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MONTHLY REVIEW
B U S IN E S S
C O N D IT IO N S
IN
T H E
T W E L F T H
Federal Reserve Bank of San Francisco
R e v ie w o f th e M o n th
Most Twelfth District crops are larger this season
than in many years and prices being received by growers
are generally high. Industrial production and distribu
tion of goods, which were at high levels during the first
half of 1937, were well maintained during July. Value
of new private building projects undertaken was about
the same as in June but somewhat below the spring peak.
I nd ustry
and
T
F E D E R A L
R E S E R V E
D IS T R IC T
September 1, 1937
ping strike early in February. Demand continued espe
cially active in March and April and prices advanced
further. Reflecting those conditions, lumber was pro
duced and shipped at an increasing rate during the spring
months, and in May, June, and July output exceeded new
business. As a result, unfilled orders declined by July to
about the level of a year ago. Prices weakened slightly
in June and July and reports indicate that the expansion
in production that had been taking place since last Feb
ruary was checked in the early part of August.
rade
PER CENT
Volume of output of manufactured commodities dur
ing July was slightly larger than in June after allowance
for the customary seasonal changes. Canning of fruit,
vegetables, and fish expanded seasonally and adjusted
lumber production continued to increase.
The California canned apricot pack, which was nearly
completed in July, is currently estimated to have been
larger than in any recent year and it may have exceeded
the previous record pack of 4,200,000 cases in 1929.
In Alaska, salmon canneries were active during July and
the first half of August. Data reported to the Bureau of
Fisheries up to August 14, by which date a large portion
of the total pack had been completed, indicate a final
pack about the same as the average for the preceding ten
years but less than the record packs of 1934 and 1936.
Output of other processed foods showed about the usual
June-July changes. Meat packing and production of but
ter declined seasonally, canning of vegetables increased
seasonally, sugar refining was unchanged, and flour mill
ing continued to recede from the peak attained shortly
after termination of the maritime strike last spring. Fac
tories producing containers used largely in connection
with food packing such as tin cans, glass containers, and
box shook were seasonally active.
Lumber output was larger in July than in any month
since March 1930, after allowance is made for ordinary
seasonal fluctuations. As shown by the accompanying
chart, lumber production was curtailed last winter at
the time of the maritime strike which caused mills de
pendent upon shipping by boat to reduce output or close
down entirely. That curtailment in production took place
during a period of growing demand for lumber owing
to greater activity in the building industry, and, in addi
tion, to forward placing of orders in anticipation of
price advances. While maritime strike conditions affect
ing coast mills tended to divert a portion of new orders
to eastern competitors, as well as to Twelfth District
mills with rail facilities, the total volume of unfilled
orders held by district producers continued to increase
until late January when it was larger than in any month
during the past eight years. This accumulation of orders
helped place the Pacific Coast lumber industry in a
favorable market position after termination of the ship
LUMBER PRODUCTION—Twelfth District
Index of total monthly output, adjusted for seasonal variation.
1923-1925 average=100.
Output of other manufactures for which information
is available continued at a high level during July. A l
though new demand for steel during the summer months
has been lower than last spring, filling of old orders that
accumulated earlier in the year has helped maintain pro
duction at a comparatively high level. Daily average
crude oil production, as well as manufacture of petrol
eum products, was about the same in July as in May and
June. Important industries for which adequate informa
tion regarding month to month changes is not available
include manufacture of aircraft, automobiles, motion
pictures, tires and tubes, and pulp. Operations in all of
those industries were at high levels earlier this year,
however, and although reductions appear to have taken
place in some of the specified industries during the sum
mer months they were probably seasonal in character.
Excluding the lumber and canning industries, little
change occurred in district factory employment and pay
rolls during July. The number of wage earners employed
in sawmills and logging camps increased slightly from
mid-June to mid-July, but aggregate wages paid de
clined. This decrease in pay rolls, which reflected a
reduction in the number of hours wrorked, was largely
seasonal. In the canning industry, sharp advances in
the number of employees and in total wage payments
34
accompanied seasonal expansion in packing of apricots
in California and peas in the Pacific Northwest. The
pack of apricots was unusually large and more of it
came in July than is usual, with the result that total can
nery employment and pay rolls increased more than is
customary in July.
The decline in new building that occurred in May and
June did not continue during July. Residential build
ing permits, adjusted for seasonal variation, were about
the same in value as in June while private nonresidential
construction increased considerably, owing partly to a
contract for construction of a petroleum refinery. The
value of new public building, which fluctuates widely
from month to month, was about the same in July as
the average of the first six months of the year.
The value of department store sales in July was the
same as in each of the preceding three months, after
allowance for seasonal factors, and was three percent
larger than in July 1936, when consumer purchases were
stimulated by the veterans’ bonus payments. The ten
dency of furniture store trade has been definitely up
ward in recent months and in July this bank’s seasonally
adjusted index rose to 94 percent of the 1923-1925 aver
age, the highest point since late 1929. Value of sales was
six percent larger than a year ago. The number of new
automobiles sold was seasonally lower than in any of
the preceding four months and moderately lower than
in July 1936, when sales were influenced by the bonus
distribution.
A
g r ic u l t u r e
Weather conditions during July and early August
were generally favorable to the growth and harvesting
o f crops. In the Pacific Northwest, however, an unusual
ly early frost in August caused some damage to grains
and potatoes. Marketing of agricultural products in
creased seasonally and, notwithstanding declines in
recent weeks, prices paid farmers averaged higher dur
ing the first half of August than a year earlier. Reduced
carryover of most feeds and foods contributed to this
higher level of prices.
Some revisions were made on August 1 in the earlier
estimates of output of several important district crops,
but total indicated production was practically unchanged
from the July 1 forecast. The estimated yield of wheat
was increased 5,000,000 bushels to 119,000,000 bushels,
a crop larger than in any year since 1928 and considerably
above the 1928-1932 average of 109,000,000 bushels.
Output of hops in the three Pacific Coast States was es
timated on August 1 at 42,790,000 pounds, about 2,000,000
pounds below the estimate made a month earlier, but 84
percent larger than the small outturn last year. The first
official forecast of the 1937 cotton crop, made as of Au
gust 1, indicated district production of 845,000 bales, an
increase of 33 percent over the record crop of 1936. Re
flecting the extension of cotton planting to land in Cali
fornia less suited to cotton production, the indicated yield
has declined approximately 100 pounds this year to 475
pounds per acre. Notwithstanding this reduction, the yield
in California and Arizona is substantially higher than the
average of 223 pounds per acre for the United States as
a whole.
Deciduous fruit crop prospects continued favorable
during July. The important grape crop in California,
which accounts for approximately three percent of the
September 1, 1937
FEDERAL RESERVE B A N K OF SAN FRANCISCO
farm cash income in the district, was expected to total
2,216,000 tons. Last year’s small but profitable output
was 1,723,000 tons and annual production during the five
years 1928-1932 averaged 1,935,000 tons. Grape prices
this season have been somewhat higher than last year, with
the largest increases reported for raisins. Harvesting of
apricots and cherries was practically completed by early
August while marketings of peaches, apples, and pears
became general late in the month. District output of
apples was forecast at 48,655,000 bushels, a crop some
what larger than last season but moderately smaller than
in several earlier years. On this basis, the district crop
will be about 24 percent of the anticipated crop for the
entire country, compared with almost 40 percent in 1936.
The crop promises to be of excellent quality, according
to reports from growers.
The lamb crop was estimated to be about six percent
smaller this year than last and, with the exception of the
1932 and 1933 lamb crops, the smallest since 1927. A l
though the number of breeding ewes was smaller this
season than last in most district states, the principal rea
son for the reduction in lambs was the loss of large num
bers of new born animals during the early lambing
period, because of extremely cold weather in California.
Late lambs (i.e. those to be marketed after August 1)
were not affected as much as the early crop and made
good progress during July. Prices paid growers for their
lambs during the past spring and summer months have
averaged somewhat higher than in the comparable period
last year.
Reflecting smaller numbers of sheep shorn and lighter
average fleeces, wool production in the Twelfth District,
which accounts for slightly more than one quarter o f
the entire domestic clip, was estimated to be somewhat
smaller than in 1936. This season’s wool clip of 97,225,000 pounds is, with the exception of the 1932 clip, the
smallest since 1927. W ool prices in recent months have
been from 15 to 25 percent higher than a year ago and
higher than in any year since 1929, and it now appears
that the cash income of wool growers will be consider
ably larger than in 1936.
Current figures showing the importance of the sheep
and lamb industry in the Twelfth District are not avail
able, but in 1935 it returned about $48,000,000 to grow
ers and accounted for about five percent of total agriProduction and E m ploym ent—
Index numbers, 1923-1925
aver age=100
Industrial Production
Manufactures (physical volume)
L u m b e r f......................................
Refined O ils * ..............................
Cement* ......................................
Wheat Flour* ............................
Minerals (physical volume)
Petroleum *..................................
Lead (U. S . ) * t ...............................
Construction (value)
Urban residential building per
mits in 18 c itie s* ....................
Public Works Contracts*..........
Miscellaneous
Electric Power Production*. . . .
With
Seasonal
/—Adjustment —>
1937— V 1936
July June July
Without
Seasonal
r- Adjustment
/—1937—V 1936
July June July
96
—
109
122
114
84
—
105
116
130
107
163
—
—
94
100
114
—
—
70
—
71
101
101
72
87
68
34
—
35
—
31
—
31
137
35
141
28
168
200
197
182
224
211
203
102
—
116
106
—
109
161
124
89
152
115
* Daily average. {Prepared by Board of Governors of the Federal ReserveSystem, fRevised series.
N ote: Series on factory employment and pay rolls, usually published in this
table, are in process of revision.
September 1, 1937
M O N T H L Y R EVIEW OF BUSINESS CONDITIONS
cultural cash income. Sale of lambs for slaughter and to
be fed brought $30,000,000 and marketing of wool about
$18,000,000 that year.
Ban k
C r e d it
The growth in loans of Twelfth District reporting
member banks, which was interrupted during June and
early July, was resumed in the four weeks ending Au
gust 18. While loans were expanding banks reduced
their investments in securities, but a small net rise in
total earning assets took place during the period under
review.
The advance in total loans reflected largely an increase
in demand for credit for commercial, industrial, and
agricultural purposes and in mid-August these loans
were higher than in late May when they were as large
as at any time in recent years. A reduction during June
and early July took place mainly at banks in San Fran
cisco and Los Angeles, and it has been principally those
banks which have reported increases during the past four
weeks. At the present time loans of this class at San
Francisco and Los Angeles banks are about equal to the
spring peak while at banks in the larger Pacific North
west cities and in Salt Lake City they are moderately
higher. In the aggregate, loans for commercial, agricul
tural, and industrial purposes have increased substantial
ly since late summer of 1936. Because advances for busi
ness purposes have been reported separately by city
banks only since mid-May, direct comparisons with a
year ago cannot be made. The increase in business loans
over the year period is evidenced, however, by the gain
of approximately one-fifth in loans other than those on
securities and real estate.
The reduction in investments during the latter part of
July and the first half of August continued the tendency
in evidence during recent months. As a result of the de
crease in investments and the increase in loans since the
first of the year, the proportion o f total earning assets
represented by investments at reporting member banks
Distribution and Trade—
Index numbers, 1923*1925
average=100
R etail T ra d e
D epartm en t S tore Sales (v a lu e )*
T w e lfth D i s t r i c t ...............................
C aliforn ia ...........................................
L o s A n g e l e s ..................................
B a y R e g io n ..................................
San F ra n cis co .............................
O akland .........................................
P a cific N o r t h w e s t ..........................
S e a t t l e ..............................................
S p ok an e .........................................
Salt L a k e C i t y ..................................
D ep artm en t Store S to ck s (v a lu e ) t
F u rn itu re S tore Sales ( va lu e ) * $ . .
A u to m o b ile Sales (n u m b e r )*
T o ta l .....................................................
Pa ssen ger ......................................
C om m ercia l ..................................
C a rloadin gs (n u m b e r )*
T o ta l ..........................................................
M erch an dise and M is c ...................
O th er ..................................................
In tercoa sta l T r a ffic (v o lu m e )
T o ta l ..........................................................
E a stb ou n d .........................................
W e s t b o u n d .........................................
*Daily average.
fA t end of month.
With
Seasonal
r- Adjustment-^
,— 1937—s 1936
July June July
97
101
95
108
105
117
78
88
63
77
72
94
97
103
97
108
105
118
76
85
64
79
72
93
Without
Seasonal
,—Adjustment —v
^-1937—> 1936
July June July
94
101
92
110
107
117
73
81
60
67
64
89
79
84
82
88
86
92
61
70
49
56
68
87
86
90
84
95
92
102
70
78
57
71
69
90
77
83
79
89
88
92
58
65
46
49
60
82
—
—
—
—
—
—
—
—
—
144
133
256
174
164
282
162
152
265
100
103
98
95
108
80
88
96
78
101
109
91
101
111
90
89
102
73
64
55
101
81
58
149
68
52
130
70
60
103
77
54
155
75
58
132
$1929 average— 100.
35
declined from 56 percent in December 1936 to 52 percent
in the first half of August. The proportion of earning
assets in the form of investments is still considerably
higher than in most earlier years, however, the present
52 percent comparing with 47 percent in mid-1933 and
31 percent in mid-1929.
Most member banks in the Twelfth District continue
to have moderate amounts of idle reserves in excess of
legal requirements. Total reserve balances of district
member banks increased $20,540,000 during the four
weeks ending August 18, reaching $561,000,000. Addi
tions to reserves of district banks in this period came
about largely because local disbursements by Federal
Government agencies totaled $21,100,000 more than tax
and other collections from within this district. Some
increase in reserves of district banks also occurred be
cause funds received from other districts by Twelfth
District banks, business concerns, and individuals totaled
$7,300,000 more than funds sent out of this district by
banks and their customers in payment of business and
financial transactions. The increase in district bank assets
because of these additional funds was partly offset by
use of reserves in meeting customers’ withdrawals of
$8,200,000 additional currency and coin for use in carry
ing on trade transactions and the like. An increase in
currency in circulation reduces member bank reserve
balances because the banks obtain the currency from the
Federal Reserve Bank and pay for it by drawing upon
their reserve accounts carried at the Reserve Bank.
Although member banks generally still have consid
erable amounts of idle reserves and are thus readily able
to meet acceptable demands for credit, the amounts of
idle funds are now much lower than before the March
and May increases in reserves required to be maintained
against deposit liabilities. Not only are excess reserves
carried at the Federal Reserve Bank of San Francisco
smaller than before the increases in reserve require
ments, but idle funds carried with correspondents are
also lower. Banks outside the leading cities carry most
of their correspondent balances with Twelfth District
city banks. Banks in the larger cities in turn carry some
balances with other district city banks, but they also carry
substantial amounts with eastern correspondents, espe
cially in New York City. At the beginning of the year
a considerable portion of bankers’ balances both within
the Twelfth District and at eastern correspondents was
in excess of operating needs. At the time required re
serves were increased on March 1 and May 1, banks
used some of these idle funds to build up their balances
at the Reserve Bank.
Since Twelfth District city banks not only had higher
reserve requirements themselves but also were called
upon to release some of the reserves they held for cor
respondents, they found it desirable to recall some of
their idle balances from eastern centers, mainly New
York. As a result, a considerable part of the idle funds
which member banks carried in other districts early in
the year has been used in building up required balances
at the Federal Reserve Bank of San Francisco. This not
only means that Twelfth District banks now have smaller
amounts that can be recalled from New York correspon
dents, but from the standpoint of the eastern banks there
has been considerable reduction in the amount they may
be called upon to release to outside correspondents.
36
September 1, 1937
FEDERAL RESERVE B A N K OF SAN FRANCISCO
N a tio n a l S u m m a ry o f B u s in e s s C o n d it io n s
120
110
Prepared by the Board of Governors of the Federal Reserve System
v o l u m e of industrial production and distribution of commodities to con
sumers showed little change from June to July, when allowance is made for
the usual summer declines.
T
otal
P
INDU STRIAL PRODUCTION
Index of physical volume of production, adjusted for
seasonal variation, 1923-1925 average=100. By
months, January 1929 to July 1937.
r o d u c t io n
A
FA CT O R Y EM PLOYM EN T
Index of number employed, adjusted for seasonal var
iation. 1923-1925 average=100. By months,
January 1929 to July 1937.
E
a n d
m plo y m e n t
The Board’s seasonally adjusted index of industrial production was 114 per
cent of the 1923-1925 average in July, the same as in June and four points lower
than in March, April, and May. At steel mills, where output in June had been
curtailed by strikes, activity increased considerably in the early part of July and
was maintained at the higher level between the middle of July and the third week
of August. Lumber production also increased in July, while output of plate glass
showed a substantial decrease. Automobile assemblies declined seasonally. Out
put of nondurable manufactures decreased considerably, owing largely to a
marked decline in activity at cotton and woolen textile mills. Meat packing also
declined while flour milling and sugar refining increased. At mines, output of
anthracite was reduced in July, while output of most other minerals showed little
change.
Construction contracts awarded, as reported by the F. W . Dodge Corporation,
were maintained in July at the level reached in June. Nonresidential construction
expanded further, reflecting principally a large volume of awards for iron and
steel plants and for railroad projects. Residential building showed a seasonal
decline.
Factory employment increased somewhat from the middle of June to the
middle of July, when a decline is usual, and factory pay rolls decreased less than
seasonally. The largest increases in employment were in the steel industry and
in the food industries, particularly at canning factories. Other manufacturing
industries as a group showed somewhat less than the usual seasonal decline.
g r ic u l t u r e
A cotton crop of 15,593,000 bales, representing an increase of 3,200,000 bales
over last season, was forecast by the Department of Agriculture on the basis of
August 1 conditions. Official estimates indicate that other major crops will be
considerably larger than last season and about equal to the average for 1928-1932.
Preliminary estimates by the Department of Agriculture indicate that cash farm
income, including Government payments, will total $9,000,000,000 for the calendar
year 1937, an increase of 14 percent over 1936.
D
is t r ib u t io n
Distribution of commodities to consumers in July continued at the level of
other recent months, when allowance is made for the usual summer decline. Sales
at department stores and variety stores showed slightly less than the seasonal
decrease in July, while mail order sales declined somewhat more than seasonally.
Freight car loadings increased, reflecting in part larger shipments of grains and
forest products.
„
„
C
P
o m m o d it y
r ic e s
From the middle of July to the third week of August prices of grains and
cotton declined substantially, while livestock and meats showed a further increase.
Automobile prices were raised by most producers, carpet prices advanced, and
there were increases in several industrial raw materials, including hides, zinc,
lead, and steel scrap. Cotton goods and rubber declined somewhat.
B
W HOLESALE PRICES
Index 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 August 14.
M
M EMBER BANK LOANS AND INVESTMENTS
Wednesday figures for reporting member banks in
101 leading cities, September 5, 1934, to
August 18, 1937. Loans on real estate
and loans to banks excluded.
a n k
C
r e d it
From the middle of July to August 4, excess reserves of member banks were
sharply reduced from $960,000,000 to $700,000,000, but subsequently they increased
to $780,000,000 on August 18. These changes in member bank reserves reflected
principally fluctuations in the volume of Treasury deposits at Federal Reserve
banks, together with a seasonal increase in money in circulation. Excess reserves
at New York City banks declined from $230,000,000 to about $40,000,000 and
subsequently increased to $130,000,000.
Total loans and investments of reporting member banks increased somewhat
during the four weeks ending August 18, reflecting principally an increase of
$150,000,000 in commercial loans offset in part by a further decline in holdings
of United States Government obligations, principally at New York City banks.
The growth in commercial loans occurred both in New York City and in other
cities and included the purchase by banks of a large portion of the $60,000,000 of
nine-month notes sold by the Commodity Credit Corporation on August 2.
United States Government deposits at reporting banks increased during the
period, reflecting purchases by banks of treasury bills on a book-credit basis.
Bankers’ balances and other demand deposits showed further declines at New
York City banks.
,,
^
o n e y
R
ates
Rates on Treasury Bills declined slightly after the middle of July, and openmarket yields on Treasury notes and bonds also declined until early in August,
but later there was a rise in yields. In the latter part of August discount rates
were reduced from two percent to one and one-half percent at the Federal Re
serve Banks of Atlanta, Chicago, and Minneapolis. The two percent rates had
hppn
in
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