The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY REVIEW TWELFTH FEDERAL RESERVE DISTRICT Fe d e r a l R e s e r v e B a n k September 1 9 4 9 of S a n Fr a n c i s c o REVIEW OF BUSINESS CONDITIONS slackening in the downward trend in the nation’s economic activity was apparent during June and July. After reducing output and restricting buying since late last year, many businesses were finding that their inven tories had dropped more than sales. As a consequence, a step-up in business buying and rising output in some lines were becoming apparent. In August, however, the results of changes in economic conditions nationally were much more pronounced. Industrial production increased for the first time in nine months. To be sure, this increase had been anticipated, because July is a vacation month, and the August index of the Board of Governors of the Federal Reserve System was appreciably lower than a year earlier. Other events, however, added to the evi dence that the decline in economic activity had at least been halted. The Bureau of the Census reported that total employment in August reached a high for 1949, just a few thousand below the 60 million mark. More signifi cant than the small gain over July was the fact that the increase was the reverse of the normal seasonal move ment between July and August. Despite a marked sea sonal drop in agricultural employment of 1.1 million per sons, nonagricultural employment increased sufficiently to raise total employment by 210 thousand. Unemploy ment which had climbed to almost 4.1 million persons in July dropped below 3.7 million in August, partly because of the increase in employment and partly because of a seasonal drop in the number of persons seeking jobs. In the last week of August, initial claims for unemployment were the lowest since November 1948. o m e S Earlier indications of increased economic activity in clude a rise in new orders received by manufacturers dur ing May and June. By the end of June new orders were 8 percent above the spring low, and there are indications that the volume of new business continued to increase during August. New construction activity has also in creased steadily during the past several months, and total new construction for the first seven months of 1949 was slightly above the same period last year both in total dol lar value and physical volume. New housing starts, which had shown considerable weakness in late 1948 and early 1949, increased markedly starting in April, and in each month from May through August were very close to the record level of May 1948. The high level of activity in the period May through August has almost offset the lag in starts early this year in comparison with 1948, so that for the first 8 months of 1949 starts were very little be hind the same period last year. Prices of basic raw ma terials, as measured by the Bureau of Labor Statistics index of spot primary market prices for 28 commodities, reached a low for the year on June 30 and have increased steadily since then. The largest gain was recorded by in dustrial raw materials. In the Twelfth District, there has been no marked change in the business picture. Nonagricultural employ ment continued to increase slightly in July and prelim inary reports indicate a further small increase in August for the District as a whole. In Washington, a small de cline in nonagricultural employment is indicated. This was more than offset, however, by an increase in Cali fornia employment. The latter resulted mainly from a large seasonal expansion in canning employment, but August employment in all other nondurable industries, except rubber, in which a labor dispute affected one com pany, remained stable or increased. In the durable goods category, increases were reported for lumber, furniture, and iron and steel. For iron and steel this was the first increase in 11 months. Employment changes in the Twelth District After reaching a low in February, District employ ment conditions improved moderately in each of the fol lowing months through July. Information already avail able indicates some additional improvement in August. Nonagricultural employment increased slightly more than 2 percent between February and July but almost 3 percent fewer persons were employed in July this year than last. The largest year-period decline occurred in construction. Despite an increase in nonresidential con struction in most areas of the District, reduced residen tial construction resulted in the employment of 10 percent fewer persons in construction during July than a year Also in This Issue The Devaluation of the Mexican Peso Income Payments to Individuals — Twelfth District, 1948 98 FEDERAL RESERVE B A N K OF SA N FRAN CISCO ago. Trade employment was off 5 percent from last July and manufacturing employment over 4 percent. Trans portation and public utilities employment were 3 percent below last year. The finance and service industries em ployed approximately the same number of persons in both years and the number of government workers was 4 percent greater. The lower level of employment in most lines reflected the inability of gains so far this year to wipe out the drop in employment late last year and early this year. Employment in trade establishments, however, has declined in most months this year. Like total nonagricultural employment, manufacturing employment has increased moderately starting with March. If canning employment is eliminated, however, the increase is substantially smaller. On a seasonally adjusted basis manufacturing employment actually declined slightly in June and July. Examination of manufacturing employ ment by lines in the three Pacific Coast states, where most of the District factory workers are engaged, reveals interesting differences in behavior among industries. In California, consistent declines have been reported in each month of 1949 through July for machinery, elec trical equipment, iron and steel, and shipbuilding. The losses in these industries more than offset gains in other durable goods lines in March and July and substantially offset gains in lumber, furniture, aircraft, and automo biles during April, May, and June. Employment in the durable goods industries as a group, therefore, has not risen appreciably above the February level and from March through May was lower than in February. Most nondurable goods industries, other than canning, also de clined moderately during most months of 1949. In Aug ust, however, the nondurable group employed more than 7,000 additional persons, the durable group almost 3,000, and canning over 35,000, to bring California manufac turing to its high point for 1949. In Washington the experience in the durable goods in dustries has roughly paralleled that in California. The lumber industry, the principal manufacturing activity, expanded moderately from the winter low but in recent months has tended to decline slightly. Employment in iron and steel, aluminum, and shipbuilding has also de clined in most months this year. These declines have been offset in part by a moderate increase in aircraft em ployment. Employment gains in the nondurable goods in dustries starting in April have accounted for most of the gain in total manufacturing employment in the period April through July. Manufacturing employment in Oregon has increased more consistently and more rapidly since February than in either Washington or California. It must be remem bered, however, that employment last winter wTas more depressed in Oregon than in the other coastal states. Even with the greater increases since the past winter, Oregon manufacturing employment is further behind last year than Washington or California. The important factor in Oregon has been lumber employment, but the rate of in crease above the winter low for this industry was less September 1949 than in 1948 and 15 percent fewer persons were engaged in lumbering during July than a year earlier. Not unlike its neighbors, Oregon reported declines in metal and ma chinery employment in most of the first 7 months this year. The job outlook Labor market reports issued by most District states reveal little concern over the maintenance of employment during the rest of this year. In fact, some further increase is anticipated except for the seasonal decline in lumbering later in the year. Two clouds on the horizon may create some problems in individual communities. The possibility that a significant amount of airplane production may be moved from Seattle to an inland point would mean a sharp curtailment in its principal manufacturing indus try. The 26,000 aircraft workers in Seattle account for 40 percent of the manufacturing employment in the Se attle area and 15 percent of the state's manufacturing em ployment. The plan to reduce civilian employment in military es tablishments will cause layoffs in a number of District communities, principally in California. On the whole the problem generally is not so severe as originally indicated except in one or two cities. The order to drop about 17,000 jobs does not mean that many additional layoffs will occur. A number of defense establishments had al ready made some curtailments prior to the order and for some of these the additional layoffs necessary to achieve the new limit will be negligible. Nevertheless, the Long Beach area will be confronted by a sizeable loss of job opportunities with the closing of the naval shipyard at Terminal Island. Government buys surplus fruit The major development in Twelfth District agriculture in August has been the large surpluses of many fruit crops. California’s deciduous fruit growers are having one of their worst seasons in years. Bumper crops, the virtual loss of foreign markets, and large carryovers from last year’s pack will probably result in substantial losses for many growers. Since fruit crops are not favored with price supports, prices have dropped sharply from last year’s levels. So bountiful was this year’s peach crop that growers and canners upped the size requirement for No. 1 peaches, leaving more of the crop to be wasted. Even so, grower prices for canning clings dropped from the $65 per ton received last year to $40. Pear growers had to face not only a large crop but also the tie-up of pineapple ship ments from Hawaii. Pineapple is a component of fruit cocktail in which most of the canning pears are utilized. Growers are getting around $40 per ton compared with $125 received last year. Other fruit growers have been faring almost as badly. Gravenstein apple crop producers found they had 1 mil lion boxes more than could be absorbed through the usual outlets. The grape and raisin industry has been plagued September 1949 M O N T H L Y REVIEW with its perennial surplus problem. Even fruit growers in Washington and Oregon have been troubled with un marketable surpluses. The Department of Agriculture, at the growers’ re quest, attempted to relieve the situation somewhat by purchasing some of the surpluses, chiefly for use in the school lunch program and in eligible institutions. A total of 135 cars of Gravenstein apples and 783 cars of Bartlett pears were bought in California and a smaller quantity of pears was purchased in Oregon. Canned peach pur chases amounted to 937,210 cases, largely from Califor nia, with small quantities taken in Oregon and Washing ton. Small quantities of dried fruits will be purchased this year, and export subsidies and diversion payments will also be used to ease dried fruit surpluses. In spite of these various relief measures, however, many fruit growers will face heavy losses in markets depressed by oversupplies. Cotton allotments increased District cotton growers received good news recently when the President signed legislation amending the A A A of 1938. The amendment modernizes the acreage allot ment and marketing quota provisions for cotton which, as they stood, would possibly have reduced District acre age next year about one half. The new legislation, which gives recognition to recent trends in acreages, is partic ularly favorable to states such as California, Arizona, New Mexico, and Texas which have had sharp increases in recent years. If quotas are proclaimed for 1950, which seems likely, and the national base acreage is 22,500,000 acres, California’s allotment would be approximately 688.000 acres. Though this acreage is one-fourth less than that planted this year, it would be considerably larger than any year on record except 1948 and 1949. Arizona’s allotment would be about 241,000 acres compared with 377.000 planted this year and 282,000 last year. Though Arizona has not had so sharp an increase as California in recent years and several past acreages exceed this al lotment, it still is considerably larger than the 1939-48 average of about 207,000 acres. Mem ber bank reserve requirements reduced During August member bank reserve requirements were reduced as a further step to provide easier credit and to increase the available supply of loanable funds. This followed a series of earlier steps in the same direc tion, the last of which came at the end of June. At that time the Board of Governors of the Federal Reserve System adopted a new policy with respect to open market operations, and Congress let lapse the temporary author ity for consumer credit controls and for maintaining higher reserve requirements. With the expiration of the latter on June 30, required reserves of all member banks were reduced about $800 million and those of Twelfth District member banks about $140 million. Reserve requirements were further reduced by the Board of Governors during August. The reduction was carried out in graduated steps and amounted in total to 99 2 percent on demand deposits and 1 percent on time de posits. The requirements against demand deposits are now 22 percent for central reserve city banks, 18 percent for reserve city banks, and 12 percent for non-reserve city banks. These requirements are 4 percentage points below the legal maximum in the case of central reserve city banks, and 2 percentage points below for all other member banks. The current requirement against time de posits, 5 percent, is uniform for all member banks and is 1 percentage point below the legal maximum. The re duction in required reserves for all member banks ap proximated $1.8 billion, and for Twelfth District mem ber banks, $230 million. Yields on securities lower The investment in Government securities of the greater part of the newly-created excess reserves of banks, and the adoption by the Federal Open Market Committee of a new, more flexible support policy led to a significant drop in the yields (rise in prices) on Government securi ties in the first half of July, particularly on short-term securities. Yields on short-term securities rose slightly in the sec ond half of July, but by the end of the month were still significantly below the month-ago level. These yields re mained relatively firm during August even though banks continued to increase their holdings of Government se curities with funds flowing from the gradual reduction in reserve requirements. This increase in demand was coun terbalanced by continued sale of short-term Governments by the System and by increased offerings of new issues of Treasury bills. The switching out of Treasury bills and certificates to Series D tax and savings notes on the part of some organizations augmented the supply of market able Governments available in the market. Also, some new funds were invested in Series D notes rather than in short-term marketable securities because of the more at tractive yield of the former. System holdings of Treasury bills and certificates of indebtedness declined $1.1 billion during the four weeks ended August 31. In order to build up its cash position, the Treasury increased its offerings of new bills by $100 million a week for a period of six weeks starting with the first issue in August. Lower yields on short-term mar ketable Governments led to considerable switching from such securities to Treasury tax and savings notes. Dur ing August the average rates for the new weekly issues of bills ranged between 1.01 and 1.05 percent, and longerdated certificates of indebtedness were traded on yield bases running from 1.04 to 1.07 percent. Series D savings notes, on the other hand, yield 1.40 percent if held to their three-year maturity. During the first two months of the current fiscal year, net sales of these notes totaled $1.9 billion. This contrasts with net redemptions of about $60 million in the corresponding period a year ago, at which time the yield on these notes was only 1.07 percent if held to maturity and other short-term rates were slightly higher than at present. 100 FEDERAL RESERVE B A N K OF SAN FRAN CISCO September 1949 Coupon rate reduced on certificates of indebtedness quence of lower reserve requirements and lower yields on Government securities, although it should be noted that the rate of growth was substantially higher in the last two than in the earlier wreeks of the period. In recent weeks, some short-term rates in the New York money market have declined slightly, and some New York banks are re ported to be showing more interest in making term loans. Aside from these developments, there is little evidence to suggest that banks throughout the country, including Twelfth District banks, have as yet made any significant changes in their lending policies because of lower reserve requirements and lower yields on Governments. Any changes in lending policy that might flow from these re ductions are likely to develop gradually over a consider able period of time. In any event, the demand for loans will be the primary determinant of the trend in total vol ume outstanding. The Treasury took advantage of the lower structure of interest rates in the market by reducing the coupon rate on new issues of certificates of indebtedness from 1*4 percent, where it had been since last autumn, to 1 % per cent. The Secretary of the Treasury announced on Aug ust 22 that the 2 percent bonds called for redemption on September 15, 1949 would be refunded with a 1 ^ per cent one-year certificate. A similar certificate of indebt edness will be offered to refund the certificates maturing on October 1, 1949, while a Treasury note will be used to refund the Treasury bonds called for redemption on December 15, 1949. It has been characteristic of the postwar period to date that the demand for loans has shown a sharp seasonal in crease in the second half of the year. In the country as a whole, the volume of commercial, industrial, and agricul tural loans of member banks declined during the first half of 1948, and then registered a significant seasonal increase in the second half of the year. This year, the $463 million increase in such loans which occurred on the books of the weekly reporting member banks from early August through September 21 was about four-fifths as large as the increase in the corresponding period of 1948. The yield to maturity on Treasury tax and savings notes was raised from 1.07 percent to 1.40 percent ef fective September 1, 1948, when the sale of a new series, Series D, supplanted the sale of Series C notes. Until early August of this year, Series D notes had been sold at par and were dated as of the first day of the month in which payment for them was made. Purchase of the notes late in the month meant the receipt of a month's interest “free” and hence raised the yield on the notes somewhat. To bring the yield on these notes more in line with the lower yields recently prevailing on other short-term Gov ernment securities, the Treasury announced on August 10, 1949 that thereafter the tax notes would be sold at par plus accrued interest from the first day of the month in which purchased to the day on which payment is made. Bank loans increase seasonally After declining almost continuously during the first seven months of this year, the volume of commercial, in dustrial, and agricultural loans of all weekly reporting member banks in the nation increased for seven consecu tive weeks ending September 21. This increase appears to be largely seasonal in character rather than a conse The volume of business and agricultural loans at weekly reporting member banks has followed a more ir regular course in recent weeks in the Twelfth District than in the country as a whole. The net increase in these loans for the five weeks ending September 7 was negli gible in the District, but in the subsequent two weeks their rate of growth in the District was about equal to that in the country as a whole. THE DEVALUATION OF THE M EXICAN PESO and foreign exchange difficulties which be gan in Mexico early in 1947 as a manifestation of postwar economic adjustment led in July 1948 to the sus pension of the dollar-peso ratio of 4.85 pesos for one dollar, which had been in effect for about seven years. The peso depreciated in the following months and at the end of 1948 was quoted at 6.85 pesos to the dollar. But it could not be maintained at that level. At the end of April 1949 the peso rate began to fall again, and by the end of May reached the level of 8.50 pesos to the dollar. Early in June it recuperated to about 8 pesos to the dollar. After consultations with the United States and with the International Monetary Fund, the Mexican Government established, as of June 17, 1949, a new dollar-peso ratio, 8.65 pesos to the dollar. For this measure additional as sistance from the United States Treasury and from the International Monetary Fund has been assured. c o n o m ic E United States-Latin American trade The Second World War meant for Mexico and other Latin American countries a great increase in economic activity, in export trade, and in the accumulation of gold and dollar reserves. United States exports to the twenty Latin American republics rose from an annual average of $552.7 million during the period 1936-40 to $950.3 mil lion from 1941 to 1945. United States imports from these countries during the corresponding periods rose from $555.2 million to $1,310.4 million. Thus while trade dur ing the five years before the war was almost balanced, during the war years there arose a favorable average an nual surplus of exports from the twenty Latin-American republics to the United States of about $360 million. That development took place because the United States needed large quantities of raw materials and staples from Latin America, while at the same time urgent needs of our September 1949 M O N T H L Y REVIEW economy and of the warring allies precluded a comparable increase in exports to Latin America. With the end of hostilities, the situation changed radically. From 1946 to 1948, United States exports to the Latin American re publics averaged $3,039.5 million annually and imports $2,101.4 million, resulting in an average annual export surplus for the United States of $938.1 million. In this development lies the basic reason for the general dollar shortage in Latin America. The large imports by Latin American countries after the war are explained by a large pent-up demand for various consumers' goods, including many food staples. Moreover, many of the Latin American countries have been engaged in ambitious programs of industrialization which have greatly increased the need for capital goods imports. Large import surpluses have been paid for partly by accumulated foreign exchange and gold reserves, and partly by new credits from the United States. But per sisting large import surpluses on the one hand and dwin dling dollar reserves on the other made import controls necessary, particularly with regard to commodities con sidered non-essential. But even though such measures succeeded in cutting in half the Latin American import surplus from the United States from 1947 to 1948, this surplus has not been eliminated and has led to currency adjustments, further call on foreign credits, and the in troduction of still stricter import controls. Mexican foreign trade after the war Mexico's exports and imports since 1946 have devel oped as follows: (------Jan .-June------^ 1946 1947 1948 1949 (in millions of pesos) Exports .......................................... Imports, c. i. f................................ 1,545 2,751 1,981 3,363 1,219 1,329 1,653 1,797 Import surplus .......................... 1,206 1,382 110 144 Mexico reduced its import surplus by three-fourths from 1947 to 1948 by a combination of increased exports and reduced imports. The import surplus during the first six months of 1949 was slightly larger than a year earlier. Mexican foreign trade in May and June 1949 showed an export surplus, however, for the first time since early 1948. The basic concern of Mexican foreign trade is trade with the United States. The United States share in Mexi can foreign trade is shown in the following table (in per cent) : January-June 1947 .............................................. July-December 1947 ............................................ January-June 1948 .............................................. July-September 1948 .......................................... E x p o r ts to U . S . Im p o rts fr o m U . S . 71.7 82.3 70.5 80.9 88.1 88.8 88.1 82.7 United States trade with Mexico since the war has been as follows: Jan.«June 1946 1947 1948 1949 (in millions of dollars) Exports to Mexico .. Imports from Mexico 505.2 232.8 630.0 247.2 520.8 246.0 252.7 139.6 Export surplus . . . 272.4 382.8 274.8 113.1 101 During 1948 and the first six months of 1949, a some what more favorable relationship from the Mexican point of view has developed in the trade with the United States, but the Mexican import surplus from the United States still runs at an annual rate of a quarter billion dollars. Fall in foreign exchange reserves A consequence of the worsened international economic position of Mexico was the fall in the reserves of gold and foreign exchange. The gold reserve of the Bank of Mexico fell from $292 million in 1945 to $180 million in 1946, $100 million in 1947, and $44 million in August 1948, the last available figure. Foreign exchange and gold reserves of private Mexican credit institutions remained during this period, with some fluctuations, at about $30 million. Short-term dollar assets in the United States (both private and government), as reported by United States banks, fell from $152 million at the end of 1946 to $139 million at the end of 1947, but rose again to $147 million at the end of 1948 and $158 million in May 1949. The peso under pressure The unfavorable developments in the international eco nomic position of Mexico have exerted great pressure on the Mexican peso. This pressure was increased by the rise in bank note circulation and the enlargement of de posit money. Bank note circulation rose from 1,732 mil lion pesos at the end of 1946 to 1,757 million at the end of 1947 and to 2,117 million at the end of 1948, but it de clined somewhat during the first three months of 1949. Deposits rose from 1,786 million at the end of 1946 to 1,833 million at the end of 1948 and 1,866 million pesos at the end of March 1949. The pressure on the peso mounted steadily, especially beginning in the fall of 1947. In July 1948 the Govern ment decided to unpeg the peso from 4.85 to the dollar at which it had been held for about 7 years and let the currency find its own level. There is no exchange control in Mexico, but the Mexican central bank does intervene on the foreign exchange market, primarily to avoid large sudden changes in rates. In this endeavor it has been helped during the past two years by a special peso stabil ization loan of $50 million from the United States Treas ury, granted in May 1947. From 4.85 per dollar in July 1948 the peso fell the following month to an average rate of 6.83. In the ensuing months it fell an additional few points. The average rate for the five-month period Sep tember 1948 to January 1949 was 6.88 pesos per dollar. The persistently unfavorable balance of trade, difficul ties in public finance, declining prices for some essential export articles, and the apparent inability to acquire large loans either from the United States or from the Interna tional Bank kept the peso in a rather unstable position. International financial developments which might possibly affect the peso position were soon reflected in its fluctua tions. For example, the news of the application of a group of London brokers to the International Monetary Fund for permission to sell 12,500 ounces monthly of South 102 FEDERAL RESERVE B A N K OF SA N FRANCISCO African 22-karat gold at $38.20 per ounce over a period of eight months provided the touchoff for the scare in midFebruary 1949. Believing that there would be a general rise in the price of gold, demand increased for Mexican gold coin, but later also for the dollar. At that time the dollar was quoted at 7.00 to 7.50 pesos. Market forces, together with some help from the central bank brought the peso back to a level of between 6.90 to 7.00, which continued until the end of April 1949. The recent episode The peso difficulties at the beginning of May 1949 were reportedly aggravated in May by rumors that the Gov ernment petroleum corporation, the Petroleos Mexicanos, was having difficulty in obtaining large development loans in the United States. This Government corporation has been contemplating a large development program for the Mexican petroleum industry, which would cost something like $470 million over a period of five years. In recent months the Petroleos Mexicanos has concluded an agree ment on a small petroleum developmental loan with a group of American independent oil companies, but ap parently no large loans for that purpose have been ob tained. Petroleum is a key natural resource in the Mexi can economy. If production could be sufficiently in creased and a large exportable surplus achieved, the for eign exchange position of Mexico could be markedly im proved. For reasons of Hemispheric solidarity, national security of the United States, etc., the so-called Wolverton Report1 recommended that the United States Gov ernment consider favorably Mexican requests for loans for the development of the petroleum industry. While difficulties in obtaining large loans in the United States may have been a contributing factor in the peso troubles, the basic weakness was a result of the generally unfavorable international position of the peso. This, in turn, was primarily a consequence of the unfavorable bal ance of trade, in general, and with the United States in particular. Payments for interest on foreign indebtedness and for formerly expropriated foreign property were also an important contributing factor. The unpegging of the peso from the dollar and allowing it to find its “natural level” was intended to establish a peso rate which would correspond to the actual position of the currency and to enable the Mexican authorities to maintain such a rate. The devaluation is also intended to stimulate exports as 1Fuel Investigation— Mexican Petroleum, 80th Congress, 2nd Session, House Report No. 2470, Washington, D. C., 1949, pp. 15-17. September 1949 well as to make imports more expensive with a view toward a closer adjustment of exports and imports. The current stabilization The peso dropped during May to the level of 8.50 pesos for one dollar, but at the beginning of June it recuper ated to 8 pesos to the dollar following rumors that this would be the new stabilization level. After consultation with the United States and the International Monetary Fund the Mexican Government decided, however, to es tablish the new rate at 8.65 pesos for one dollar, a deci sion which was put into effect as of June 17, 1949. But to ensure this new rate the Mexican Government needed new help from abroad. To that effect the United States Treasury Stabilization Fund increased the remaining bal ance (not specified) of the May 1947 peso support loan to $25 million and the Mexican Government was given the right to draw on the International Monetary Fund during the year following the stabilization up to an amount of $22.5 million. To ration even more the use of foreign exchange the Mexican Government issued, following the stabilization, a decree prohibiting a long list of imports, especially vari ous textile products. Furthermore, the Minister of Fi nance outlined a program intended to support the new peso rate and designed to : “maintain the balance reportedly achieved during the first quar ter of the year in the Federal budget; continue the credit policies of Government aimed to prevent inflation by^ directing private banking resources into channels most beneficial to the nation; limit monetary circulation; hold down prices of foods and other essentials so that the income of the working class may retain as much as possible of its buying power; lower import tariff rates on raw and semimanufactured materials and on industrial and agri cultural machinery and equipment, in order to permit of lower do mestic manufacturing costs; retain the 15 percent ad valorem sur tax on exports but not to hamper such trade by higher imposts; further restrict imports of consumer articles; and facilitate ex ports through elimination of some permit requirements and simpli fication of procedure in the case of others.” 1 Subsequently, however, to further stimulate exports, the 15 percent export tax was reduced, with the rate on most items cut sharply to 3 percent. Difficulties of the peso and various other Latin Ameri can currencies form only one aspect of the general world wide problem of the shortage of dollars. But perhaps no other foreign currency is so dependent on United States purchases as is the Mexican peso, and there is little doubt that its future will depend on the development of the United States-Mexican trade and financial relations. 1 Foreign Commerce W eekly, August 1, 1949, p. 24. INCOME PAYMENTS TO INDIVIDUALS— TWELFTH DISTRICT, 19 481 payments to individuals in the Twelfth District again broke all records in 1948. Increases over 1946 and 1947 were not so great, however, in these western ncome 1 The present discussion is based on the data from the annual survey of in come payments by states by the Office of Business Economics of the De partment of Commerce. The article, “ State Income Payments in 1948,” appears in the August 1949 issue of the Survey of Current Business. states as in most other sections of the country. In fact, ever since 1944, the peak year of wartime activity, in come in the District has increased more slowly than in the country as a whole. As the region most heavily in vaded by wartime industries and workers, the District had experienced much greater increases in income than September 1949 M O N T H L Y REVIEW T o t a l I n c o m e P a y m e n t s to I n d iv id u a l s — T w e l f t h D is t r ic t , 1939-48 (amounts in millions) 1939 Arizona ................ $ 227 California ............ 5,047 Idaho.................... 213 Nevada ................ 84 Oregon ................ 587 Utah .................... 243 Washington ........ 1,012 Twelfth District.. 7,413 United States . . . . 70,601 $ 1944 591 13,739 537 213 1,672 644 3,240 20,636 153,306 Percent increase 1939-48 Arizona .......................................... ....263 California ...................................... ....239 Idaho.............................................. ....245 Nevada .......................................... 227 Oregon .......................................... ....264 Utah ................ . . . ........................ 240 Washington ..._ ............................ 254 Twelfth District .......................... ....244 United States .............................. 192 1946 644 15,184 610 237 1,777 695 3,151 22,298 171,548 $ 1944-48 39 24 37 29 28 28 10 23 34 1947 731 16,256 685 259 1,984 773 3,345 24,033 189,212 $ 1946-48 28 13 20 16 20 19 14 14 20 1948 823 17,099 734 275 2,134 825 3,578 25,468 206,011 other parts of the nation. When the war ended, popula tion continued to grow more here than in the rest of the country, while much of the large industrial plant was forced to contract. Peacetime activities, however, were able to expand sufficiently to enable total income and per capita income to continue to expand, except for the period immediately after the war when they declined very slightly (1944-45). With the slower rate of expansion in the District than in the nation, however, its share of the national total has declined from 13.5 percent in 1944 to 12.4 percent in 1948. Yet this is still nearly one-fifth larger than its share in 1939. Factors influencing District’s smaller increase Of the several selected income components listed by the Department of Commerce, only agricultural income declined in the District from 1946 to 1948. The others in creased, but more slowly than the national average, ex cept for Government income payments, which increased slightly more here. Agricultural income increased some what from 1947 to 1948 in the District, but declined 2 percent in the two-year period 1946-48, mainly as a re sult of a 10 percent decline in California in 1947. In the PERCENT CHANGES, 1946 - 48, IN TOTAL INCOME PAYMENTS, AGRICULTURAL AND NONAGRICULTURAL IN C O M E TWELFTH DISTRICT, BY AREAS, AND UNITED STATES 1. Tota! income payments Agricultural income 1 í í:V f :V f f f f íf íf f ím -Nonagricultural income 1=1 +30 £ 3 CALIFORNIA G 2 3 W A S H IN G T O N A N D O R E G O N f C S S ID A H O . ARIZON A . UTAH. NEVADA H l TWELFTH DISTRICT I UNITED STATES P er C a p i t a I n c o m e P a y m e n t s — T w e l f t h D is t r ic t , 1939 . . . $461 California .................... . . . 741 i 1947-48 13 5 7 6 8 7 7 6 9 103 ... 767 Utah ............................ . . . Washington ................ Twelfth District........ . . . United States ............ . . . Percent change 443 California .................. Washington .............. Twelfth District . . . . United States .......... 657 539 1944 1946 $ 991 $1,067 1,589 1,576 1,162 990 1,753 1,448 1,279 1,236 1,073 1,072 1,539 1,339 1,473 1,454 1,215 1,161 1939-48 1944-48 + 153 + 18 + 123 + 4 +205 + 26 + 16 + 119 + 139 + 2 + 15 + 178 — 6 + 147 + 134 + 4 + 162 + 21 1947 $1,135 1,657 1,306 1,860 1,284 1,208 1,419 1,534 1,319 1946-48 + 9 + 5 + 8 — 4 + 5 + 15 + 9 + 6 + 16 1939-48 1948 $1,168 1,651 1,252 1,679 1,302 1,231 1,453 1,536 1,410 1947-48 + 3 i _ 4 — 10 + 1 + 2 + 2 2 + 7 1 Decrease of less than five-tenths of 1 percent. 2 Increase of less than five-tenths of 1 percent. nation, agricultural income increased 17 percent from 1947 to 1948 and 25 percent from 1946 to 1948. Agricul ture in the Far West, and in California particularly, is dependent to a considerable extent upon fruits and spec ialty crops. From 1946 to 1948, both production and prices of fruits and nuts declined, offsetting increases in production and prices of other crops, particularly cotton, and in receipts from livestock marketings. In the Central and Northwestern states, where gains in agricultural in come were the greatest, receipts from farm marketings, especially of corn and wheat, were much higher in 1947 and 1948. From 1946 to 1948, trade and service income rose con siderably less in the Far West than in the rest of the country. This is associated with smaller increases in aver age earnings of employees in trade and service in Cali fornia, which the Department of Commerce attributes mainly to the reduction of both employment and average earnings in the motion picture industry. Manufacturing payrolls, the only other separate income component listed, increased at about the same rate as those in the nation. Per capita income payments remain at high level, while they rise in the nation Per capita income payments rose only fractionally in the District, while they rose 7 percent in the country as a whole. In 1948 per capita income in the District was only 9 percent above the national average, compared with 16 percent in 1947, and 20 percent in 1944. Per capita income in Nevada fell 10 percent, resulting in the loss of her position as top-ranking state, and placing her sixth in line. Income per capita in California remained at 1947’s level ; consequently she fell from fifth to seventh place in the array of high per capita income states. During the year, population increased 6 percent in the District and so did total income payments. It must be remembered, however, that per capita income is merely a statistical average, found by dividing total income payments by pop ulation. Hence the fact that per capita income payments do not change from one period to another does not imply that the distribution of income remained the same. It would be possible for income distribution to change con siderably while the income level remains unchanged. 104 FEDERAL RESERVE B A N K OF SA N FRANCISCO California maintained her position as second highest income state in 1948, though she stepped down from fifth to seventh place in terms of per capita income. In the District, only Arizona surpassed the national increase over 1947 in total income payments. No District state equaled the national increase in per capita income pay ments. Per capita income payments in Idaho and Nevada actually declined from 1947 to 1948. District's relative position may be more favorable in 1949 As the Department of Commerce points out, the na tion-wide decline this year in income from the peak rate reached at the end of 1948 was the result principally of reductions in factory payrolls and agricultural income. In the period January through May 1949, the Twelfth District fared better than the country as a whole com pared with the same period last year. The states where manufacturing employment declined most from last year are those states where manufacturing is of the greatest relative importance. In the Twelfth District, manufactur ing payrolls make up less than 15 percent of total income payments. The year-period decline in manufacturing em ployment in the corresponding months was only slightly over 1 percent in the District, compared with a national decline of about 7 percent. In addition, agriculture in the Twelfth District has fared better compared with last year than in the United States as a whole. Total cash receipts from farm marketings in the District fell 1 percent, com pared with about 5 percent for the nation. Receipts from crops increased more here, mainly because of increased receipts from cotton which is an important source of in come to California and Arizona farmers. Receipts from livestock declined less in the District than in the United States. In the nation, the smaller gain in crop receipts despite abnormally heavy marketings of corn and wheat was a result of lower prices. Though this evidence is inconclusive, it does afford some basis for the belief that District income changes may be more favorable, compared with national changes, than in the last few years. September 1949 EA R N IN G S A N D EXPENSES OF ALL TWELFTH DISTRICT MEMBER B A N K S — JANUARY-JUNE, 1948 A N D 1949 Preliminary earnings figures of all member banks for the first half of 1949 are now available for comparison with similar data covering the fifteen largest banks in the Twelfth District, as re ported in the August M onthly R eview . Nationally, net current earnings rose over 6 percent from the first half of 1948 to the corresponding period this year. For Twelfth District member banks, other than the fifteen largest, the increase was only 1.2 percent, while the large banks showed over 11 percent increase, principally as the result of a new half-year high in earnings on loans. The decline in income from Government securities, although general, was not so pronounced nationally as in this District. Here also, a greater than average increase in operating expenses further reduced earnings growth among member banks other than the first fifteen. Net profits after income taxes of other Twelfth District banks nevertheless increased nearly 11 percent, compared with 5.5 per cent greater profits of the fifteen largest banks. For the country as a whole, the rise was almost 24 percent. In making year-period comparisons of net profits, however, it should be noted that profits for 1948 tended to be understated, since substantial transfers were made by many banks during that year to establish or build up tax-free reserves for bad-debt losses on loans. Comparison is also complicated by the fact that some banks had utilized loan reserves more fully than other banks in earlier years and consequently made smaller additional transfers in 1948. Cash dividends declared in the first half of 1949 amounted to only approximately 40 percent of net profits after taxes both in the Twelfth District and nationally, reflecting a continuance of the conservative dividend policy manifested by most banks, and the desire to increase capital accounts. P ercent C h a n g e s , Ja n u a r y -J u n e , 1948-49 in S elected E a r n in g s a n d E x p e n s e I t e m s of M e m b e r B a n k s (---- T w e l f t h D i s t r i c t — Earnings on loans ...................... Interest and dividends on Government securities ............ Total earnings .............................. Total expenses ............................ Net current earnings .................. Net losses, charge-offs, etc.* . . . Profits before income taxes . . . . Taxes on net income .................. Net profits after income taxes — Cash dividends ............................ 15 l a r g e s t banks O th e r banks U n ite d S ta te s— a ll b a n k s ... + 1 2 .8 -flO.O + 1 1 .0 ... — 5 .5 -4- 7 .6 4 - 5 .5 + 1 1 .1 + 4 0 .7 + 9 . 8 + 2 1 .5 + 5 . 5 + 1 4 .2 — — 2 .7 + 5 .9 + 5 .5 + 6 .2 — 5 6 .3 + 2 0 .3 + 1 2 .6 + 2 3 .6 + 4 .3 ... . .. .. . ... ... ... . .. 6 .2 5 .9 9 .5 + 1 .2 — 2 6 .8 + 1 0 .2 + 6 .5 + 1 0 .8 0 44- *Excess of losses, charge-offs, and transfers to valuation reserves over re coveries, profits, and transfers from valuation reserves. September 1949 104A FEDERAL RESERVE B A N K OF S A N F R A N C ISCO BUSINESS INDEXES—TWELFTH DISTRICT1 (1935-39 average = 100) Industrial production (physical volume)2 Year and Month Petro !eumJ Lumber Crude Refined Cement Lead3 Car Total Cali Dep’ t Dep’t m f’g store fornia loadings store Retail stocks sales food Wheat Electric employ factory (num Copper3 flour3 power* ment4»* payrolls4 ber)2 (value)2 (value)6 prices8** 1929_............ 1930.............. 1931.............. 1932.............. 1933.............. 1934.............. 1935.............. 1936.............. 1937.............. 1938.............. 1939.............. 1940.............. 1941.......... 1942.............. 1943.............. 1944.............. 1945.............. 1946.............. 1947.............. 1948.............. 148 112 77 46 62 67 83 106 113 88 110 120 142 141 137 136 109 130 141 144 129 101 83 78 76 77 92 94 105 110 99 98 102 110 125 137 144 139 147 149 127 107 90 84 81 81 91 98 105 103 103 103 110 116 135 151 160 148 159 162 110 96 74 48 54 70 68 117 112 92 114 124 164 194 160 128 131 165 193 211 171 146 104 75 75 79 89 100 118 96 97 112 113 118 104 93 81 73 98 107 160 106 75 33 26 36 57 98 135 88 122 144 163 188 192 171 137 109 163 153 106 100 101 89 88 95 94 96 99 96 107 103 103 104 115 119 132 128 133 116 83 84 82 73 73 79 85 96 105 102 112 122 136 167 214 231 219 219 256 284 1948 June______________ July.......................... August____________ September________ October___________ November_________ December_________ 128 153 159 155 149 145 141 153 152 153 123 151 153 153 168 167 171 110 155 173 171 207 211 214 219 229 217 196 105 99 108 106 107 115 111 165 159 166 161 152 109 104 115 123 124 123 114 126 122 1949 January___________ February__________ March____________ April______________ May................ ......... June______________ July................ ......... 104 111 131 142 138 137 133 151 152 153 152 149 148 146 174 170 176 169 170 174 162 176 173 195 212 215 219 213 112 107 120 124 126 118r 99 108 129 169 167 159 138 131 128 118 102 82 100 104 108 ' ’ 88 100 112 96 104 118 155 230 306 295 229 175 184 189 111 93 73 54 53 64 78 96 115 101 110 134 224 460 705 694 497 344 401 430 135 116 91 70 70 81 88 103 109 96 104 110 128 137 133 141 134 136 142 134 112 104 92 69 66 74 86 99 106 101 109 119 139 171 203 223 247 305 330 354 134 127 110 86 78 83 88 96 108 101 107 114 137 190 174 179 183 238 300 348 132.0 124.8 104.0 89.8 86.8 93.2 99.6 100.3 104.5 99.0 96.9 97.6 107.9 130.9 143.4 142.1 146.3 167.4 200.3 216.1 273 290 289 294 291 295 298 186 190 192 192 192 191 189 424 440 455 454 452 449 444 135 137 141 146 131 132 131 362 358r 361 350 345 342r 358 339 336r 333 351 346 340 320 216.6 218.1 218.0 217.6 217.1 215.6 216.5 300 297 295 303 304 315 299 185 185 185 186 186 185 181p 430 423 412 412 415 419 432 105 103 118 126 134 139 120 343 309r 325r 339r 340r 336r 323 321 327 342r 33 lr 320 313r 302 217.9 214.1 213.3 215.6 211.0 209.9 206.3 BANKING AND CREDIT STATISTICS—TWELFTH DISTRICT (amounts in millions of dollars) Year and month Condition items of all member banks7 Loans Demand U.S. Total and deposits Gov’ t time discounts securities adjusted8 deposits 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 2,239 2,218 1,898 1,570 1,486 1,469 1,537 1,682 1,871 1,869 1,967 2,130 2,451 2,170 2,106 2,254 2,663 4,068 5,358 6,032 495 467 547 601 720 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 7,247 6,366 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 8,922 8,655 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 6,087 1948 July August September October November December 5,640 5,743 5,848 5,910 5,984 6,032 6,816 6,712 6,394 6,440 6,358 6,366 8,556 8,555 8,661 8,647 8,658 8,655 6,010 6,005 6,003 6,018 5,998 6,087 1949 January February March April May June July August 6,009 5,910 5,899 5,811 5,738 5,762 5,707 5,729 6,382 6,306 6,208 6,230 6,357 6,330 6,548 6,846 8,664 8,330 8,147 8,157 8,154 8,006 8,139 8,221 6,082 6,097 6,102 6,109 6,112 6,179 6,179 6,170 Bank rates on short-term business loans8 Member bank reserves and related items10 Reserve bank credit11 + + + + + + 3.20 + + 3.16 + + *3.27* + ’ 3.23’ + 34 16 21 42 2 7 2 6 1 3 2 2 4 107 214 98 76 9 302 17 Coin and Commercial Treasury currency in operations12 operations12 circulation11 _ + + + Reserves Bank debits index 31 cities«.1« (1935-39 100)2 0 — 53 — 154 — 175 — 110 — 198 — 163 — 227 — 90 240 — 192 — 148 — 596 -1,980 -3,751 -3,534 -3,743 -1,607 — 443 + 472 + 23 + 89 + 154 + 234 + 150 + 257 + 219 + 454 + 157 + 276 + 245 + 420 +1,000 +2,826 +4,486 +4,483 +4,682 +1,329 + 630 - 482 6 16 48 30 18 4 + 14 + 38 + 3 20 + 31 + 96 + + 227 643 + + 708 + 789 + 545 326 — 206 — 209 175 183 147 142 185 242 287 479 549 565 584 754 930 1,232 1,462 1,706 2,033 2,094 2,202 2,420 146 126 97 68 63 72 87 102 111 98 102 110 134 165 211 237 260 298 326 355 15 23 17 12 25 11 _ + + 38 1 427 8 40 2 + + + + 43 12 98 35 7 45 — + + + 11 17 2 8 8 61 2,075 2,065 2,409 2,351 2,323 2,420 354 356 359 363 355 376 2 4 15 6 8 0 20 30 101 7 34 127 — 202 — 53 _ 213 — 194 + + + + + 58 19 6 109 94 5 130 40 54 4 31 11 37 0 16 1 2,329 2,308 2,299 2,264 2,128 2,063 1,997 1,832 356 344 364 354 345 351 344 332 — — — — _ — _ + + — + 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. 8 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 Demand deposits, excluding interbank and U .S. G ov’t deposits, less cash items in process of collection. Monthly data partly estimated. 9 New quarterly series beginning June 1948. Average rates on loans made in five major cities during the first 15 days of the month. End of year and end of month figures. 11 Changes from end of previous month or year. 12 Minus sign indicates flow of funds out of the District in the case of commercial operations, and excess of receipts over disbursements in the case of Treasury operations. 13 Debits to total deposit accounts, excluding inter bank denosits. n— nreliminarv. r— revised. ^Seasonal factors for reo-ent vpars reviserL
@FedFRASER