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MONTHLY REVIEW B U S IN E S S F ederal R eserve Bank C O N D IT IO N S o f San IN T H E T W E L F T H F r a n c isc o o significant change in the pattern of district indus trial activity was apparent in July, and the volume of output, seasonal factors considered, was about the same as in June. The high operating rates realized earlier in the year were maintained in the pulp and paper, steel, and shipbuilding industries, and in the case of aircraft were increased further during July. Production of lum ber and the assembly of automobiles declined, but the decreases were of no more than seasonal proportions. Output of copper and petroleum continued the narrow fluctuations characteristic of these lines during recent months; in the case of copper at a level well above that of a year earlier, and in the case of petroleum and its products at about the same level as in the comparable period of 1939. As in other recent months, employment and payrolls at motion picture studios were substantially lower than a year earlier. Factory employment increased slightly further for the third consecutive month. Payrolls continued to expand and at 126 percent of the 1923-1925 average the index for the three Pacific Coast States was 22 percent higher than in July 1939. Principally reflect ing Government contract awards for construction of army and navy facilities, nonresidential building initi ated in the district during July expanded sharply to the highest level in recent years. New residential construction likewise expanded considerably in July. Consumer buy ing was slightly more active than in June, continuing the gains of the preceding two months. To a considerable extent the increase reflected better than seasonally main tained sales of passenger automobiles which exceeded those of any July since 1936. Value of sales of furniture stores, which in the preceding three months had averaged 7 percent higher than a year earlier, advanced further. Receipts of service stations were only moderately below the high levels of the preceding month, while those of restaurants increased sharply. Sales of department stores in June and July averaged no higher than in the preceding three months and sales of apparel stores have likewise shown practically no change in recent months. N I n du stry Current statistics of production and distribution are perhaps outweighed in significance at the present juncture by developments related to the national defense program. Except for aircraft production, copper mining and smelt ing, and shipbuilding, the industrial facilities of the dis trict are engaged to only a relatively small extent in the production of materials and products directly used in the defense program. Industrial activity in this area will con sequently be stimulated principally by the secondary de mand for goods resulting from rearmament, although southern California particularly may be expected to pros per as a direct result of large orders for aircraft. Since the program is still in its early stages only moderate and rather indirect effects have been felt as yet in this district. Developments of recent weeks indicate, however, an in F E D E R A L R E SE R V E D IS T R IC T S ep tem b er 1 ,1 9 4 0 creasingly important role for national defense in the immediate future. The principal tangible effects of the national defense program to date, in this district, are seen in the expansion of housing and other facilities for the Army and Navy with its attendant influence on district industries which F A CTO R Y EM PLOYM ENT A N D P A Y R O L L S-Pacific Coast Indexes, adjusted for seasonal variation, 1923-1925 average=T00. By months, January 1929 to July 1940. (Fruit, vegetable, and fish canning industries excluded). supply the necessary materials. Nonresidential construc tion permits increased sharply in July, largely reflecting Government contract awards for new defense facilities. The principal items were: Alameda, Calif. Bremerton, Wash. San Diego, Calif. San Diego, Calif. Ogden, Utah Monterey County, Calif. Ogden, Utah San Diego, Calif. Naval air station facilities...............$9,800,000 Navy storage and aviation facilities 7,300,000 Naval air station piers, ramps, bldg. 3,500,000 Naval operating base barracks....... 1,630,000 Army depot buildings...................... 882,000 Army post........................................ Army airplane hangar and annexes Navy emergency barracks............... 682,000 494,000 310,000 This unusual volume of army and navy construction lifted the total value of new building construction in the Twelfth District to a new record level for recent years of about $67,000,000, of which nonresidential construc tion accounted for $38,000,000, compared with $17,000,000 in June and $8,000,000 in July, 1939. The value of residential building permits likewise increased, this bank’s seasonally adjusted index for the district as a whole rising nine points to 69 percent of the 1923-1925 average, the highest for any month in the current long rise in building, excepting last December when the index was affected by several U. S. H. A. projects. An additional development of importance is the in crease in activity in the navy shipbuilding yards at Brem erton, Washington, and Mare Island (Vallejo, Cali fornia). The two yards together currently employ about 16,000 wage earners. The growth of employment at these two navy yards has created severe housing shortages, as a result of which U. S. H. A. projects are being initi ated at both Bremerton and Vallejo. Operations at private shipyards have likewise increased sharply over the past 38 September 1, 1940 FEDERAL RESERVE B A N K OF S A N FRA N C ISCO year and continue active as a result of the Maritime Com mission program for the construction of merchant ships. Some construction of ships for the Navy has also been contracted for by private yards on the Pacific Coast. The national defense program comes at a time when the aircraft industry is already engaged in doubling its plant space and will require still further large additions to the industry’s facilities. The present expansion pro gram has resulted chiefly from large British and French orders (the latter having been assumed by Britain) which account for the bulk of current activity. While the indus try has not yet announced the receipt of new United States Government orders on the scale contemplated by the defense program, negotiations with the Government with respect to both orders for aircraft and plant con struction are in progress. As a result, one principal dis trict producer has announced plans to construct a large new plant in California, in addition to the construction plans detailed in the last issue of the Monthly Review. With huge backlogs on hand, which are being augmented at intervals with additional orders, the aircraft plants are encountering difficulty in increasing output as rapidly as desired because of “bottlenecks” in supplies and engines. The output of finished aircraft at the major plants during recent months has, on this account, shown little or no increase over the levels established last spring. Several of the plants are, however, building up huge supplies of sub-assemblies and parts to permit a sharp upturn in com ing months, when, as a result of Governmental efforts and assistance, it is anticipated that engines and other supplies will be available in much larger quantities than at present. The broad demands of the aircraft industry and of shipbuilding have been far reaching in scope and numerous manufacturers of aircraft parts, of tools, and of supplies have started operations in this district, partic ularly in southern California. This mushroom growth of “ satellite” industries has been an additional factor in absorbing both skilled and unskilled labor throughout this area. Although the labor supply for the most part is considered adequate for current needs, some industrial concerns report that certain types of skilled labor are becoming increasingly difficult to obtain through local channels. To remedy this, aircraft manufacturers par ticularly, in conjunction with educational institutions, are conducting specialized courses of instruction as well as plant apprenticeship work. The chief effect of the national defense program upon the lumber industry has been through the stimulation of building, as discussed above, but orders for lumber have apparently not yet reflected the full impact of such de mand. Lumber output declined by about the customary seasonal amount in July. During the preceding spring months activity at district mills had been advancing at a somewhat better than seasonal rate in response to the gradual rise in orders which began last December. A l though production was fairly stable in July, after allow ance for seasonal influences, new orders received by mills advanced sharply in that month to a 1940 high of more than 47,000,000 board feet per day. This compares with a daily rate of 41,000,000 board feet in June and 43,000,000 in July, 1939. A g r ic u l t u r e Total farm cash income in the Twelfth District during the first seven months of 1940 is estimated to have been $568,000,000, a gain of $52,000,000 or 10 percent over the total for the like period of 1939. Most of this increase was accounted for by receipts from marketings, only about $3,000,000 having been derived from increased Government payments. The margin of gain over a year earlier, however, has tended to decline during the more recent months of the period, approximating only 5 per cent in June and July. The better level of farm income during the first seven Production and Employment— Index numbers, 1923-1925 average=100 Industrial Production* Distribution and Trade— Index numbers, 1923-1925 average=100 Retail Trade Department store sales (value)* Twelfth District.......................... California.................................... Los A n g e le s.......................... Bay R e g io n ............................ San Francisco........................ Oakland.................................. Pacific Northwest...................... Portland ................................ Seattle .................................... Spokane .................................. Salt Lake City............................ Department store stocks (value) t Furniture store sales (value)*$. . Furniture store stocks (value) Automobile sales (number)* T o ta l............................................ Passenger .............................. Comm ercial............................ Carloadings (number)* Total ........................ . .................... Merchandise and misc................ O t h e r .......................................... Intercoastal Traffic (volume) Total ............................................... E astbound.................................. Westbound ................................ * Daily average. tA t end of month. With Seasonal r-Adiustment-N ,— 1940— \ 1939 July June July Without Seasonal ,—Adjustment—x 4— 1940— \ 1939 July June July 101 99 91 106 97 129 102 105 102 95 89 61 85 71 97 94 84 103 97 117 103 104 104 98 90 62 80 73 99 98 88 107 101 125 98 98 100 96 87 62 75 67 83 82 78 85 79 102 84 88 84 76 63 58 78 71 88 84 73 93 87 106 97 100 95 91 80 59 77 74 81 81 76 87 83 99 81 81 82 77 62 59 69 67 _ __ — ___ — — __ — — 153 148 207 158 154 199 96 89 165 85 91 76 89 102 73 82 87 76 86 98 72 96 109 81 84 93 72 55 36 116 58 48 93 58 46 97 58 40 118 56 44 97 62 51 99 $1929 average^ 100. Manufactures (physical volume) Lumber ...................................... Refined o i l s ................................ Wheat flo u r ........................ .. Minerals (physical volume) Petroleum .................................. Lead (U. S .) t ............................ Silver (U .S .) t ............................ Construction (value) Residential Building Permits$ Twelfth D istrict.................... Southern C alifornia.......... Northern California.......... Oregon .................. ............ Washington ...................... Intermountain states.......... Public works contracts.............. Miscellaneous Electric Power P rod u ction .... With Seasonal /'—Adjustment—'« t— 1940 —> 1939 July June July — 91 90 — — 118 117 124 117 102 150 — — — 86 Without Seasonal ,—Adjustment ,— 1940—N 1939 July June July 97 151 130 103 103 155 141 103 91 154 112 132 93 94 116 114 92 65 59 63 65 51 53 68 113 213 48 50 39 33 41 109 199 117 114 68 70 69 74 60 45 62 118 60 65 50 48 62 72 49 52 43 34 38 99 — — — 67 72 54 43 66 130 509 220 226 203 246 242 227 124 142 101 100 123 143 105 94 109 121 101 88 126 143 106 101 125 143 110 98 110 122 105 89 126 146 98 97 123 142 102 93 104 118 89 81 125 145 100 95 126 145 107 98 103 116 91 80 Factory Employment and Payrolls§ Employment Pacific Coast.............................. California .............................. Oregon .................................... W ashington............................ Payrolls Pacific Coast.............................. California.................. .............. Oregon .................................. Washington .......................... *Daily average. •¡"Prepared by Board of Governors of Federal Reserve System. jlncludes figures from 197 cities and Los Angeles County, unincorporated. §Excludes fish, fruit, and vegetable canning. September 1, 1940 months of the year has occurred despite the considerable reduction in exports to the continental European market incident to the war. In the past, exports to that market from this district have consisted principally of raw and processed crops and to only a minor extent of livestock and related products. Consequently the effects upon local agriculture of the loss of the European market will fall principally upon income from crops, which comprise about half the total farm cash income of the district. While exports of raw and processed crops have been cur tailed over the past seven months, the full impact of the loss of the continental European market will not be ex perienced until late in the summer and in the early fall, the period of seasonally heavy exports. To some extent curtailment in foreign demand will be compensated for by an expansion in the domestic market originating in increased consumer incomes and in consumption stimu lated by Federal aid such as the stamp plan of distributing commodities to relief recipients. Crop prospects in the Twelfth District declined in June and July because of unfavorable weather conditions, but the latest estimates, shown in the accompanying table, Crop P roduction—T welfth D istrict (in thousands) Grains Corn (bu.) .................. Oats ( b u . ) .................. Wheat, all (b u .).......... Winter .................... Spring .................... Field Crops Beans (b a g s).............. Cotton (bales)............ Flaxseed (b u .)............ Hay (to n s).................. Hops (b a le s ).............. Potatoes (b u .)............ Sweet potatoes (bu.) . . Sugar beets (tons) . . . . Deciduous Fruits Almonds ( ton s).......... Apples* (b u .).............. Apricots (t o n s ) .......... Cherries (t o n s ) .......... Grapes (to n s).............. W in e ........................ Table ...................... R aisin ........................ Peaches ( b u . ) .............. Clingstone ................ Freestone.................. Pears (b u .).................. Others ...................... Plums ( t o n s ).............. Prunes (to n s).............. Fresh ...................... Walnuts (to n s).......... Citrus Fruitsf Grapefruit (boxes) . . . Lemons (b o x e s )........ Oranges (b oxes)........ Valencias ................ Navels, etc............... , Average 1937 1929-38 41,555 41,094 7,951 7,621 27,977 26,041 107,249 124,429 66,941 61,708 62,7 21 40,308 1938 41,288 6,895 23,374 129,520 84,016 45,504 1939 48,824 6,983 34,577 99,118 71,818 27,300 Indicated 1940 53,236 7,064 29,949 102,075 71,259 30,816 5,454 469 549 12,324 172 52,835 7,848 1,164 2,620 7,264 1,051 660 12,312 220 68,409 9,108 1,221 2,916 6,221 620 822 12,612 176 66,713 8,375 1,521 4,066 5,582 645 2,079 12,192 197 68,234 9,000 1,200 4,367 6,618 680 3,226 13,125 197 68,970 8,378 1,440 3,888 12 44,761 231 57 1,961 482 352 1,127 23,904 14,343 9,561 17,632 13,243 4,389 62 695 44 243 44 20 46,363 311 53 2,462 631 424 1,407 24,564 15,418 9,146 18,616 13,272 5,344 66 711 65 256 60 15 44,259 166 84 2,541 641 457 1,443 23,038 13,042 9,996 22,704 15,528 7,176 63 674 64 238 51 19 39,893 312 88 2,238 569 400 1,269 26,401 15,251 11,150 20,730 14,529 6,201 71 709 52 240 59 11 39,992 102 73 2,215 585 398 1,232 26,042 15,001 11,041 20,739 13,901 6,838 74 611 48 219 52 2,547 7,881 34,895 19,560 15,335 2,950 8,102 30,283 17,049 13,234 4,693 9,360 46,264 29,584 16,680 4,444 11,322 41,582 23,675 17,907 4,875 12,000 45,340 27,720 17,620 * Commercial crop. tCrop years ending October 31, of calendar years shown. indicate that production of most crops will approximate the average of recent years. Pears are one of the important district crops for which the foreign market has constituted a substantial outlet. O f the total output of pears in the three Pacific Coast States during the five years 1935-1939, approximately 34 percent has been canned, 8 percent dried, and the re mainder has been sold on the fresh fruit market. Although the portion of the canned pack exported has declined since 39 M O N T H L Y R E V IE W OF B U SIN E S S C O N D IT IO N S the 1920’s, about 30 percent of the pack was exported during the past five-year period. Ordinarily over 80 per cent of the dried output is exported and approximately 26 percent of all pears sold fresh are sold on foreign markets. The pear crop in the district this year is expected to approximate the output of 20,730,000 bushels in 1939, but to exceed the average of 17,630,000 bushels during the ten years through 1938. The proportion of this year’s crop acceptable for canning is somewhat reduced, how ever, and this factor, together with the sharply lower carryover than a year ago and expectations of an expan sion in the domestic demand have resulted in the offering of higher prices for canning pears than those paid in the 1939 season. For the season through August 14, however, sales and prices in eastern auction markets of fresh pears grown in the district were slightly lower than in the like period last year, while exports of fresh pears were re ported to be negligible through mid-August. Twelfth District cash income from the marketing of sheep and lambs, which was over $42,900,000 in 1939, has been somewhat higher this season, while sales of wool, which added $21,700,000 to the income of livestock raisers in this district in 1939, have likewise been above a year earlier. Returns from sheep and lambs and from wool provided over 15 percent of the total farm income received by livestock growers, and 6 percent of total farm cash receipts last year. This season’s lamb crop is esti mated to be 8,656,000 head, compared with 8,892,000 head last year and an annual long-term average of 8,511,000 head. While the crop was smaller, the quality and the proportion of lambs attaining slaughter finish was markedly higher than in the spring and summer of 1939, when poor feed conditions resulted in a large proportion of feeder lambs, and prices paid growers during the prin cipal buying period of the early spring were somewhat higher than a year earlier. Prices paid for wool have averaged more than 25 percent above those paid in 1939. B a n k in g a n d C r e d it As a result of expansion in business activity in the Twelfth District, demand for bank credit has increased during recent weeks. Loans of district city banks for commercial, industrial, and agricultural purposes ad vanced moderately in July and the first three weeks of August, and on August 21 were 13 percent higher than a year earlier. Customarily these loans are unchanged or decline slightly during the summer months, after which there is seasonal expansion in the fall. Other classes of loans have remained about unchanged in recent weeks. Investments in Government securities have fluctuated with little net change since the end of June. Holdings of direct obligations rose moderately in late July, reflecting participation of the banks in the issue of Treasury bonds dated July 22, but have since declined to the level pre vailing in late June. Investments in guaranteed obliga tions declined in July but increased in early August as a result of participation by local banks in the issue of Com modity Credit Corporation notes dated August 1. Investments in other securities, which include corpo rate obligations as well as obligations of states and politi cal subdivisions, expanded further, and in late August were appreciably higher than at any time in recent years. 40 September 1, 1940 FEDERAL RESERVE B A N K OF S A N FRA N C ISCO S u m m a ry o f N a tio n a l B u sin ess C o n d itio n s Prepared by the Board of Governors of the Federal Reserve System olume of industrial output was steady during July and the first half of August, after a rapid expansion in May and June. Em ployment continued to increase. Reflecting mainly awards for national defense projects, construction contracts rose to the high est level in ten years. Prices of basic commodities declined some what further. P roduction In July the Board’s revised index of industrial production stood at 121 percent of the 1935-1939 average, according to preliminary data. This is the same as in June and 17 points above the level prevailing a year ago before the outbreak of war. In most lines activity was maintained at the levels reached in June or increased further. Steel production in July was at about 85 percent of capacity and in the first half of August there was an increase to about 90 percent. Production of pig iron and coke and output of nonferrous metals were also in large volume. In the machinery, shipbuilding, and aircraft industries, where new orders had been large during the first half of the year and a considerable backlog of unfilled orders had accumulated, activity was maintained at high levels in July, although ordinarily there are declines at this season. Lumber production declined sharply early in July but has subsequently increased accompanying a considerable rise in new orders. In the automobile industry output declined sharply in July and the first half of August as plants were closed to prepare for the shift to new model production. The decline was greater than at this season in other recent years, reflecting the fact that produc tion had been at high levels during the first half of 1940 and large stocks had accumulated. These stocks were reduced considerably in July as production was curtailed and retail sales continued large. Textile production increased considerably further in July, re flecting chiefly a marked rise in activity at woolen mills where output is still below the levels of a year ago. Production of cotton and rayon textiles was maintained in July and was in larger volume than last summer, while activity at silk mills increased somewhat from the exceptionally low level reached in June. Shoe production increased seasonally, while output of manufactured foods, which in June had been unusually large for that time of year, showed less than the customary increase in July. Coal production has risen further and shipments of iron ore down the lakes have continued at near-capacity rates. Petroleum V naval air station and shipyard construction. In the central por tions of the country there were generally small increases, although in some areas awards were lower. D istribution Distribution of commodities to consumers was sustained in July at about the levels prevailing in the first half of the year. Sales at department stores declined more than seasonally, while sales at variety stores showed little change, although a decline is usual in July. Total freight-car loadings increased seasonally in July. Ship ments of grain showed a considerable rise and loadings of coal M ILLIONSOFDOLLARS M ILLIONSOFDOLLARS 500 1500 400 400 300 200 100 J 1934 TOTAL r \kJ / /f/1 1 / \ i / vV It iv // l r 1 \/\/ vx ''J V vV VA' A L L O T H I E R R _ESIDENT 1IA.L... . 1935 1936 1937 1938 1939 300 200 100 1940 CONSTRUCTION CON TRACTS AW ARDED Three-month moving averages of F. W. Dodge Corporation data for value of contracts awarded in 37 Eastern States, adjusted for seasonal variation. Latest figures based on data for May and June and estimate for July 1940. and coke continued to advance, while shipments of miscellaneous freight, which include most manufactured products, declined by somewhat more than the usual seasonal amount. Commodity P rices Prices of basic commodities declined somewhat further from the middle of July to the middle of August, with decreases chiefly in prices of commodities influenced by foreign supplies, such as lead, rubber, cocoa, and coffee. Prices of steel scrap and zinc, on the other hand, advanced somewhat in this period. A griculture Prospects for most crops showed little change in July, accord ing to the Department of Agriculture. Production this year is expected to approximate the 1929-1938 average and, considering carryovers, supplies of most crops will be large. Conditions for wheat and oats improved during July, while the corn crop showed some deterioration. A cotton crop of 11,429,000 bales was indi cated for this season as compared with 11,817,000 bales last season. 1934 1935 1936 1937 1938 1939 1940 IN DU STRIAL PRODUCTION Index of physical volume of production, adjusted for seasonal varia tion, 1923-1925 average = 100. By months, January 1934 to July 1940. production has been curtailed sharply, however, reflecting partly a continued high level of stocks of petroleum products. Value of new construction work undertaken increased sharply in July, owing mainly to a further rise in public construction, and was at the highest level in the past decade, according to reports of the F. W. Dodge Corporation and the Federal Reserve Bank of San Francisco. Awards for both residential and nonresidential private building increased somewhat, although some decline is usual at this season. Increases were most pronounced in the Atlantic, Gulf, and Pacific Coast States, reflecting awards of additional contracts for B a n k Credit Total loans and investments at reporting member banks in 101 leading cities increased substantially during the five weeks ending August 14, owing mainly to purchases of direct and guaranteed securities newly issued by the United States Government. Sale of these securities caused a large increase in Treasury balances with the Federal Reserve Banks. As a result of this temporary development, excess reserves declined by $450,000,000 in this period despite an increase of over $500,000,000 in monetary gold stock. Government Security M arket Prices of United States Government securities were relatively steady during July and the early part of August but declined slightly around the middle of August accompanying news of intensification of European warfare. The yield on the 1960-65 bonds increased to 2.39 percent on August 14 compared with 2.34 percent on July 1 and 2.26 percent on April 2 at the year’s peak in prices.
@FedFRASER