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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 F E D E R A L R E SE R V E D IS T R IC T Federal Reserve Bank of San Francisco h e gains in Twelfth District business volumes noted T during May have been retained during the past three months. Aggregate industrial output in July was fully as large as in May, after allowance for the customary sea sonal influences, and factory employment was as high as in any month since January. New residential build ing declined considerably in July following the sharp expansion in June, but a sharp advance in the seasonally adjusted index for August is indicated by preliminary data. For June and July combined, the adjusted index of building permits was as high as in any of the spring months this year. Movement of freight by rail has been unchanged since May and consumer purchases of goods have been seasonally well maintained. New lumber orders received by mills in July were slightly higher on a daily average basis than in June, marking the fifth successive monthly increase, and fur ther gains in the first three weeks of August carried the average to the highest level since 1929. New business during that period was reported at an average rate of 44,500,000 board feet per day. The recent expansion in volume of new business has exceeded the rise in produc tion, which has advanced substantially since March of this year. As a result, unfilled orders have increased con siderably and on August 19 totaled about 925,000,000 board feet, the highest level in over two years. Average mill prices in the Douglas fir area have advanced about 4 percent from the spring lows, most of the increase oc curring in late July and August. In the furniture and copper industries little net change in output has been reported since April or May. In the automobile assembly industry, operations have been fair ly stable since May, after declining earlier in the year, while in the aircraft industry activity has increased per sistently and is now at record levels. After declining contraseasonally since January gaso line production in California advanced moderately in June and July. Demand for products of the Pacific Coast petroleum industry comes almost entirely from local and trans-Pacific markets, and the industry meets no impor tant competition in those markets from the remainder of the domestic petroleum industry. Hence the temporary shutting down of oil wells in several midcontinent states has had no tangible effect upon the local industry. District flour mills continued to operate close to post war record levels in July. The current high rate of oper ations largely reflects unusually heavy orders for flour received from the Orient earlier in the year. In June and July, however, new orders from that source declined sharply to a relatively insignificant total. The total fruit and vegetable pack will probably be about the same this season as in 1938. An asparagus pack of 1,849,000 cases was completed June 6, and was 3 per cent larger than the smaller than average output in 1938. The apricot pack is tentatively estimated at 2,750,000 to 3,000,000 cases, nearly twice as large as production last year. It now appears, however, that district packs of spinach, peas, cling peaches, and possibly pears will be September 1,1939 smaller than in 1938. Unsold stocks carried over from last year were generally smaller this year than at the beginning of the 1938 packing season. Reflecting these conditions, quotations for important fruit and vegetable products have been firm to advancing in recent weeks and now average somewhat higher than a year ago. F actory E m plo ym en t an d P ayrolls Revised indexes of factory employment and payrolls in the three Pacific Coast states are shown in the follow ing chart. These series supersede indexes computed in 1938 and published by this bank during the past 14 months. The new indexes have been adjusted to the levels indicated by the 1937 Census of Manufactures, with the result that the level currently is somewhat higher than that of the previous indexes. Factors used in adjusting for seasonal variation have been brought down to date, PERCENT F A C T O R Y E M P LO YM E N T A N D PAYROLLS Indexes of number employed and payrolls, adjusted for seasonal variation, 1923*1925 average—100. By months, January 1929 to June 1939. (Fruit, vegetable, and fish canning in* dustries excluded from Pacific Coast indexes). and data for certain industries no longer classed by the Census as “ manufacturing” have been excluded. As in the past, employment and payrolls in the fruit and vege table canning industry, because of extreme and irregular seasonal fluctuations, continue to be excluded from the indexes. For the same reason, the fish canning industry has been excluded from the revised indexes. Industries covered by the indexes employed about 450,000 workers in the three Pacific Coast states in the summer of 1937. About 32,000 workers were then occupied in like indus tries in other district states not covered by the indexes. On the revised basis, the seasonally adjusted index of employment in Pacific Coast manufacturing establish ments was higher in 1937 than at any previous time, averaging 121 percent of the 1923-1925 base. At that level it was 6 percent above the average for 1929 although the index of payrolls remained 3 percent below the 1929 average. In the autumn of 1937, both employment and payrolls declined precipitously and considerable further decrease took place in the first half of 1938. These de clines were followed by sharp gains last autumn, but in more recent months employment and payrolls have shown little net change. In June the index of employment was 38 FEDERAL RESERVE B A N K OF S A N F R A N C ISCO 108 compared with 100 a year earlier and 128 in June 1937, while the index of payrolls was 107 compared with 94 and 123 in the like months of the two preceding years. From 1934 through mid-1937 factory employment and payrolls in the Pacific Coast states advanced more rapidly than in the United States as a whole. Local em ployment was 29 percent higher in 1937 than in 1935 compared with an increase of 16 percent in the entire United States, while increases in total wages were 49 and 38 percent respectively. After mid-1937, marked decreases in employment took place in both the United States and Pacific Coast states, the reductions in the two areas being of about equal proportions. In relation to earlier years, such as 1934 and 1935, current employ ment in local manufacturing is relatively higher than in the United States as a whole, owing to a more rapid growth of Pacific Coast industry during recent years. The more rapid expansion on the Pacific Coast may be attributed to several factors. Population growth has been greater in Coast states as a group than in the country as a whole, resulting in greater stimulus to local industries engaged in producing consumer goods which are cus tomarily manufactured in proximity to their markets, for example, bread and bakery products. Decentralization of industry, resulting in local establishment of a consid erable number of branch plants of national firms, has been another factor tending to increase aggregate em ployment in Pacific Coast industry relative to the United States as a whole. Growth of the Pacific Coast as a center of operations for new industries, of which the aircraft industry is an outstanding example, has also con tributed to the rise in employment in this region. Another influence contributing to the more rapid expansion in employment and payrolls in the Far West is the fact that several nationally important industries, such as footwear and cotton textiles, which employ large numbers of workers and in which the labor force has been relatively stable in recent years, are concentrated in the East. A g r ic u l t u r e Farm cash income in the Twelfth District is estimated at $470,500,000 during the first seven months of this year, compared with $446,900,000 in the comparable months last season. More than half the gain in income reflects larger Federal Government benefit payments to farmers, which have totaled about $32,000,000 this year, compared with $17,000,000 received during correspond ing months of 1938. Excluding Government payments, receipts from crops were 5 percent larger through July of this year, and returns from marketings of livestock and livestock products were 2 percent smaller. Prices have generally been below the depressed 1938 levels, and increases in gross receipts for crops sold have reflected a larger volume o f marketings. Gains in total farm in come varied considerably within the district. Receipts in Pacific Northwest states and in Utah were larger than in 1938, while income in Arizona, California, and Nevada was smaller than a year ago. Reduced receipts from cot ton occasioned much of the decline in Arizona, and in Nevada lower returns have been received from market ings of all crops and o f cattle and dairy products. In California gross income from cotton, citrus fruits, rice, strawberries, dairy products, and eggs was lower than in the first seven months of 1938. Septem ber 1, 1939 Yields of grain, field, and fruit crops harvested dur ing July exceeded earlier expectations and estimates of output were larger on August 1 than on July 1. Although yields are turning out to be higher than had been ex pected, crops generally will be smaller than in 1938 or 1937 because of reductions in acreage and because of drought conditions this season. Except for wheat, apples, prunes, and tame hay, however, output of all major and of most minor district crops will exceed the average for the ten years 1928-1937. Demands upon irrigation water have been heavier than usual this year to offset the light seasonal rainfall last winter and spring. C rop P r o d u c t io n — T w e l f t h D is t r ic t (in thousands) W heat ( b u .) ............................. Field Crops Beans ( b a g s ) ........................... Cotton (b a le s )........................ Flaxseed ( b u .) ........................ Tame H ay (t o n s ) ................. H ops (p o u n d s)........................ Potatoes ( b u .) ........................ Rice ( b u .) .................................. Sugar Beets ( t o n s )............... Sweet Potatoes ( b u .) .......... Deciduous Fruits and N uts Alm onds (t o n s ) ...................... Apples ( b u .) ............................. Apricots (t o n s ) ........................ Cherries (t o n s ) ...................... Grapes (t o n s ) .......................... W in e* .................................... Raisin* .................................. T a b l e * .................................... Peaches ( b u .) ........................... Clingstone* ........................ Freestone* .......................... Pears ( b u .) ............................... Plums* (t o n s ) .......................... Prunest (fresh t o n s )............ Prunes* (dry t o n s ).............. W alnuts (t o n s ) ........................ Citrus Fruits Grapefruit (b o x e s )................. Lemons (b o x e s )..................... Oranges (b o x e s )................... Valencias* ........................... N avel and M is c .* ............ Average 1928-37 40,634 7,690 742 . . 106,499 1937 41,555 7,951 27,939 1,035 124,429 1938 41,288 6,928 23,214 937 125,917 Forecast Aug. 1,1939 47,644 7,110 31,285 870 92,278 5,267 429 515 11,620 34,079 50,573 7,827 2,369 1,116 7,353 1,051 660 12,445 44,399 66,293 9,100 2,916 1,221 6,205 620 684 11,782 35,261 65,203 9,100 4,065 1,521 5,449 593 1,760 11,213 39,060 65,029 8,300 3,801 1,320 12 36,766 232 53 1,944 62 150 199 42 20 33,319 311 51 2,462 631 1,407 416 24,453 15,407 7,734 18,616 66 95 240 60 15 32,864 166 85 2,541 641 1,443 447 23,821 13,042 7,459 22,704 63 134 224 51 20 31,380 325 88 2,355 569 1,386 390 26,206 15,043 8,792 20,456 64 202 187 60 2,168 7,487 32,548 17,526 14,871 2,950 8,102 30,283 16,289 13,234 4,693 9,360 45,955 29,234 16,680 4,824 10,686 41,020 23,870 16,800 Grains Barley ( b u .) ............................. . . .. .. .. .. .. 1,123 345 25,618 14,764 7,692 f Pacific Northwest— for canning, drying, and fresh consumption. * California only. Livestock growers have been more seriously affected by the subnormal precipitation since the first of the year than farmers and orchardists. Although mild weather last winter resulted in only small losses of stock, forage and water on pastures and ranges have been inadequate, and considerable supplemental feeding has been necesW ool a n d L a m b P r o d u c t io n — T w e l f t h , . . U ta h ...................... W a s h in g t o n .......... Twelfth D is tr ic t.. . United S ta te s .. . . . /------- W ool Production-------- \ Forecast 1939 1937 1938 (thousand pounds) 5,040 4,853 5,050 25,962 28,237 28,933 17,463 16,426 18,826 6,192 5,878 5,920 17,072 17,501 17,499 19,444 19,221 19,909 6,074 5,819 5,995 98,994 100,063 98,257 371,972 375,699 366,609 D is t r ic t t— Lamb Production— n 1939 1937 1938 (thousand head) 471 480 477 2,008 2,849 2,630 1,580 1,623 1,631 550 509 511 1,522 1,439 1,580 1,500 1,570 1,573 579 573 537 8,831 8,914 8,087 32,157 30,730 31,867 sary. Livestock failed to make normal gains, and larger percentages of animals were marketed as feeder stock than in any recent year. Cattle prices have been well maintained and at present are slightly higher than a year ago. Heavy marketings of lambs in July were accom- Septem ber 1, 1939 M O N T H L Y R E V IE W OF B U S IN E S S C O N D IT IO N S panied by some decline in quotations, but prices remain well above those received a year ago. In sharp contrast, hog prices are 30 percent lower than a year ago. Returns to district sheep and lamb growers totaled $77,490,000 in 1937. Income declined 27 percent to $56,830,000 in 1938, influenced mainly by sharply lower wool prices and some decrease in lamb quotations. Grow ers' cash income this season is expected to be larger than in 1938, but below the 1937 level. Both the lamb crop and the wool clip are estimated to be about the same as in 1938, but prices of wool and lambs have been moder ately higher than a year ago with a resulting increase in gross income. Growers’ net income may not show the gains made in gross income, however, because of heavier supplemental feeding costs. C r e d it United States Government security holdings of the Federal Reserve Bank o f San Francisco have been re duced in recent weeks, decreasing from $216,215,000 on June 21 to $195,198,000 on August 23. Approximately $9,976,000 of the decrease resulted from reallocation at the midyear of Federal Reserve bank holdings of securi ties whereby the share of this bank was reduced. The remainder of the decline has come about through a reduc tion in total holdings of Treasury bills by the Reserve System, which resulted in some decrease in this bank’s participation in the System’s holdings. Despite this re duction in Federal Reserve credit, excess reserves of member banks in the Twelfth District and the United States as a whole have continued to increase. Transactions in Government securities are not con ducted independently by the several Federal Reserve banks but are handled by the Federal Open Market Com mittee for the account of the Reserve banks as a group. This Committee consists of the Board of Governors of the Federal Reserve System and five representatives of the Federal Reserve banks chosen from among the presi dents of those banks. The Committee administers the System Open Market Account, which includes all Gov ernment securities owned by the Reserve banks. Distribution and Trade— Index numbers, 1923-1925 aver a g e = 100 W ith Seasonal <—Adjustment—s 1939—> 1938 July June July Retail Trade Department store sales (value)* 98 Twelfth D istrict................................ 98 California ............................................ 88 Los A n geles.................................... Bay R egion.................................... 107 San Francisco............................... 101 Oakland ......................................... 125 98 Pacific Northw est............................. 98 Portland ......................................... 100 90 Spokane ......................................... 87 Salt Lake C ity.................................. 62 Department store stocks (value) f 76 Furniture store sales ( value)* $ . . . 68 Furniture store stocks (value) t $ . Automobile sales (number) * — Total ..................................................... — Passenger ....................................... — C om m ercial.................................... Carloadings (num ber)* 83 Total .......................................................... 89 Merchandise and misc..................... 76 O t h e r ..................................................... Intercoastal Traffic (volume) 58 Total .......................................................... 46 E a stb o u n d ........................................... 97 * Daily average. t At end of month. Without Seasonal Adjustment— * /— 1939— v 1938 July June July ,— 81 81 76 87 83 99 80 81 82 72 62 59 70 68 88 87 77 95 88 112 89 92 89 76 76 60 73 67 81 83 75 82 79 93 76 79 73 74 60 61 68 67 — — 96 89 162 112 106 171 74 68 144 83 95 68 75 86 63 85 95 72 90 101 76 77 92 59 71 63 101 51 43 80 62 51 99 69 58 105 55 47 81 97 98 89 105 98 125 95 96 98 82 86 63 76 66 95 95 88 101 96 117 92 95 89 93 84 64 73 67 — — — —■ 11929 average= 100. 39 The recent decrease in Federal Reserve holdings of securities, with its accompanying tendency to reduce member bank reserves, does not represent a change in general credit policy of the System. This policy for some years has been designed to make available an ample sup ply of reserve funds to the banks of the country, for their use in meeting credit demands. In explanation of the recent decline in Federal Reserve investments, the following statement authorized by the Federal Open Market Committee was released on June 30. “As a result of a reduction in holdings of Treasury bills, this week’s statement of condition of Federal Reserve banks shows a decline of $13,378,000 in the System Open Market Account. This is in accordance with action taken by the Federal Open Market Committee on June 21, 1939. For some time past, Treas ury bills have been purchased for the System’s account at or near a no-yield basis and the account at times has had difficulty in replacing its maturing bills. It was decided that it would serve no useful purpose to continue full replacement of maturing bills, the^ supply of which is not always equal to the market demand. This action is in response to technical conditions in the bill iiiafket and does not represent a change in general credit policy.” The tendency of the recent decreases in security hold ings of the Reserve banks to bring about a decline in member bank reserves has not meant, however, that re serves have shown an actual decrease in the period under review. As a matter of fact, reserve balances of member banks in the United States as a whole and in the Twelfth District have increased during this period, owing to the effects of gold imports and heavy Government cash dis bursements in excess of collections. Thus, in the first half of August, district member banks had total reserve funds of about $574,364,000, of which $140,053,000 or 32.2 percent was in excess of legal requirements. In the first half of June, Twelfth District member banks had reserve balances of $558,828,000, of which $136,244,000 or 32.2 percent was in excess of legal requirements. Production and Employment— Index numbers, 1923-1925 With Without average=100 Seasonal Seasonal /«—Adjustment - n✓ —Adjustments ..^ , * r—1939—^ 1938 t—1939—N1938 Industrial Production* July June July July June July Manufactures (physical volume) 92 95 71 Lumber............................. 86 83 66 Refined oils......................... — — — 162 164 157 Cement ................................... 110 106 .. 126 116 Wheat flour......................... 148 158 122 130 139 107 Minerals (physical volume) Petroleum ......... ... — ' -— — 93 - 92 100 Lead (U. S.)t.................... 68 70 54 65 71 52 Silver (U. S.)t.......................... 107 99 .. 105 84 Construction (value) Residential Building Permits^ Twelfth District................ 49 57 50 48 59 48 Southern California......... 52 65 54 50 65 52 Northern California......... 43 46 40 39 47 36 Oregon ....................... 33 34 28 31 38 27 Washington ................. 38 50 66 41 54 71 Intermountain states....... 104 53 59 115 83 65 Public works contracts.......... — — — 199 187 643 Miscellaneous Electric power production...... 202 208 184 225 223 205 Factory Employment and Payrolls§ Employment Pacific Coast............................. 108 99 . . 110 100 California ....................... 121 121 111 122 121 111 Oregon ................................ 102 87 .. 106 90 .. 89 82 Washington .......................... 85 81 Payrolls Pacific Coast............................. 107 91 .. 110 91 California ....................... 118 120 105 116 122 104 Oregon ................................ 97 79 .. 102 81 Washington .......................... 85 69 .. 90 67 *Daily average. t Prepared by Board of Governors of Federal Reserve System, jlncludes figures from 197 cities and Los Angeles County, unincorporated. §Revised series. Excludes fish, fruit, and vegetable canning. Note: Index of meat production, usually published in this table, is in process of revision. 10 FEDERAL RESERVE B A N K OF S A N FRA N C ISCO Septem ber 1, 1939 S u m m a ry o f N a tio n a l B u sin e ss C o n d it io n s Prepared by the Board of Governors of the Federal Reserve System N July industrial activity, seasonally adjusted, rose sharply and was close to the level reached last December. Prices of some industrial materials increased in recent weeks while those for agricultural products continued to decline. I P r o d u c t io n The Board’s index of industrial production, according to preliminary returns, advanced to 102 percent of the 1923-1925 average in July as compared with 98 in June and 92 in April and May. The advance in July reflected chiefly a considerable further increase in output of iron and steel, which usually declines at this season. Steel ingot production rose from an average rate of 52 percent of capacity in June to 57 percent in July and in the first three weeks of August was maintained around 60 percent which for the month would represent about the usual seasonal increase. Lumber production showed little change in July, although a decline is usual. In the automobile industry output showed a sharp seasonal curtailment during July and the first half of August, reflecting preparations for the shift to new model production which will be made about a month earlier this year than in other recent years. Retail sales of new cars continued in excess of production and dealers’ stocks were greatly reduced. Plate glass production declined sharply in July, following a substantial increase in June. Changes in output of nondurable manufactures in July were largely of a seasonal nature. A t cotton textile mills and meat-packing establishments activity showed somewhat less than the usual declines and at sugar refineries output in creased from the low level reached in June. Flour production continued in sub stantial volume. Mineral production expanded further in July as output of bituminous coal con tinued to increase and petroleum production, which had been reduced in June, rose sharply. On August 14 the Texas Railroad Commission ordered a shutdown of most Texas oil wells for 15 days, beginning August 15, and subsequently simi lar shutdowns were ordered in several other important oil producing states. Value of construction contracts, as reported by the F. W . Dodge Corporation, increased somewhat in July, owing principally to a small rise in contracts for public projects. Awards for residential work, both public and private, were prac tically unchanged from the June total. IN D U S T R IA L P R O D U C T IO N Index of physical volume of production, adjusted for seasonal variation, 1923*1925 average=100. By months, January 1934 to July 1939. F R E I G H T -C A R L O A D I N G S Index of total loadings of revenue freight, adjusted for seasonal variation, 1923-1925 average=100. By months, January 1934 to July 1939. PERCENT ERCENT 110 0 A FOOd s r.; ■I I Pii**. K Sales at department and variety stores in July showed about the customary seasonal decline. In the first half of August department store sales increased. Freight-car loadings increased further from June to July. Loadings of coal continued to expand and shipments of miscellaneous freight, which usually de cline at this season, showed little change. 4 * 'HER vvAy J D is t r ib u t io n , V v i\ /' comv IODITIES jv I, V J |\ FARM * PRODUCIrs A A V' * / < J, j 1934 1935 1936 1937 E m ploym ent Factory employment, which usually declines in July, was maintained this year at about the June level and payrolls showed a less than seasonal decrease, accord ing to reports from a number of leading industrial states. 1938 1939 W H O L E S A L E P R IC E S Indexes compiled by the United States Bureau of Labor Statistics, 1926=100. By weeks, 1934 to week ending August 12, 1939. C o m m o d i t y P r ic e s Prices of most farm products and foods declined from the beginning of July to the middle of August. Some industrial materials, principally steel scrap, nonferrous metals, and textile fabrics, showed advances in this period, while crude petroleum prices were reduced. A g r ic u l t u r e On August 1 prospects for major crops were about the same as a month earlier, according to the Department of Agriculture- The first official estimate on cotton indicated a crop of 11,400,000 bales, somewhat smaller than last year’s crop and 2,400,000 bales less than the 1928-37 average. World carryover of American cotton, however, was estimated to have been somewhat larger on August 1 than the record volume of a year ago. Bank C r e d it Total loans and investments of member banks in 101 leading cities increased substantially during the four weeks ending August 9, reflecting chiefly increases in holdings of United States Government obligations and the purchase by New York banks of a large share of a new issue of New York State short-term notes. Commercial loans continued to increase at New York banks but declined at banks in 100 other leading cities as corn and cotton loans that were approaching maturity were taken over by the Commodity Credit Corporation in accordance with a standing agreement. Deposits at reporting banks remain at high levels. Excess reserves of member banks increased further to new high levels in the latter part of July and the first half of August, owing principally to gold imports and net Treasury disbursements, partly offset by a reduction in Federal Reserve Bank holdings of Treasury bills. M E M B E R B A N K RESERVES Wednesday figures of total member bank reserve balances at Federal Reserve banks, with estimates of re quired and excess reserves, January 3,1934 to August 16, 1939. M o n ey R ates The average rate on new issues of 90-day Treasury bills has increased slightly in recent weeks and on August 16 was 0.032 percent. Prices of Treasury bonds showed little change from the middle of July to the middle of August.
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