879 cases during the same period of last year, this year may well establish a new record. The mackerel fishery Next to tuna and sardines, the most important fish species for canning in California is mackerel. A small part of the catch is sold in the fresh fish market or salted. There are two types of mackerel, the Pacific mackerel and the jack mackerel.1 Both species are caught almost exclu sively in Southern California. The difference in quality is indicated by the spread in their prices at the beginning of the season in August 1947, Pacific mackerel selling for $60 and jack mackerel $45 a ton. The catch of Pacific mackerel between 1928 and 1945 averaged 70 million pounds annually, and brought in an average of $840,000 a year. For the same years the catch of jack mackerel was negligible, averaging 4 million pounds annually and bringing to the fishermen an average return of only $61,000 a year. In 1946 the catch of Pacific mackerel was 54 million pounds, and in 1947 it fell to 47 million pounds. The catch of jack mackerel which was only 15 million pounds in 1 Known until last year as horse mackerel. The name proved to be a great impediment in the marketing of this product in the domestic market so that the bulk of the pack had to be exported. A t the urging of the industry, the Food and D rug Administration early this year allowed the product to be labeled “ jack mackerel,” but the label must contain also the Latin name of the species Trachurus Symmetricus. October 1948 M O N TH LY R EVIEW 95 1946 rose to 129 million pounds in 1947. As pointed out earlier, this was related partly to the failure of the sardine fishery and partly to the heavy demand for canned fish, both for the domestic market and for export. The pack of both species has reflected the catch, aver aging 823,000 cases of 48 one-pound tall cans between 1928 and 1945. The share of jack mackerel was small until 1947, when it rose to over twice that of Pacific mackerel. fornia halibut, seabass, and rockfishes. The average an nual catches and average value to fishermen in selected periods of the three most important of these species were as follows: Other types of fish used for canning 1 Value figures not yet available. In addition to tuna, sardines, and mackerel, small quan tities of many other types of fish and shellfish are packed in California. Among these are sole, shad, barracuda, an chovies, squid, clams, and crab. Since the failure of the sardine fishery, which coincided with a great demand for canned fish, the fish canning industry has begun to pay more attention to the canning of fish types which were formerly neglected. The catch of anchovies, which averaged 2.5 million pounds between 1941 and 1946, rose to 18.9 million pounds in 1947. The catch of squid, which between 1941 and 1945 averaged 7.5 million pounds, rose to 38 million pounds in 1946 when a good market for canned squid existed, but went down to 14.5 million pounds in 1947 as a consequence of reduced government buying for relief exports. A small amount of Pacific herring was also canned experimentally in 1947 and considerable quanti ties in 1948. The pack of these various fishes since 1944 is shown in the accompanying table. The main market for all these products is abroad, especially the Far East. P a c k of S q u i d , A n c h o v i e s , a n d H e r r in g (in cases) 1944 1945 1946 1947 1948 (Jan.-July) ........................................... Squid 1 143,222 184,141 643,843 229,967 378,258 Anchovies 2 . . .3 ...3 1,550 186,415 93,824 H erring ...3 158 ...3 9,804 ...* 1 Cases of 48 1-pound oval cans, except that the pack of 1944 contains 9,115 cases and the pack of 1946 contains 24,946 cases of other sizes of cans. 2 Cases “ as they go” but consisting largely of 48 8-ounce cans. 3 N o recorded pack. 4 N ot yet available. Species sold in the fresh fish market There are a great number of species exploited in Cali fornia which are sold almost exclusively in the fresh fish market. Among them the most important are Chinook salmon,1various types of sole, swordfish, barracuda, CaliJFor a long time California packed no salmon although it was the pioneer in this industry (1 8 6 4 ), but part of the catch was shipped out of the state for canning elsewhere (m ostly in the Columbia River area). In the last two years two plants have canned salmon, but produced only about 4,600 stand ard cases in 1946 and 12,500 cases in 1947. ,---------1941-45---------N 1946-471 /-------1928-45-------, Catch Value Catch Value Catch (million (million (million) pounds) (thousands) pounds) (thousands) pounds Salmon ........................................... 5.9 $623.8 8.1 $1,256.8 12.5 Sole ................................................ 8.0 382.7 5.0 266.0 11.4 Rockfishes .................................... 5.2 218.7 5.4 267.4 9.8 The average annual catch of salmon during 1941-45 was considerably higher than for the 18-year period 192845 ; the catch of rockfishes increased only slightly and the catch of sole was lower. This development of the catch of sole and rockfishes is to be explained essentially by the fact that a large number of fishermen and boats fishing earlier for these species shifted to the much more profit able shark fishery. But in 1946 and 1947 the catch in all three of these fisheries increased greatly. It is interesting to note that the catch of rockfishes for filleting in California has increased relatively little in recent years, while in both Oregon and Washington it has become an important fishery. Shellfish As stated earlier, shellfish production plays only a minor role in California’s fisheries. The most important species are crab, abalone, pismo clam, and squid. Squid, because of its large use for canning in recent years, has been treated earlier. Between 1928 and 1945 crab con tributed approximately 40 percent of the total value of the shellfish catch. During the past two years its catch was almost three times as high as the average for the pre ceding 18 years. The shark fishery One of the most interesting developments in the Cali fornia fishery industry in recent years has been the tre mendous increase in the catch of sharks (including grayfish) as a consequence of newly-created demand for shark liver for preparation of vitamin A products. The most coveted species is the soupfin shark, but from the falling catch in the last few years it seems to be already largely depleted. Between 1928 and 1937 the value of the shark catch in California averaged $11,500 annually. In the following three years it averaged $254,000, and during the war years 1941 to 1945 it rose to an average of $1,360,000 or 4.5 percent of the value of the total catch of fish and shellfish in the state. REVISION OF PETROLEUM INDEXES— TWELFTH DISTRICT eginning with the September issue of the Monthly eview, revised indexes of crude and refined petro BR leum production are being published by this bank. The two indexes are presented on the accompanying chart. During the war both crude and refined petroleum produc tion increased steadily and surpassed all previous peaks in mid-1945. Following the end of the war, both indexes declined sharply, but since early 1946 they have risen steadily in response to record peacetime demand for pe troleum products. The crude petroleum index passed the 1945 peak and reached an all-time high in June 1948. Con currently the refined petroleum index increased to a point not far below the 1945 peak. Since 1941 the refined petro leum index has been quite consistently above the crude 96 FEDERAL RESERVE B A N K OF S A N F R A N C ISC O petroleum index. This difference reflects the fact that a smaller proportion of total crude production has been shipped out of the District in recent years because of the increased demand for refined products within the area. Between 1926 and 1942 there was little change in the rela tive amounts of crude run through the local refineries and of crude shipped outside the District. Prior to 1926 a con siderably larger share of the crude produced here was refined elsewhere. The base of both indexes has been shifted from 1923-25 to 1935-39. Besides the adjustment to the 1935-39 base, the coverage of products has been extended and the use of weights abandoned in the revised refined petroleum index. Prior to this revision the index included four ma jor categories of refined products: gasoline and naphtha distillates, kerosene and kerosene distillates, lubricating oils, greases and distillates, and fuel oil residuum. Each category was weighted by the average value added during 1923-25. Because of the difficulty in obtaining recent weights that would satisfactorily measure the relative importance of each of the wide variety of refined petro leum products, it was decided at this time to use total “ net refined production.,, That is, all refined petroleum products, including gas and diesel oil, asphalt and road October 1948 oils, and other minor products, in addition to those listed above, are now included on a straight volume basis in the index. Refining processes have become considerably more elaborate and intensified in recent years, and it must be recognized that an unweighted index does not adequately reflect the output of new and improved prod ucts associated with these recent technological improve ments. The production data used for both the crude and refined petroleum indexes are compiled and published by the Bureau of Mines in the monthly report, The Petroleum Situation in the Pacific Coast Territory. This publica tion covers total crude and refined production for Cali fornia, Oregon, Washington, Arizona, and Nevada. The data used in compiling both the crude and refined petro leum indexes are reported by the Bureau of Mines in terms of daily average production, and both indexes are developed on this basis. The revised indexes were inspected for evidence of seasonal patterns, but the amplitude of seasonal fluctua tions in both crude and refined production was so small that adjustment for seasonal variation would be of little significance. Consequently both indexes are published without adjustment for seasonal variations. P E T R O L E U M P R O D U C T I O N , C R U D E A N D R E F IN E D — T W E L F T H D IS T R I C T , 1921-48 Indexes not adjusted for seasonal variation. 1935-39 daily average *=100 96A October 1948 FEDERAL RESERVE B A N K OF S A N F R A N C ISCO BUSINESS INDEXES—TWELFTH DISTRICT1 (1935-39 average = 100,) In d u stria l p ro d u ction (ph ysical v o lu m e )2 Year and M onth L u m ber 1929. 1930. 1931. 1932 1933. 1934. 1935. 1936. 1937. 1938. 1939. 1940 1941. 1942. 1943. 1944. 1945. 194G. 1947. 148 129 112 101 77 46 62 67 83 106 113 83 78 76 77 92 94 105 88 1947 J u ly----------A u g u s t ___ September October___ N ovem ber, December _ 1948 January___ February__ M a rch ____ April______ M a y _______ June_______ J u ly----------A u g u s t ___ P e tr o le u m 3 C rude R efined C e m e n t 110 96 74 48 54 70 171 146 104 75 75 79 89 117 100 112 118 96 97 68 160 106 75 33 26 36 57 98 135 106 95 94 96 99 96 107 103 103 104 115 119 132 128 133 83 84 82 73 73 79 85 96 105 100 112 93 73 54 53 64 78 96 115 136 167 214 231 219 219 256 96 104 118 155 230 306 295 229 175 184 134 224 460 705 694 497 344 401 100 101 89 88 88 122 102 112 122 135 116 91 70 70 81 111 134 127 110 86 78 83 127 137 133 140 134 135 142 107 114 137 190 174 179 183 238 300 1 9 6 .5 1 9 7 .9 2 0 6 .6 2 0 4 .8 2 0 9 .4 2 1 3 .0 88 96 108 116 135 151 160 148 159 148 148 147 148 150 149 156 166 162 166 163 160 184 185 193 187 205 215 90 96 98 96 107 98 168 164 168 141 151 161 126 125 123 133 133 116 252 252 259 260 263 275 181 183 184 187 188 188 397 407 413 419 421 423 141 141 139 141 143 144 331 353r 345 340 348 361 273 251 264 293 327 353 150 150 151 152 152 153 152 153 166 166 164 166 172 168 167 171 218 207 216 216 106 163 166 157 164r 164r 165 159 166 114 104 278 283 274 275 263 266 284 289 187 187 187 184 180 185 418 417 406 396 406 424 44 Or 455 141 130 131 130 123 134 137 141 348 327 339 362 364 372 365 383 360 377 388 386 347 335 328 302 102 110 125 137 144 139 147 140 142 143 148 154 162 144 152 148 124 110 202 112 109 110 196 102 102r 202 202 102 96 101 116 108 115 123 124 1902? 195p 86.8 9 3 .2 9 9 .6 10 0 .3 1 0 4 .5 9 9 .0 9 6 .9 9 7 .6 1 0 7 .9 1 3 0 .9 1 4 3 .4 1 4 2 .1 1 4 6 .3 1 6 7 .4 2 0 0 .3 103 109 96 104 86 113 118 104 93 81 73 98 142 141 ]3 7 136 109 130 141 112 1 3 2 .0 1 2 4 .8 1 0 4 .0 8 9 .8 99 10 6 101 109 119 139 171 203 223 247 305 330 88 101 110 112 104 92 69 06 74 144 163 188 192 171 137 109 163 99 98 128 134r 140 L e ad 3 C a rT o ta l C a li D ep’ t D ep’ t m f’g fo rn ia loadin gs R etail store store (n u m E lectric e m p lo y fa c to ry sales stock s food power (valu e)5 ( v a lu e ) 1 p rices3’ 6 m e n t 4 pa yrolls1 b er )2 92 114 124 164 194 160 128 131 165 193 110 120 122 110 127 107 90 84 81 81 91 98 105 103 103 103 W heat C op p er3 flo u r 3 110 101 2 1 5 .4 2 1 3 .0 211.6 2 1 6 .0 2 1 7 .6 2 1 6 .6 2 1 8 .1 2 1 8 .0 BANKING AND CREDIT STATISTICS—TWELFTH DISTRICT (amounts in millions of dollars) C o n d itio n ite m s o f all m e m b e r b a n k s 7 Y e ar an d m o n th T o ta l tim e d eposits U .S . G o v ’ t secu rities D em and deposits a d ju s t e d 9 2,239 2,218 1,898 1,570 1,486 1,469 ] ,537 1,682 1,871 1,869 1,967 2,130 2,451 2,170 2,106 2,254 2,663 4,068 5,363 495 467 547 601 720 1,064 1,275 1,334 1,270 1,323 1,450 1,482 1,738 3,630 6,235 8,263 10,450 8,426 7,243 1,234 1,158 984 840 951 1,201 1,389 1,791 1,740 1,781 1,983 2,390 2,893 4,356 5,998 6,950 8,203 8,821 8,928 1,790 1,933 1,727 1,618 1,609 1,875 2,064 2,101 2,187 2,221 2,267 2,360 2,425 2,609 3,226 4,144 5,211 5,797 6,006 1947 August September October November December 4,879 4,997 5,158 5,240 5,363 7,353 7,364 7,361 7,361 7,243 8,462 8,600 8,722 8,797 8,928 5,903 5,924 5,964 5,922 6,006 1948 January February March April M ay June July August September 5,413 5,467 5,510 5,509 5,569 5,598 5,640 5,743 5,848 7,264 7,021 6,945 6,943 6,883 6,859 6,816 6,712 6,394 8,854 8,495 8,452 8,461 8,445 8,464 8,556 8,555 8,661 6,021 6,063 6,044 6,019 6,008 6,057 6,010 6,005 6,003 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 L o an s an d d iscou n ts M e m b e r b a n k reserves an d related it e m s 8 C oin an d T r easu ry R eserve C o m m e rcia l cu rren cy in b a n k c re d it10 op era tio n s10 o p e ra tio n s10 c irc u la tio n 10 _ — + — — + + — — + + + + + + + — — + + + + + + — + 34 16 21 42 2 7 2 6 1 3 2 2 4 107 214 98 76 9 302 0 — 53 — 154 — 175 — 110 — 198 — 163 — 227 — 90 — 240 — 192 — 148 — 596 - 1 ,9 8 0 -3 ,7 5 1 - 3 ,5 3 4 - 3 ,7 4 3 - 1 ,6 0 7 — 443 48 87 23 4 25 + 14 20 49 9 30 14 15 23 17 + + + — — — — — + + 78 85 39 0 5 48 153 29 75 14 50 38 1 427 23 89 154 234 150 257 219 454 157 276 245 420 h i,000 -2,826 -4,486 -4,483 -4,682 h i,329 630 + + + + + + + + + + + + + + 4* + + + + + 124 172 35 33 49 253 244 19 29 45 28 43 12 98 _ + + + + + + + + + + + + + + — — — + — — — — + — + + Reserves B an k de b its index 31 citie s3«11 (1935-39 = 100)2 6 16 48 30 18 4 14 38 3 20 31 96 227 643 708 789 545 326 206 175 183 147 142 185 242 287 479 549 565 584 754 930 1,232 1,462 1,706 2,033 2,094 2,202 146 126 97 68 63 72 87 102 111 98 102 110 134 165 211 237 260 298 326 23 10 16 3 18 2,078 2,095 2,137 2,130 2,202 323 326r 346 344 365 113 2 37 17 26 13 11 17 2 2,113 2,045 2,066 2,048 2,068 2,061 2,075 2,065 2,409 352 354 347 353 342 348 354 356 359 1 All monthly indexes but wheat flour, petroleum, copper, lead, and retail food prices are adjusted for seasonal variation. Excepting for department store sta tistics, all indexes are based upon data from outside sources, as follows: Lumber, various lumber trade associations; Petroleum, Cement, Copper, and Lead, U.S. Bureau of Mines; W heat flour, U .S. Bureau of the Census; Electric power, Federal Power Commission; Manufacturing employment, U.S. Bureau of Labor Statistics and cooperating state agencies; Factory payrolls, California State Division of Labor Statistics and Research; Retail food prices, U .S. Bureau of Labor Statistics; and Carloadings, various railroads and railroad associations. 2 Daily average. 3 N ot adjusted for seasonal variation. 4 Excludes fish, fruit, and vegetable canning. Factory payrolls index covers wage earners only. 6 A t retail, end of month or year. 6 Los Angeles, San Francisco, and Seattle indexes combined. 7 Annual figures are as of end of year; monthly figures as of last Wednesday in month or, where applicable, as of call report date. 8 End of year and end of month figures. 9 Demand deposits, excluding interbank and U .S. G ov’t deposits, less cash items in process of collection. M onthly data partly estimated. 10 Changes from previous month or year. 11 Debits to total deposit accounts, excluding inter bank deposits. p — preliminary. r— revised.
@FedFRASER