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MONTHLY
R EVIEW
Of Industrial and Financial Conditions in the New England District
By Frederic H. Curtiss, Chairman and Federal Reserve Agent
FEDERAL
RESERVE
BANK
OF
BOSTON
BOSTON, MASS., MAY I, 1922
VOL. IV
II
..J
NO.
5
THE SITUATION
Confidence in the business situation seems to
be growing.
always seems to be a point during an era of pros-
This is in the face of some de-
perity when production will exceed consump-
cidedly disturbing factors in the situation, such
tion, and after stocks on hand have become bur-
as the rather small chance of much progress being
densome, output is curtailed and there follows
made in the immediate future in the correction
a period of depression until accumulated goods
of European conditions, the coal strike, and the
are used up.
local cotton mill strike.
Emphasis is being
tion until it again equals consumption and
placed rather on the constructive factors, among
finally business is once more prosperous. At the
which are the easing tendency of money rates,
present time industry is apparently in that
Then .factories accelerate produc-
the large volume of credit available, the re-
period of the business cycle when manufacturing
markable investment demand for bonds and
is being speeded up to bring production to a
stocks, the improvement in the farmer's pur-
point where it will equal consumption.
chasing power through considerable increases in
the prices of farm products, and the returning
ability of many concerns to show profits in their
operations.
Strictly speaking, these factors are merely
evidence of an improvement in fundamental conditions. The fact that the supply of goods was
larger than the demand warranted was probably
the most important cause of the depression.
Production was less than consumption for several months during the worst of the depression,
and as a result the supplies of goods are probably
no larger than they should be in view of the
demand.
The history of business clearly shows that there
are recurring sequences of periods of prosperity
and depression-business cycles, as they are
called. These cycles have recurred every few
years in the past, regardless of the growth of the
country, the introduction of machinery, and
even wars; it is accordingly fair to assume that
they will continue to occur in the future. There
An optimistic view of the situation seems at
the moment to apply more to the country as a
whole than to New England, although it may
be that business in this district is merely marking
time, waiting for the textile strike to be settled.
There was considerable falling off in the volume
of business in New England shortly after the
first of the year, although there seems to have
been a recovery during the past month or six
weeks. How much of this is seasonal, due to the
Easter trade, and what part, if any, is a fundamental improvement is difficult to determine.
Manufacturing activity has been slowing down
since last November, al though preliminary estimates for April would indicate that there was
little change compared with March.
A conservatively optimistic attitude would
therefore seem to be a safe one to assume at present, provided one is prepared to change his
opinion on short notice if some of the disturbing
factors in the situation suddenly operate to check
the improvement.
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Federal Reserve Bank of St. Louis
MONTHLY REVIEW OF THE FEDERAL RESERVE BANK OF BOSTON
2
May
1,
INDEX OF MANUFACTURI G ACTIVITY
Manufacturing activity in New England continued its downward trend during March. This
is shown by the index which has been constructed by this bank, and which is graphically
presented on the first chart at the bottom of this
page. This index is based on either the actual
output, the rate at which the machinery is operated, or the number of employees engaged in
many of the leading industries of this district, so
that the fluctuating price of the products of these
industries does not influence the trend of the
curve. Furthermore, adjustment has been made
for the varying number of working days in the
different months, so that the rate of output rather
than the actual size is considered.
Manufacturing activity in this district, after
showing a gradual increase during the major part
of last year, has had a downward tendency since
November. It may be found later that the rate
of manufacturing activity which has been maintained since early winter will prove to be approximately normal for this district. It will be
noticed that the base line on the chart- roorepresents the average rate of manufacturing
activity during the previous period of prosperity,
that is, during the year ending June 30, 1920.
That period of twelve months was one in which
there was a great deal of over-time and speededup production, and is probably the maximum
which could be obtained. It is doubtful if much
more than an average of 80 to 90 per cent. of the
maximum output could be maintained over a
period of years, and it so happens that this index
shows that ew England manufacturers vvere
operating at slightly over 80 per cent. of the maximum during March.
The drop in the index from February to March
RATE
OF
MANUFACTURING
NEW
1919
<..
i:::
I NOUSTR I AL
ACTIVITY
STOCK
PRICES
ENQLAND
1921
1920
701 - - - - t - - - - -\
was due more to the textile strike than to any
other single factor, although the majority of
the industries considered showed declines. Although it cannot be definitely proved, it is probable that a good deal of the slowing down of those
other industries was seasonal. A preliminary
survey indicates that the index for April will be
approximately the same as for March, with even
the possibility that it may be slightly higher.
Many business men believe that the action of
the stock market forecasts the trend of business
activity and particularly of business and industrial profits. History proves that this is usually
the case. Business activity, however, started to
increase at approximately the same time that
securities did, at the close of this recent depression. As nearly as can be gauged by the usual
methods of measuring, both business and stock
prices were at their lowest point last August. It
is probable, however, that security prices have
advanced much more rapidly since that time than
business activity, so that if the stock market contiimes to function as it has for many years past,
it has forecast a further increase in business activity. The chart at the bottom of this column
shows how rapidly the average price of 20 wellknown industrial stocks has risen in the past
eight months.
The volume of trading on the New York Stock
Exchange and the number of different companies
whose securities have been traded in are additional evidence of the returning confidence in the
business situation. The daily number of shares
traded in has averaged well over 1,000,000 since
the middle of April. Following are more detailed discussions of the situation in each of the
several leading industries of New England.
1922
1919
19 2 0
19 21
19 2 2
$ 12 5 , - - - - - - - - - . - - - - - - - - - . - - -----.---- - - - - ,
V- - - - - - t - - - - - - - 1
Ill
\.) 6 0 ~ --+--- -- - + - --
'
- - - - + --
------j
Cl)
(,_
501--- - - + - - - - - - - - + - - - - - - - + - - - - - - ,
$5 0 ~-
40~--+--
---+------t-------t-------,
- - - - + - - - - - - - + - - - -----1
30 L - -- - - - - ' - - - - - - - ' - - - - - - - - ' - - -- -~
Average rate during year ending Jun e 30, 1920 = 100
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Federal Reserve Bank of St. Louis
Based on Dow, Jones & Co.'s average of 20 stocks
MONTHLY REVIEW OF THE FEDERAL RESERVE BANK OF BOSTON
3
\YOOL
The Boston market for raw
wool has been moderately active,
and prices have been higher during the past
month. There still continues to be a scarcity of
some desirable wools in Boston.
The latest government reports which cover the
operation of machinery in woolen and worsted
mills during March show that there has been a
gradual decrease in the rate of production of
cloth since the latter part of last fall. The high
point in the operation of worsted spindles occurred in June, when they were running at over
93 per cent. of capacity, as against 71 per cent. in
March. Woolen spindles, on the other hand,
have been operated at a gradually increasing rate
since the first of the year, and during March ran
at nearer capacity than at any time since the
early part of 1920.
ewsprint
production
in
March increased moderately and
the output of fine paper-the branch of the industry centering in New England-was greater
during that month than at any time since the
closing weeks of 1920. February returns, the
last available for the industry as a whole, indicate a moderate increase in manufacturing activity, but, at the same time, a further increase
in the stocks of finished paper carried by manufacturers. Magazine advertising is increasing at
a more rapid rate than is normally expected at
this season of the year. The volume for April
practically equalled that of a year ago.
The labor situation is uncertain; manufacturers insist upon further reductions in pay, which
union officials claim must result in a strike on
the expiration of the present agreement.
Manufacturing activity in the
New England cotton industry
declined practically without interruption from
November through March, as shown on the chart
at the bottom of the page. There is a considerable underlying demand for cotton goods despite the strike. In fact, the consumption of
cotton in New England during March was equal
to that for the corresponding month last year,
and practically equalled the monthly average for
192r.
The mill consumption of cotton in the
United States, added to the export demand, has
absorbed during the past nine months over a
million bales more than the total of last year's
crop, and indicates that the carry-over into the
next cotton year will be of moderate size. Cloth
markets became active after the middle of April
and sales were in substantial volum·e.
METAL
TRADES
COTTON
MANUFACTURING ACTIVITY
IN THE WOOL I NOUSTRY
NEW
PAPER
Conditions in the metal trade
centers of New England are improving steadily, al though slowly.
Manufacturers have been forced to meet the
competition of large quantities of machinery
and tools purchased during the war-time period
of expansion and thrown upon the second-hand
market during the past year. Purchasers, instead
of sending orders directly to the manufacturer,
have quite generally shopped around and taken
used equipment wherever prices were especially
satisfactory. Second-hand goods have been gradually absorbed, however, and the orders for new
equipment, though not yet of large volume, are
increasing. While the call for products used by
the building trades has thus far constituted the
largest single outlet, demand of a general industrial character is beginning to make itself felt.
MANUFACTURING
IN THE COTTON
ENGLAND
I 20
I 9 2 2
I 9 I 9
ACTIVITY
INDUSTRY
HEW ENGLAND
I 9 2 0
I 9 2 I
I 9 2 2
100
90
80
~
~
60
'(\
e:
::i
:.::
{: 40
~
:.::
Ill
50
::i
~ 50
40
'I:
Ill
'\'i
~
~
~
JO
20.___
JO
__..__
_
___.__
_
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
__.___
___,
60
E:
'<
l(
70
'(\
'(\
50
~
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.,...
60
20 .___
40
JO
__..__ _---'-- ---'--- - - - '
Average rate of manufacturing activity during year ending June 30, 1920
=100
May
MONTHLY REVIEW OF THE FEDERAL RESERVE BANK OF BOSTON
4
1,
The boot and shoe industry in
this district has been quiet for
the past several weeks following
the close of the active producing season for spring
shoes. If business runs true to form and labor
troubles do not interfere, increasing activity
should be expected during the next few months.
The Easter trade in novelties for women was fair,
al though it was largely for shoes to be delivered
immediately. Salesmen now on the road are
returning orders in increasing volume, al though
the net amount of new orders received by represen ta ti ve shoe manufacturers who report to
this bank was not as large during this past March
as in the corresponding month of 19 2 1. The
majority of the orders are for immediate delivery.
The trend of shoe production in New England is
shown on the chart at the bottom of this page.
The chart at the bottom of
this column, showing wood pulp
production and stocks by months since January,
1919, reveals the fact that production was maintained at a fairly high level throughout the
period of depression. Production was at its
height during 1920, while during 1921 the
monthly average was only 75 per cent. of the
figure for the previous year. The curtailment in
production during the months from May to July
of last year was due, in large part, to the strike
in the paper industry. Stocks of wood pulp carried by mills are usually greatest during the late
spring of the year; from that time on they decline rapidly. The la test figures available show
stocks of wood pulp slightly below the seasonal
average for the past three years and almost 20
per cent. less than a year ago.
The building industry continues to have the most optimistic outlook of any of the New England industries. The value of construction con tracts
awarded has been increasing rapidly since the
first of the year. In fact, there was not as much
of a decline during the winter as is normally experienced. A large portion of the new buildings
are residences.
One of the factors which is stimulating building is the fact that building costs have been reduced to such a level that, taken in conjunction
with the present level of rentals, practically as
large a return on capital invested can be obtained
now a in pre-war years. Furthermore, the
credit situation has improved to such an extent
that mortgage money is readily available on
favorable terms .
Employment conditions are,
on the whole, better than a
month ago. Though the textile strike continues,
the actual amount of unemployment in the cotton manufacturing industry is probably no larger
than at the beginning of April. On the other
hand, the number of employees on payrolls in the
metal goods, machinery and tool centers such as
Waterbury, Worcester, Providence and New
Haven has increased steadily enough to indicate
that the trend is definitely upward.
The State Public Employment Offices at
Springfield, Worcester and Boston all report increases in the number of applicants actually
placed. The positions filled, too, were of a more
permanent nature than during previous months,
and seasonal demands no longer dominate the
situation.
BOOTS A?\"'D
SHOES
BUILDING
AVERAGE
OF
SHOE
E I GHT
150
NEW
ENGLAND
1919
VOLUME
RATE
PRODUCT I ON
140
MANUFACTURERS
192 0
1921
1922
OF
WOOD PULP
LABOR
CONSTRUCT I ON
19 2 0
I 9 2 2
1.30 r - -- - - - - + - - - - + - - - + - -12 0 r - -- - - - - + - - - - + --
PULP
WOOD
PRODUCT I ON
19 2 I
4 00
---l
1919
AND
19 2 0
STOCKS
1921
19 2 2
---'------l
I I 0 r - -- - - - - t - - - - + - - - + - - - - - - l
125
10 0 r----fl--'--"-'-''----'--'--'-=!'-""-=----+-1-----l
so r - - - t - - tr ----.it-- - + - - -- t t - ----l
.,
( 100 1
~200
II>
'
<>
~
~
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<:
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~
7 5 , - - - ~ ---+-~ ~ - - - - - , - - - - - - - ;
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,'S t o c k ~
150
\-!-
,
',
V
IO0 r - - - - - + - - - - + - - - - ' - - - - - - t
---l
,,~ ~I ]
Ba,e<l on reports to the Federal Reserve Bank
of Boston.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Based on F . W . Dodge Co . 's sta tistics.
Sta tistics are from the Federal Trade Commission.
5
MONTHLY REVIEW OF THE FEDERAL RESERVE BANK OF BOSTON
MO
EY A D BA KING
The credit situation in New England has continued to improve during the past month, and
there is now a surplus of loanable funds, especially in Boston. In fact, the Federal Reserve
Bank of Boston is loaning less to its member
banks now than at any time since 1917, when the
Federal Reserve System was just beginning to
find its place in the banking scheme. Not only
is it steadily becoming easier to obtain credit,
but money rates continue to have a tendency
to decline. This improvement is not peculiar
to this section of the country, but seems to be
general throughout the United States, and, in
fact, in many foreign countries. For instance,
the Bank of England has recently found it possible to reduce its rate to 4 per cent., while the
rediscount rate of the largest Reserve Banks in
this country remains at 4,½' per cent. Another
evidence of the easing tendency in credit is the
recent offering by the United States Treasury of
Certificates of Indebtedness bearing only 3,½' per
cent. interest, the lowest for this kind of loan since
1917. If it were not for the enormous investment demand for credit, the present subnormal
industrial needs would cause interest rates to be
even lower than they are today. The first chart
at the bottom of this page shows that the rapid
fall in interest rates, which was interrupted
shortly after the first of the year, has been resumed.
The second chart shows that the
strengthening in the reserve position of the entire System continues without abatement.
Loans of the Boston banks to their customers
now total less than at any time since 1919. The
Boston banks in turn, as already noted, have cut
down their borrowings from the Federal Reserve
Bank until on April 26 they were at lowest point
BOSTON
191:i
1916
MONEY
1917
1918
since 1917, and barely one-sixth as large as at
the first of this year. The loans of other New
England banks to their customers, however,
have not fallen off materially since the beginning
of the year. In fact, a group of 65 banks which
make returns regularly to the Federal Reserve
Bank reported that on April 12 their customers
were borrowing more from them than on either
April 5 or March 29. As a result, these so-called
country banks, that is, the member banks situated elsewhere in ew England than Boston,
have not been able to reduce their borrowings
from the Federal Reserve Bank to the same extent that the Boston banks have. On April 26
the Reserve Bank was loaning three times as
much to the country banks as to the Boston
banks, a condition which has not occurred since
1918 at least.
The deposits of the member banks in this district have increased, while the loans have been
declining. The demand deposits in the average
country bank are now higher than at any time
since the fall of 1920.
The United States Treasury announced a new
issue of Treasury Certificates bearing 3,½' per
cent. on April 15. Subscriptions were received
ew
for twice the amount offered, al though
England oversubscribed its quota and allotment by only one-third.
Money rates in the open market at Boston on
April 2 6 were as follows:
Commercial Banks to Customers
Brokers' Call Money .
90-day Bankers' Acceptances, unendorsed
Commercial Paper (1 ote Brokers)
Year Collateral Loans
MARKET
1919
1920
MONTHLY
1921
1922
100
90
60
70
"Ill
60
~
"'
!50
I...
Ill
~
3 t - - - + --
--+--
- - + - - - - l - - + --
- + - - - + - -----l
Q:
~
40
30
2 1 - - - + - - - + - - ----l
N t N£TY fJAY
MATVR I T / £..J
_
l?eo'i scovnt f?qfe,
/'eo'en,/ ,t?eserve&nlr o/' Bouton,
____ Brokers• Commerc/o / P<7,PBr.
0 '-----'-----'-----'-------------'
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Federal Reserve Bank of St. Louis
20
10
0
1915
1916
AVERAGE
1917
1910
RESERVE
1919
1920
-! ½ to s%
s%
. 3¼%
4¼ to 4½%
s%
RAT I 06
1921
1922
6
May
MONTHLY REVIEW OF THE FEDERAL RESERVE BANK OF BOSTON
1,
RETAIL TRADE
The net sales during March of the Boston department stores which regularly report to this
bank did not equal those for March last year,
but were 8.3 per cent. less. Even though the
total for March was larger than for February,
the increase was not as much as would normally
be expected. The fact that Easter came in
March last year and in April this year undoubtedly is the main cause of poor showing.
Then, too, the weather has been unusually cool
this spring.
Reporting department stores situated in New
England cities other than Boston experienced as
large a seasonal increase in the volume of their
sales between February and March as the results
of the past three years warranted. At the same
time, in neither of the first three months of this
year has the dollar total of their sales been equal
to that of either of the corresponding months of
1920 or 1921.
Preliminary reports show that the volume of
trade was relatively good during the first two
weeks of April, while the Easter buying was in
full force. In fact retail trade should now be at
its height for the spring season.
A study of the number of sales made by the
various department stores continues to show the
effect of the decline in retail prices on the dollar
value of net sales. Five Boston department
stores are able to report these statistics, and show
Net Sales
during Mar. 1922
compared with
Mar. 1921 Feb. 1922
- 8.3%
8 Boston Department Stores
18 Outside Department Stores
-13 . 9 %
Total 26 Department Stores
- 9.5%
4 Boston Women's Apparel Shops -28 . 1%
7
* 3 " omen's Appa rel Shops.
NET
EIGHT
2 50
Jan .
Fel:>.
Mar.
BOST.ON
Apr:
+31.5 %
+24.6 %
+30 . 0 %
+40 .2%
that, whereas net sales in dollars declined 1 r. 5
per cent. between March, 1921, and March this
year, the number of sales made declined but 5.7
per cent. In five other New England department stores the decline in dollar value of sales
was 18.7 per cent., whereas the number fell but
15.3 per cent.
Stocks of goods maintained by department
stores, both in Boston and in other New England
cities, increased during March, following the
usual seasonal tendency. In both instances,
stocks on hand on the last day of March were
valued at a larger sum than on the corresponding date last year. This would indicate that
merchants' stocks are as large as customary
at this time of the year, even though they are
buying more or less from hand to mouth.
The outs tan ding orders of seven Boston department stores on March 31, amounting to 5.94
per cent. of the cost of their previous year's purchases, compared closely with the corresponding
figure for last year of 5. 70 percent. On the other
hand, the other New England department stores
had only slightly more than half as many outs tan ding orders at the end of March this year as
they had last year- 6.20 per cent. as against 1 r.01
per cent. The reporting women's apparel shops
are buying fewer goods for future delivery than
the department stores, their outstanding orders
amounting to but 3.6 per cent.
N et Sales
J an. , Feb. and
Mar. 1922
compared with
same period
1921
-6.6 %
-9.6 %
-7.3 %
-25.6 %
Stocks at R etail
Mar. 31, 1922
compared with
Mar. 31, 1921 Feb. 28, 1922
NET
EI QHTEEN
STOKEi
May June July Aug. 5ept. Oct.
Nov. Dec.
2:50
I
Jan.
SALES
DEPARTMENT STORES IN NEW
OTHER THAN BOSTON
Mar.
Feb.
Apr.
-5.7% (s stores)
-15 . 3% (s stores)
-6.9% (IO stores)
(No Data)
ENGLAND
CIT I El
May June July Aug . .Sept. Oct.
Nov.
200
I
1,
I
;-
~
,v'
,_
I
__ --- ,... ..\
/-- -J
1921
~ ,/11922
V
I
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I
\
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/
\
\
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I
/
/
/
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150
I..
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{;
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70
70
60
60
50
50
40
40
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Dec.
I
I
200
Sales Transactions
during Mar. 1922
compared with
Mar. 1921
2. 98
4 . 80
3.37
2 . 09*
SALES
DEPARTMENT
Ratio of
Stocks to
Net Sales
during
Mar. 1922
I
,..- -----
/ [/
"'
I" \.'/
1.922
Monthly average Net Sales, January to Jun e, 1919
= 100
---1921
-~,
/
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I
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/ .......... -..JI
/
I
7
~IONTHLY REVIEW OF THE FEDERAL RESERVE BANK OF BOSTON
COMMODITY PRICES
The trend of wholesale commodity prices
serves as a good index of the condition of business. Therefore, it is encouraging to note that
the average wholesale price of over 3 2 5 commodi ties, as compiled by the United States Department of Labor, has been holding steady since
last summer at a level 50 per cent. higher than in
1913.
Several other well-known indices which
do not comprise as many commodities as that of
the United States Department of Labor have
even had a slight upward tendency for several
months, thus coinciding with the gradual improvement in business.
The first chart at the bottom of this page not
only shows the trend of wholesale prices but also
compares it with the change in the cost of living
in Massachusetts. As a general rule, wholesale
prices are more sensitive to change than retail
prices, which accounts for the fact that the cost
of living did not rise as rapidly nor as high as
wholesale prices and, on the ·other hand, has not
experienced the same decline. Both indices are
in agreement, however, in showing that the rapid
fall of prices ended in the summer of 19 21 and
that there has been Ii t tle change since that time.
It is significant that both the cost of living and
wholesale prices are about equally high as compared with the pre-war level. This fact is
brought out even more clearly by the second
chart on the page, where comparisons are made
between retail and wholesale food prices. The
complaint is of ten heard that retail prices have
not declined as much as the fall in wholesale
quotations would warrant. These tabulations,
which are based on government data, would
seem to prove that this is true to only a small
degree. It does not indicate by any means that
FOOD
COST OF LIVING AND
WHOLESALE COMMODITY PRICES
1916
1917
1918
RETAIL
1916
1919 1920 1921 1922
1917
retail merchants are profiteering but rather that
their selling costs and overhead expenses have
not been reduced in proportion to the fall in
wholesale quotations. The tendency of wholesale prices to advance further and faster than
retail prices is again shown on this chart as well
as the contrary tendency during the period of
decline. While retail food prices have been
relatively higher than wholesale quotations since
the latter part of 1920, it should be noted that
they were relatively lower for several years prior
to that time.
The most important phase in the price situation is the maladjustment between the price level
of various groups of commodities, particularly as
it affects the purchasing power of the farmer. It
is more important to the farmer that his wheat,
corn, hogs and other produce, when sold, should
bring him such a price that he may buy the other
commodities which he needs than that wheat
should be pegged at $3.00 a bushel, for instance,
or corn at $1.00 a bushel. In other words, the
important thing is the relationship which one
group of commodities bears to another rather
than the price in dollars. It is encouraging,
therefore, to note the rapid rise in the price of
many farm products since the first of this year,
while the average commodity price has either remained stationary or, at the most, slightly increased. Wheat has risen almost 50 per cent.
since January 1, indicating; therefore, that the
purchasing power of the farmer's wheat has been
greatly enhanced. This is shown on the third
chart at the bottom of this page. If the present
advantage can be maintained until the coming
crops are harvested, business should receive considerable added stimulus.
PRICES
AND
1918
PURCHASING POWER OF WHEAT
WHOLESALE
1919
1919 1920 1921 1922
1920
1921
1922
+30,--- - - - , - - - - - . - - - -- - - r - --,
300 ~--.--,------,---,-----,----,-----,
300~--,--,------.---,----.---,-----,
I
2:10
~
200
~
_jw:::~:}:'
WhoJe.,a~ef
\,lT--- + - - - - i
: # · • . . , . . , , - ; •'
1
<
I :10 _
2 :10 f---+----<--+------,., L-!: +---+---I
- - 4 - - + - - - + - - ,_ / \_,
\ f---+----<
./
_,__
__,___,___ + - - + -___,__..,_---,
200 t - - - + - - + - - + ;
r-·
~
~
~
<
....
I;:
<I)
~
I 50 t - -~l'--Al-+ - - - + - - + - - - - , , ,\-jl> , _
_
~
....
le
0·~-4--4-------~=-yf-C==-
<?'.
{
i:::
'
7 :I ' - - - - - - - ' - - - ' - - - - - - ' - - - ' - - - - - - ' - - ~ ~
Price sta tistics are from th e U. S. Depa rtmen t of Labor.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-30 • - - - - ' - -
Purchasing power of wheat computed by th e Federal R e erve Bank of Boston
8
1IONTHLY REVIEW
THE ELEME TS OF FOREIG
The exchange of commodities as between
countries is essentially as simple as the exchange
of commodities within a country. Goods are
purchased by individuals and companies in one
country from those in another country, the foreign exchange problems being those that arise in
making payments.
If these payments could always be made in
the currency of the country in which the debtor
lived the problem from his point of view would
be simple, but the creditor, if an American merchant at the present time, would be placed in an
embarrassing position were such the procedure;
he has received for his copper, cotton and wheat
a miscellaneous assort.men t of paper money
issued by various European governments. He
cannot pay his employees in this country with
that paper money, for it is legal tender only in
the country of its issue; he cannot even use it in
the purchase of raw materials, unless by chance
those happen to come from the particular country whose paper moriey he holds. The paper
money itself in such times as these is of varying
value, and may, as in the cac:e of Russia, become
almost worthless . Paper money, then, though
circulating freely within the country of its origin,
cannot be used directly or even indirectly to advantage in the settlemen i of debts owed abroad.
This was not a matter of importance before the
war because most commercial nations had
adopted a gold standard as the basis of their
monetary systems and at all times stood ready to
redeem their money at face value in gold. An
importer under such circumstances could have
INTERNATIONAL
1917
COMMODITY
1918
1919
presented his paper money at the national treasury and received for it gold which he could hip
to creditors the world over. In actual practice,
however, it was much simpler to deal with banks
specializing in such matters, as their maximum
charge for the service was usually considerably
less than would have been the expense to the.
individual to effect the exchange directly.
The foreign funds purchased by banks from
exporters are usually about large enough to offset the corresponding demand from .importers;
and actual shipment of gold is necessary only to
the extent required to make the transactions
balance.
If all the commercial countries of the world
were today on a gold standard the value of their
money in any part of the world would vary from
par (or what the gold content of their coin would
fetch in the open market) only to the trifling extent warranted by the expense of shipping the
desired gold, whether the British pound sterling
or the American dollar, to the place where it \va
needed; a greater charge by banks for this service would lead to the actual shipment of gold,
inconvenient as it might have been, by the merchants themselves. But when the European
nations refused to redeem their paper currency
in gold, the one definite yardstick for determining its value was destroyed. As long as Great
Britain was willing to give as much gold for a
pound sterling note as was contained in 4. 87
American dollars, and Germany was willing to
give for the mark about a quarter as much as
would be contained in the American dollar, the
gold content of these coins in which their paper
PRICES
1920
1921
I,
EXCHA GE
WHOLESALE
UN I TED
1916
May
OF THE FEDERAL RESERVE BAKK OF BOSTOK
1922
1919
PRICES
&TATU
19 2 0
AND
IN
GOLD
ENGLAND
19 21
I9 2 2
JOO ~ - - - ~ - - - - ~ - - - ~ - - - - -
500 t - - - - t - - - - - t - - - - - - , r - - 400
\
............·"--
(200..-...~- - ~ ~ - -_._.,-+----
----+-------<
~
<:I
l::
::i
'<:
ISi .3 Ave RAGC
United States Index is that of the U.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
---
O ~ - - - ~ -- - - - + - -- - - ~ - -- - -
. Departm ent of Labor; English, the Statist; French, the General Statistical Bureau; Italian, Professor Bachi
MONTHLY REVIEW OF THE FEDER.\L RESERVE BANK OF BOSTON
9
THE ELEME TS OF FOREIGN EXCHA GE-Continued
was redeemable served as a common measure of
value the world over.
The destruction of this link left the world with
no definite method of valuing such paper currencies other than the time-worn one of the market,
balancing supply offered through the channels
of foreign trade against the demand for it. The
paper money issues of most countries soon
reached such a scale as to make it impossible for
the issuing government to redeem them in gold.
Under such conditions gold naturally disappeared
from circulation; no one would use gold in discharging a debt that was legally payable in
paper. Within a country like France, for instance, the paper franc circulated freely and the
Frenchman ordinarily 'though t of it as being
depreciated only when entering international
trade, where he saw that it took more francs than
previously to equal the American dollar. In
this, hmYever, he was deceived, since the commodity price level within the country steadily
increa ed with inflation in the currency situation,
and the franc depreciated in France just as truly
as in international market . This is shown
strikingly by the first chart on the preceding
page, which shows the price level of commoditie at wholesale in the United States and
various European nations.
Heavy irredeemable paper issues inevitably
result in approximately the same depreciation
in currency, whether measured in international
dealings by the discount it suffers as compared
with gold, or internally, by the higher level of
commodity prices. Commodity prices in Europe
and the United States have, in fact, been on
nearly the same level during the whole of the
reconstruction era, when measured by the same
UNITED
S TATES
FORE IGN
EXCHA NGE
INDE X
yardstick: gold. This is shown most clearly in
the chart entitled "English and American commodity prices on a gold basis.'' Such difference
as do exist are attributable largely to temporary
differences in the supply and demand for bills of
exchange, differences in tariff and fiscal policies.
As to the future, anything which improves the
prospect of eventual redemption of paper money
in gold or the attainment of a lower level of commodity prices in terms of gold naturally enhances
its value; such factors as increased government
economy, heavier revenue through taxation,
curtailment in the quantity of paper money in
circulation and a strengthening of the nation's
financial position through a gain in exports in
comparison with imports, are thoroughly constructive factors.
The recovery in sterling exchange, for instance,
-shown by the chart at the bottom of this column- is due to a substantial reduction in the
volume of inflated wartime paper currency, a
national budget that is balanced, and dealings
with the rest of the world that are beginning to
accumulate credit balances in Great Britain's
favor. The other chart at the bottom of this
page, based upon the exchange rates with the
more important commercial nations, shows in the
declining value of the American dollar since last
autumn a gradual improvement in conditions
throughout the world. The fact that the currencies of those nations which have followed
sound financial policies have most nearly regained their pre-war values indicates that the
upward movement in their foreign exchange
rates rests upon a sound appraisal of economic
realities, and not merely upon the speculative
influences of the moment.
P OUND
S T E RL I NG
NEW
250~
19 19
19 2 0
'i:::
~
19 21
19 2 2
1919
E XC HANG E
VOftK
1920
1921
1922
$5 .oo _ _ _ _~ - - - ~ - - - - - -
--+------+------
I OO r . o - - ' - - - - - + - _ _ _ ; . . P..;_
A ;.;.,;R_
·
1..
~
~
50
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
$ 0 .00 ~ -
Foreign Excha nge Index compil ed by th e F ederal Resen e Boan!
=:='C=:::
~ \...r----.... - - 1
MONTHLY REVIEW OF THE FEDERAL RESERVE BANK OF BOSTON
IO
The coal strike which started
on April 1 has almost entirely
stopped hard coal production,
and has very seriously curtailed soft coal output.
This is shown graphically on the chart at the
bottom of this column. Many non-union mines
are affected, as well as the others. The unions,
in fact, have been making some headway in the
non-union fields since April 1, and as a result soft
coal production dwindled continuously during
the first three weeks of the month. The strike
in the bituminous industry has proved so far to
be as effective as the great strike of 1919 was at
its worst, daily average production during the
first of that period and the past month having
been practically the same. During the strike of
1919, however, output remained very low for
only a week or two, whereas, as stated before,
there has been no gain in production since the
present strike began. Notwithstanding the seriousness of the shut-down, operators of non-union
mines claim that there has not been enough demand from consumers, in view of the large stocks
on hand, to enable them to run at capacity. To
some extent their statement is borne out by
the lack of an increase in the price for coal
available for delivery.
On the other hand,
several instances have been reported of steel
mills which have had to shut down for lack
of coal.
The strike has already had some effect on New
England, many employees being thrown out of
work by the railroads because of the reduced
number of cars they have had to handle since
very little coal has been coming through the socalled "gateways" in to ew England.
Present indications are that the strike will be
a long one.
COAL
PRODUCTIO_
BI TUM I NOUS
AVERAGE
COAL
PER
1921
2 . 5
Joi\.
reb. Mor
r. Ma
J1o1ne Jul
The falling off in the export
trade in manufactured goods has
been a matter of serious concern
to many industries. It is of direct interest to
New England because of its importance as a
manufacturing center. The chart at the bottom
of this column shows the trend since 1919 of the
exports (expressed in terms of dollars) of metalworking machinery, such as lathes, boring and
drilling machines-products of the type in which
southern New England specializes. As the chart
shows, current shipments of these machines are
but a Emall fraction of what they were three
years ago. A part of the decline in the dollar
value of metal-working machinery exports is due
to reductions in the selling prices of the machines
themselves, although the major portion is caused
by an actual falling off in the number of machines
shipped. Exports of shoe machinery, another
prominent New England product, have been
small, the value of those in February, for instance, totalling only one-fifth the value of those
exported during the corresponding mon th last
year. Typewriters, on the other hand, have
been in a more favorable position, due to the
fact that European demand has been holding up
very well. Exports of textile machinery have
also been well maintained, especially to various
parts of the Orient. In this connection it is significant to note that exports of raw cotton to
Japan have been of unprecedented size during
recent years. There are indications that Great
Britain is losing a portion of what almost
amounted to a monopoly of the cotton goods
trade in the Far East. If Japan and China continue to increase their production of cotton goods
the outlet afforded for
ew England textile
machinery should be an extremely valuable one.
EXPORTS
OF
METAL
WORK I NG
MACH I NERY
DAY
1922
Au .,,
1,
MACHINERY
EXPORTS
PRODUCT I ON
WORK I Nii
May
Oc t Nov De c. Jon. l"e llM, r. A r. Mo JMM Jw l
1919
I9 2 0
1921
1922
9 ,----------~--------
Au 3 e I. Oct Nov. OeG.
8 t - - - - - - - , i r - - - - - - - + - - - - - - - - - 1 - - - -- + - - - -
2.0 t----+---+----+--------lt----t----+----+-----!
.,
~
6 f-tt-----nc + - - - - + - - - - - t - - - - - - - - - - -
:::::
~
~ ~~ - - - - - I , - - - - ' - - - - - - -- -
0 -~t----+---+----+----t----t----+----+-----!
o.____._....___--'-_ _ _ _.......___...____.__,_....__-'---'-___.__ _
Statisti cs are from the U. S. Geolog ical Survey
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
~
I
0
Light lin e represents actua I monthly figures, heavy line the general trend.
I I
MONTHLY REVIEW OF THE FEDERAL RESERVE BANK OF BOSTON
Condition of Selected Member Banks
(In Thousands of Dollars)
Banks in Boston.
Banks in Portland, Fall River, New lledford,
Springfield, Worcester, Providence,
Hartford and New Haven.
Change since
Change since
Apr. 15,'21 Apr. 18,'22 Mar. 15.'22 Apr. 15,'21 Apr. 15,'21
RESOURCES
Apr. 18,'22 Mar. 15,'22 Apr. 15,'21
Commercial Loans and Investments, $492,210 $493,593 $548,806 -$56,596 $304,263 $303,688 $299,668 +$4,595
Loans Secured by U. S. obligations,
18,274
9,933
11,973
18,476 - 8,543
22,059
43,986
25,712
Loans Secured by Stocks and Bonds,
167,839 162,650 143,165 + 24,674
68,281
67,763 + 2,183
69,946
U. S. Certificates Owned
9,213
6,079
9,369
2,718
5,076
10,997 - 8,279
156
Other U. S. Obligations Owned .
28,502
38,651 +16,703
25,045
10,399 + 18,103
55,354
53,869
Total Loans and Investments
716,038 709,426 755,725 - 39,687 442,214 442,887 435,555 + 6,659
Cash in Vaults .
. . .
8,528
8,546
12,761
4,233
12,798
11,353 + 2,173
13,526
21,780 +
Reserve at Federal Reserve Bank
63,962
58,648
771
22,551
58,523 +
5,439
,22,030
LIABILITIES
Net Demand Deposits
597,604 580,329 566,194 + 31,410
251,192 247,830 240,252 + 10,940
Time Deposits
84,336
80,717
63,343 + 20,993
150,799 147,522 137,703
13,096
Government Deposits
17,754
6,733 - 2,526
19,092
21,288
3,534
4,207
5,384
Total Deposits
699,694 680,138 650,825
48,869 406,198 400,736 384,688 +21,510
Money Borrowed at Fed. Res. Bank,
11,100
5,305
17,979
4,354
5,480
9,659
78,646
67,546
Capital
56,600
31,350
31,350
31,350
0
56,600
56,200
400
Surplus
62,176
0
62,176
62,136 +
29,750
29,750
29,750
40
Undivided Profits
21,168
17,489 + 1,023
21,168
18,512
18,512
. . - .
23,684
2,516
Ratio of Borrowings to Total Loans,
2.2%
1.6%
2.5%
8.8%
1.2%
10.4%
1.0%
1.2%
+
+
+
Condition of Federal Reserve Bank of Boston
(ln Thousa1Jds of Dollars)
RESOURCES
LIABILITIES
Apr. 18,'22 Mar. 15,'22 Apr. 22, ' 21
Apr.18,'22
GoldReserve againstF.R.Notes $149,805 $137,396 $213,832
Gold Reserve against Deposits, 40,823 39,209
40,667
Total Gold
190,628 176,605 254,499
15,907
Legal Tender and Silver .
22,716 22,658
Total Cash Reserves
213,344 199,263 270,406
Discounts secured by U.S. Sec., 11,905
14,490
45,161
Discounts-Commercial Paper, 16,937
21,594
61,425
6,866
Bankers' Acceptances purchased, 10,542
10,356
20,436
U.S. Sec. against F.R. Bk. Notes, 7,950
8,450
Other U. S. Securities owned .
27,978
30,245
860
Total Earning Assets
75,312
85,135 134,748
Uncollected items
54,964
55,148
46,390
4,993
Other resources
6,193
5,904
Total Resources
349,813 345,450 456,537
$7,969
Capital
16,483
Surplus
Deposits:
Government
.
.
420
Member Bank Reserves, 115,229
All other .
988
Total Deposits
116,637
Federal Reserve Notes .
155,539
Federal Reserve Bank Notes, 7,459
Collection Items
.
44,557
1,169
All other liabilities .
Total Liabilities
349,813
.
.
78.4%
Reserve Ratio .
Loans to other Fed. Res.Banks, 0
Mar. 15,'22 Apr. 22,'21
$7,969
16,483
$7,838
15,711
617
109,552
1,857
112,026
153,814
8,364
45,759
1,035
345,450
75.0%
0
7,445
107,857
888
116,190
259,859
15,301
38,502
3,136
456,537
71.9%
2,000
Charges to Depositors' Accounts
Other than Banks' or Bankers'
(Monthly Averages of Weekly Totals in Thousands of Dollars)
March
1922
Boston
Bangor
Brockton
Fall River
Hartford .
Holyoke .
Lowell
Lynn.
.
Manchester
New Bedford
New Haven
Portland .
Providence
Springfield
Waterbury
Worcester.
$303,607
3,240
4,615
5,618
20,483
2,928
4,288
5,455
4,000
5,862
15,982
7,159
30,199
12,774
5,855
13,344
*Not reporting.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
February
1922
$301,701
2,915
*
6,057
19,151
2,714
4,106
4,989
3,855
6,076
14,966
6,360
29,833
12,000
6,648
12,603
Per cent
of
Change
.6%
+
+ 11.1
7.2
+ 7.0
+ 7.8
+ 4.4
+ 9.3
+ 3.8
3.5
6.8
+
+ 12.6
+
1.2
+ 6.5
-11.9
+ 5.9
Percent
of
Change
March
1921
$299,967
3,479
*
5,560
20,377
3,014
3,894
*
4,524
5,260
16,740
7,613
29,860
13,406
5,296
14,388
+
-
1.2%
6.9
+ 1.0.5
+
- 2.9
+ 10.1
-11.6
11.4
4.5
- 6.0
1.1
- 4.7
10.6
- 7.3
+
+
+
Review of Business and Financial Condi-tions throughout the Country !~;t;v~E~6!~~
Pronounced increase of activity has been characteristic of many basic
lines of industry during the past month. It has been particularly noticeable
in the metal~working industries, while metal mining operations have also reflected the tendency to an upward movement. In steel and iron manufac,
ture it is now estimated that, taking the industry as a whole, about 70 per
cent. of plant capacity is being utilized. The automobile trade has shown a
very decided gain. Active demand for building materials has had a favorable
effect not only upon the metals but also upon other lines of industry. The
total value of building permits for March was almost twice as great as that for
February, and more than twice as great as that for March, 1921. The lumber
industry has notably expanded operations. In cotton textiles the month has
been much less encouraging. There has been a reduction of mill activity,
largely due to the widespread strikes in the New England district. On the
other hand, demand for cotton goods has been fairly well sustained. Boots
and shoes have shown great irregulari~y as between different producing dis,
tricts. Very much the same is true of the woolen manufacture. A conspicu,
ous development has been the shifting of demand from worsteds to woolens.
Leaving out voluntary unemployment, the result of strikes, a decided increase
in the number of employees at work is noted. There has been a 2.5 per cent.
•increase during the month in the number of workers employed by firms re,
porting to the United States Employment Service. The improvement noted
will, however, be offset to some extent by the widespread unemployment in
the coal mining industry as well as in the New England textile centers. Whole,
sale and retail trade have reflected to some extent the improvement in indus,
trial conditions. Such improvement is in part seasonal, but also contains an
element of growth due to better business conditions. In the retail trade also
a very general advance has taken place. Agriculturally the month has not
been altogether promising. Spring planting has been retarded by the cold
weather and continued rains.
Prices continued relatively stable. The Federal Reserve Board's whole:sale price index for March advanced one point. Few conspicuous changes in
the prices of entire groups of commodities are indicated.
Interest rates have continued on a very low basis, with slight tendencies
to decline. An apparent shrinkage of commercial credit has been indicated
by further falling off in the rediscounts of the Federal Reserve Banks, although
an upward movement is again to be noted in the loans and discounts of mem,
ber banks in many parts of the country.
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Federal Reserve Bank of St. Louis
@FedFRASER