The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY BUSINESS REVIEW of the FEDERAL Volume 33 RESERVE BANK Dallas, Texas, October 1, 1948 of Dallas Number 10 THE CONSTRUCTION SITUATIONITS IMPLICATIONS TO THE SOUTHWEST W. Industrial Economist Federal Reserve Bank of Dallas KEITH JOHNSON, Over a period of years, building and construction activity has accounted for about 10 percent of the total production of goods and services in the United States. In this respect, construction ranks next to agriculture and ahead of all other individual industries. Construction contractors employed 2,250,000 people in August 1948, and about that many more were employed in the production of construction materials and equipment. The significance of construction to the economy is increased by its cyclical tendencies, involving boom and depression periods of from 7 to 11 years each in a cycle from 15 to 21 years in duration and averaging about 18 years, although construction booms and depressions are dependent in large part on demand and the general business situation. The peaks in past cycles have been from two to four times as high as the low points, thus contributing to wide fluctuations in employment and economic activity generally. Moreover, fluctuations in construction activity have been associated with similar fluctuations in the extension of mortgage credit, so that the construction cycle tends to contribute to a credit cycle which accentuates both booms and depressions. As a result of thes~ factors, the economy has tended to experience 7- to ll-year periods of stimulation from construction booms, followed by similar periods during which such stimulation is lacking. For example, during the construction boom of the 1920's, general business activity was stimulated by construction expenditures during the recessions of 1924 and 1927 and the more numerous prosperity years of that decade. The construction boom was among the several reasons for the generally high level of business activity and the mildness of the recessions characteristic of the middle 1920's. On the other hand, during the 1930's, when construction expenditures were subnormal, the stimulus to the rest of the economy was weak, contributing to the depth and duration of the depression and retarding the attainment of full recovery during such upswings in business activity as that which culminated in 1937. Of course, the 18-year construction cycle does not obliterate the ordinary 3- to 4-year and 7- to 10-year business cycles but, rather, tends to cause the highs and the lows of business cycles to occur at somewhat higher levels during construction booms and at somewhat lower levels during lean periods in construction. The long construction cycle is at least partly the result of the durability of the buildings, highways, bridges, and other products of the industry. Such durable structures are not replaced very often, with the result that tbe construction volume of a single year usually amounts to only 2 to 7 percent of tbe total existing stocks of buildings and other such structures and averages about 5 percent of such stocks. A construction industry geared to produce at such levels cannot quickly produce enough to overcome an appreciable shortage which may have developed. Thus, for example, the postwar shortage of housing, commercial buildings, schools, and other such structures is not proving easy to This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) 156 MONTHLY BUSINESS REVIEW overcome, since the accumulated deficits in production carried over from the depression years of the 1930's and the period of wartime restrictions cannot be made up in less than several years of construction boom. On the other hand, when a surplus of such structures exists, as during t;.he 1930's, the durability of those structures prevents the surplus from being reduced appreciably except over an extended period of time. Chiefly for this reason, depressed conditions in the construction industry tend to persist for quite a number of years. NEW CONSTRUCTION ACTIVITY IN THE UNITED STATES CURRENT AND 1939 PRICES BILLIONS M OOllAtitS ILUONS OF DOLLARS a 20 181' - - - - 1 - - - - 1 - - - - - + - - - - 1 - - - - 1 - - - - +- --'118 ·''----I----I-----+----1----I----+-I·~1 -7/-j · > - - - - I - - - - I - --l---.J-.-- i-l-~--I. ----1---+----1--r- 2' ,~ . NE W 7 CONSTRUCTION IN CURRENT - -\ PRICES, :~==:~b#~ ./-+7'i_~,\:===:==:lhffr -\t 7 1\] \ . ...."'J! ....._-----x,I 7 ,,-,CONSTRUCTION ' ~\; -----::-.,;.J " .r \. \ I. 12 7: , ./ - i . \cli 41-f7'-.;'.~~"': IN 1939 PRICES \. 4 2~V____~___+ - I_ _-+__~\··~·+-__~____~I~. I NEW .. ESTI .....TEO ~S'DI; ....ItTIIII[JrfTtyeoMM[1tU OEPARTW£N'T OF UBM Another factor accounting for the extremes of the construction cycle is the stimulative and even inflationary effect of construction booms upon the whole economy. The prosperity thus induced further increases the demand for construction products beyond normal replacement needs and beyond the ability of the industry to supply in the short-term period. The expansion of real-estate credit during such booms also adds to the effective demand for construction activity. The opposite effect is found when, with a decline in construction activity, the whole economy tends to become depressed, thereby lessening the demand for the products of construction, with the result that an existing surplus of construction products is augmented and a longer period of time elapses before a revival of construction activity takes place . In appralSlng the present and prospective position of the construction industry, it is significant that during the construction cycle of 1918-33 the average construction expenditures were about $7,500,000,000 per year in terms of 1939 prices, which is equivalent to about $16,000,000,000 per year at 1948 prices. During the decade of the 1930's, new construction activity fell short of this average rate by about $5,500,000,000 per year at 1948 prices, piling up an apparent deficit of about $55,000,000,000 during the decade. Despite the increase in construction during 1940-42, the apparent accumulated deficit rose to over $65,000,000,000 between 1940 and 1946. These figures are, of course, somewhat conjectural, since the normal rate TABLE I of construction activity BACKLOG OF PROPOSED ENGINEERING CONSTRUCTION IN THE UNITED now may be considerably STATES AT SELECTED DATES, 1943-48 higher or lower than in (AmounlB in millions of dollars) _Percentage dilltribution---.. 1918-33 and much of the Dec. 31, Dec. 31, Dee. 31, Dee. 31, Dee. 31. Jun. 30, Doo.31, Juo.30, Class of Work 1943 19H 194~ 1946 1947 1948 1945 1948 construction foregone in Water works.. ....... n. a. ll. a. $ 874 $ 1,131 $ 1,155 S 1,170 3.1 2.8 the past may be forever Sewage... .. . ... .. ... . n. a . ll. a . 1,549 1,996 2,186 2,159 5.5 5.1 lost. However, the $65,- EaBrirtdgeswo · r·k· a·n·d· ·d·r·a·m . · a· g·e· ll. Q , ll. a. 1,144 1,264 1,385 1,396 4.1 3.3 h ll. a. n. a. 6,892 7,543 7,598 7,499 24.6 17.8 000,000,000 figure does Street and road ....... ll. a. ll. a. 3,728 4,153 4,235 4,268 13.3 10.1 . 'd f h . Public building .. .. ... . ll. R. ll. a. 5,806 7,480 8,424 9,093 20.7 21.6 gIve an I ea 0 t e magm- Industrial building.. ... ll. R. ll. a . 1,331 2,402 3,544 3,815 4.8 9.0 tude of the construction Commercial building... D . a. ll. a; 1,901 3,545 4,645 4,865 6.8 11.5 task which was before us Unclassified........... n. a. ll. a. 4,777 6,043 7,807 7,926 17.1 18.8 as the postwar construcTotal .... . . . .. . :) 5,101 $16,615 $28,002 $35,557 $40,979 542,191 100.0 100.0 tion boom got under way. ll. a.-Not available. This large deficit figure SOURCE: Engineering News Record, tends to be confirmed by a compilation of the estimated backlog of proposed heavy engineering-type construction scheduled or planned but not yet completed. The estimated backlog of this heavy construction, which usually accounts for less than half of all new construction, was $42,100,000,000 at mid-1948. Regardless of the precise size of the total construction backlog, it should keep the industry busy for several years, since a large part of our present $18,000,000,000 a year construction capacity at current prices would be utilized in meeting the new requirements originating each year. 167 MONTHLY BUSINESS REVIEW Just prior to World War II the actual and potential demands for construction were great enough to stimulate an increase in construction activity, but the boom that had been predicted for the early 1940's was largely delayed by the war, which stimulated war construction but retarded most residential, commercial, and other less essential types of construction activity. During World War II, military and naval facilities and war plants were built very rapidly as the result of military necessity, government aids, and the availability of labor and materials early in the period. The peak was reached in 1942, after which construction volume declined while the economy turned more largely to war production within the plants constructed in 1941-42. During the period of wartime restrictions, construction activity fell to less than one-third of the 1942 level. After the relaxation of these restrictions about V-E Day and their complete cancellation in the following November, construction volume increased rapidly, surpassing in 1947 the 1942 peak in dollar volume although not in physical volume. As a result of the all-time high in demand, the postwar construction industry has been faced with a market capable of absorbing far more than could be produced within a few years. To the extent that the demand for one type of construction has been more nearly satisfied, the demand for other types has tended to remain more nearly unsatisfied. In fact, until 1948, there appears to have been no major type of construction in which production was at levels high enough to approach the requirements of our economy. The veterans housing program, while increasing the proportion of national construction capacity directed toward housing, has not achieved anywhere near the full solution of the housing problem. Industrial construction seems to have fared somewhat better than other types in this respect, since the large number of war plants built in 1941-43 were to some extent adaptable to peacetime industrial uses. Furthermore, a large volume of liquid assets was available for immediate postwar investment in new industrial plants. Such plants were completed in large numbers in 1946-47 and have contributed to increased postwar productive capacity. The volume of industrial construction in 1948 to date suggests the possibility that the peak has been passed in this type of construction so that some of this construction capacity now may be switched to other types of building and constructiop. While construction activity has increased for nearly four years, with a new peak in prospect in 1948, there are, nevertheless, limits to the capacity of the construction industry. First, the skilled labor supply required by the industry cannot be increased quickly. The periods of apprenticeship for carpenters, bricklayers, painters, roofers, and other such skilled workers are typically from three to five years, and apprentice training programs have been handicapped by the many alternative opportunities available to young workers. The number of construction workers has increased in recent years, but it is still below requirements needed by the industry to satisfy current demand. With virtually full employment in the industry, construction craftsmen have enjoyed a sellers' market for their services, a condition which has not been stimulative to greater productivity. TABLE II PRODUCTION OF SELECTED CONSTRUCTION MATERIALS IN THE UNITED STATES AND TEXAS, 1939-48 Lumber (million bd. £t.) Portland cement (thousand barrels) ~-'----'-_~ United Year Btab~8 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 January February March April May June 24,975 28,934 33,476 36,332 34,289 32,938 28,122 34,936 36,635 J an.-June 17,614 2,719 2,480 3,022 3,035 3,089 3,269 Fabricated Unglazed etructural steel (thoubrick _ _ _ _ _ (mimo..,) sand tOIl3) Tex.. United State. United States 122,259 130,217 164,031 182,781 133,424 90,906 lO2,805 164,064 186,533 6,541 7,375 8,598 11,401 7,264 6,136 8,037 10,713 12,461 4,726 4,079 4,938 3,388 1,918 1,878 2,289 4,869 5,028 1,440 1,516 2,251 2,040 832 598 797 1,552 1,915 n. a. 14,541 13,347 14,502 16,041 17,740 J 7,757 935 1,088 1,044 1,181 1,095 1,142 369 318 392 445 498 541 146 142 167 165 180 148 n . a. 93,928 6,485 2,563 948 T."", United State. 1,137 1,271 1,329 1,384 1,129 1,090 933 1,343 1,450e n. a. n. a. n. a. n. a. n. a. Building and construction materials shorte-Estimated. n. a.-~ot available. ages also have limited the expansion of construcSOURCES: American Institute of Steel Construction. American Iron and Steel Institute. tion. The low level of construction activity durBureau of Mines. Bureau of the Census. h b f W Id d d d d ing t e eca e e ore or War II i not National Lumber Manufaeturers Association. encourage expansion of productive capacity in The Texas Almanac 1947-1948. the building materials field; moreover, such expansion was hindered during the war except where it contributed to the war effort. The postwar expansion of the production of such materials has been limited by the fact that the construction materials industries have had to compete with other industries for labor, plant facilities, and materials during a period of full employment of men and resources. 158 MONTHLY BUSINESS REVIEW From 1939 to 1948, new construction activity in terms of physical volume increased by about 33 percent. The increase in the production of 20 selected construction materials was about 42 percent, which, even allowing for the need for inventory accumulation, might have been sufficient if a better distribution by kinds of materials could have been obtained. Lumber production is 36 percent above the 1939 level; brick, 37 percent; warm air furnaces, 64 percent; cement, 75 percent; asphalt prepared roofing, 84 percent; and gypsum board, 586 percent. On the other hand, increases are smaller than the increase in physical volume of construction in the cases of wire nails, 31 percent; clay tile, 27 percent; fabricated structural steel, 23 percent; concrete reinforcing bars, 20 percent; and cast iron radiators, 4 percent. The supply of construction labor has been adequate to permit contract construction employment during the first half of 1948 to average 68 percent above the 1939 level, but the increase in TABLE III employment is due less to recruiting new craftsmen INDEXES OF CONSTRUCTION COSTS. 1915-48 and more to reduction of (1939 - 100) Paint and Wage scales in building trades _ All Total unemployment existing in paint. Journey· Helpers construction eom t rucLion Brick and Lumber mnl.eriab All trades men and laborer materiala tile Cement. Year coot the earlier year. Now that 66. 2 32 .4 37.2 ]915 42. 8 55.9 52.3 38. 0 58.8 59.1 the production of con70 . 1 71.5 129.5 128.4 177.3 178. 9 70.0 165.9 1920 133. 9 95.4 ]01. 3 71 .3 71. 4 72 . 2 1921 107 .6 115. 6 121. 4 108. 9 struction materials is at 93. 1 97 .5 100.6 114.6 103. 2 93 .6 88. 8 1929 106 .7 105.4 about full capacity and 62.8 83 .6 79 .2 83. 1 81.4 84.6 85. 9 1932 81. 1 78. 9 100 .0 100 .0 100 .0 100 .0 100. 0 100. 0 100 .0 100 .0 100.0 1939 the slack in construction 99.0 110 .4 103.5 101.6 101.4 102.0 99. 0 1940 102 .7 104.8 employment has virtually 102 .5 100 .8 131.4 110 .4 105 .3 105 .0 106 .8 112 .3 114 .0 1941 107 .2 103. 0 142. 7 121. 1 111.9 110 .9 117.5 129 .1 121. 8 194.2 vanished, any further ex]943 123. 1 108.4 102.7 151.7 123. 6 112 .7 111 .5 118 .9 135. 7 pansion of the phy sical 111.3 .1 04.5 164.5 127.1 113 .6 112.4 120.3 133 .3 127 .6 1944 123. 0 108.9 166.4 129. 1 11 6 .0 114 .4 125 .9 130. 2 1945 137.4 volume of construction 146 . 1 133. 8 114. 0 191. 1 142.8 129. 3 126 .8 146 .3 ]946 159.6 must proceed slowly. 153 .2 126.7 297 .4 196.4 147 .9 144.6 171.1 198.3 190 .3 1947 1948 n. a. n. a 167 .7 141.1 336. 1 191. 7 n. a. June 212 .0 217 .5 The apparent hesin. a.- Not available. tancy to expand both the SOURCES : United States Department of Commerce; United States Department of Labor. construction labor force and the capacity to produce construction materials has also been a factor in the slow technical progress of the construction industry. The light construction industry has changed less and has experienced the least mechanization of any of our major industries. New techniques have contributed comparatively little to the lowering of construction costs. Prefabrication offered some promise of a possible technological revolution in construction but to date has not accomplished as INDEXES OF CONSTRUCTION COSTS. much as had been anticipated. Antiquated buildWHOLESALE PRICES, AND CONSUMERS' PRICES ing codes, opposition by skilled construction (1926 -1001 , "0£ '"0 workers, and hesitancy to cooperate on the part 2~'o 22 00 of construction materials producers have been ,2 among the obstacles to the progress of prefabri.I lili0 i- I ! 80 cation. Partly as a result of such slowness to progCONSTRUCTION f 60 ress, construction costs have increased relative to 160 COSTS --.::.! - , I , , the general p;ice level over the last several decI i l q!,,",WHOLESALE PRICES 14 0 - , ' ,l-,'-I 40 ades. As long as the demand for construction /' J:,\ I 20 remains in excess of the capacity of the industry, 12 I ! \ prices of buildings and other construction prod--~:; "i.: roo ~ / 00 ucts will remain high and there will be less in,I / I bl. ' ,0. '~ ...r---' -;, "'I "" -....:.. I~ ,,eo centive to attempt to cut costs by the use of new 80/ "', '-'": CONSUMERS' , __ PRICES techniques. Later, when there is no longer a strong 6 60 o sellers' mar ket, there may be more economic 0 19<1 0 ..:f incentive to technical progress in this industry. l!lZO ~" ",. ~" 0- :-1" I ::V-/~I l \ 7 t ~ ... SOOItCU , DEPAATMENT OF CO NM( RCE OEPA ltTIII[NT OF L Io SOfI I , .... ... The total dollar value of all new construction in the United States reached an all-time high of nearly $14,000,000,000 in 1947 and is expected to rise to $18,000,000,000 for 1948. Even after allowing for a rise of about 12 percent in construction costs since 1947, as m easured by the Department of Commerce composite index, the increase in physical volume of construction is expected to be about 14 percent. MONTHLY BUSINESS REVIEW 159 During periods of peacetime prosperity, private construction normally accounts for 75 to 80 percent of all new construction, with public construction accounting for the remainder. During the depression years of the 1930's, private construction declined and in 1933 was only 43 percent of the total. Wartime restrictions in 1942 held private construction down to 22 percent of total conTABLE IV struction, but the relationship has now moved ACTIVITY IN THE UNITED STATES, BY back to the 75 to 80 percent range, with the CONSTRUCTION TYPES OF CONSTRUCTION, 1947-48 1948 proportion being estimated at 77 percent. (In million! or dolLare) Jan.-Aug. Tota11948 Type of oou.I!truction 1947 1948 (estimaUd) During the depression decade of the 1930's, Total new construction ... .... ....... . $13,977 $11,224 $18,000 an average of 273 ,000 new nonfarm dwelling Total private .. ...... . . ............ . $1D,893 '"$8,779 $13,850 units per year were built, or about 60 percent Residential (excl. farm). . . . . . . . . . . . . 5,260 4,485 7,100 2,319 3,750 Nonresidential building.......... ... 3,131 as many as were required to keep pace with the Industrial ...................... .. 1,702 943 1,425 increase in the number of nonfarm families. 216 209 375 Warehouses, ollice and loft buildings. Stores, restaurants, and garages ..... 619 604 1,000 Toward the end of that decade, residential buildOther nonresidential huilding . . . . . . . 594 563 950 ing increased and by 1940 603,000 dwelling units Farm construction. . . . . . . . . . . . . . . . . 450 363 500 1,612 2,500 Public utility. . . . . . . . . . . . . . . . . . . . . . 2,052 were constructed, with the total rising in 1941 318 218 350 Itailroad . . . . ...... . ..... . . .. . . ... to 715,000 units. That beginning of a housing 510 445 625 Telephone and telegraph . . . . . . . . . . . Other public utility . . . . . . . . . .. . • . . 1,224 949 1,525 boom, however, was cut short by wartime restrictions without attaining a level of output per Total public . . . . . . . . .. .......•.•. • .. $ 3,084 $ 2,445 $ 4,150 Residential. . . . . . . . . . . . . . . . . . . . . . 182 ~ ----n; year equal to any of the boom years between 505 572 1,000 Nonresidential building . . . . . .• .• . • . . 1922 and 1928. As a result of the very low levels 13 25 Industrial. . . . . . . . . . . . . . . . . . . • . . . . 25 Educational. . . . . . . . . . . . . . . . . . . . . • 275 316 525 of residential building in 1943-45, the average 104 225 Hospital and institutional.. . . . . . . . . 81 number of new dwelling units built in the period 139 225 Other nonresidcntial building. . . . . . . 124 104 200 Military and naval. . . . . . . . . . . . . . . . . 204 1940-45 was 430,000 per year, or about two914 1,600 Highway .. . . . . . . . . . . . . . . . . . . . . . . . . 1,233 thirds as many as were required to keep pace 284 450 331 Sewer and water . . .. . .. .. . . . . . .. .. . 72 125 Misc. public service enterprises. . . . . . 117 with the increase in families. Thus, in fifteen 364 550 396 Conservation and development. . . . . . years, 5,31'5,000 new dwelling units were built, 160 89 All other public. . . . . . . . . . . . . . . . . . . . 116 while the number of families increased at least Maintenance and repairs . . .... .. ... . .. $ 7,104 n. So, 8,000,000. Assuming that the boom of the 1920's had resulted in a surplus of about a million hous- Total construction ... . . . ... . . . . ... . '.' $21,081 n. a. n. a.-Not available. ing units, there would still have been a deficit SOURCES: United States Department of Commerce. at the end of 1945 of about 1,700,000 units. United States Department of Labor. About 662,000 dwelling units, including 438,000 permanent units, were built in 1946 and 832,000 permanent units were completed in 1947; inasmuch as the increase in the number of families was somewhat less than these figures, by the end of 1947 the housing deficit had been reduced to about 1,500,000. By producing 950,000 units in 1948, the deficit may be reduced by perhaps another 200,000. In appraising the current output of housing it is notable that in 1925, for a population of about 116,000,000, approximately 937,000 new dwelling units were built. For 22 years thereafter that building record was not equaled. By 1948, the population had gradually grown to about 145,000,000, or 25 percent greater than in 1925, yet the prospective building of 950,000 dwelling units in 1948 only exceeds fractionally the 1925 record in dwelling units built. In the housing market, the limited output is, in effect, rationed out on the basis of purchasing power, the purchasing power being chiefly in the form of mortgage money. and wartime and postwar savings. The person who can raise or borrow the most money can outbid others, but, in the process, housing prices and costs soar. These higher prices probably account for but little of the sharp increase in production, since a much smaller price increase would have been practically as effective as a stimulus to full capacity construction and would have been much less inflationary. Mortgage debt outstanding on one- to four-family houses increased from $19,991,000,000 at the end of 1945 to about $32,800,000,000 at the middle of 1948, an increase of 64 percent. This increase is approximately proportional to the increase in the total market value of such houses but is nine times as great as the 7 percent increase in the existing number of dwelling units during the same period. There is much evidence that easy mortgage credit has done less to produce more houses than it has to produce more expensive houses. A slowly declining price level followed by a period of price stability in resi- 160 MONTHLY BUSINESS REVIEW dential construction could signal a healthier housing market which would support a large volume of residential building for quite a few years. Nonresidential building includes a considerable variety of structures, of which industrial buildings have usually accounted for a significant construction volume. As was the case after Wodd War I, industrial construction appears to have passed its post-World War II peak sooner than most other types of construction, as the estimated volume of industrial construction in 1948 is expected to drop 16 percent below the 1947 peak of $1,702,000,000. On the other hand, the building of stores, restaurants, and garages is increasing and is expected to reach a new peak of $1,000,000,000 in 1948 and to hold up relatively well for some time; the same trend may characterize construction of warehouses, office and loft buildings, churches, and hotels. Railroads, local transit lines, and telegraph companies may increase their construction expenditures somewhat, but their lack of growth trend probably should prevent their equaling records of earlier booms except possibly on an inflated dollar basis. Gas and electric utilities, telephone companies, and pipe lincs, which exhibit indications of a long-time growth trend, probably will establish new construction volume records in 1948. In many communities the shortage of utility facilities has been almost as serious as the shortage of houses, and the backlog of utility construction may require several years to overcome. In this connection, it may be noted that during the boom of the 1920's, public utility construction reached its peak relatively late, in 1929. Highway and street construction, which is normally the largest single type of public construction, amounted to 40 percent of all public construction in 1947 and is expected to represent about the same proportion in 1948. Such construction has generally amounted to about a tenth of all new construction, both public and private. It is estimated that federal, state, county, and municipal governments will spend about $1,600,000,000 on such construction in 1948. Despite these large expenditures, a substantial backlog of highway and street construction will remain. Other important types of public construction are schools, hospitals and other institutional buildings, other public buildings, and sewer and water facilities. The need for these types of construction is closely related to the need for housing, since the great increase in urban and metropolitan populations has created demands for shelter, education, health protection, and other public services associated with the postwar American standard of living. Newall-time highs, in dollar volume at least, for most of these types of construction are expected in 1948. The maintenance and repair of existing buildings and structures also employ a large volume of construction labor and materials and, to some extent, add to the usable stock of buildings and structures. It is estimated that expenditures for such purposes may reach a new high level of $8,000,000,000 for 1948; this figure, largely because of inflated prices, surpasses the annual figures for total construction in the depression period 1932-35. Wartime scarcity of labor and materials created some backlog in maintenance and repair work, but perhaps the most important explanation of the recent volume of expenditures is the high level of income and savings. Other contributing factors have been the high costs and limited capacity of the new construction industry. Often it has been cheaper, quicker, and more satisfactory to repair and maintain existing structures than to buy or build new ones. NEW CONSTRUCTION IN THE SOUTHWESTERN STATES ,,800 MllLlO,., OF OOLl .os Ill" 1,800 10000S Of' OOt.lARS J.\ ~!OTAl ' IV E STATES 1,600 1 \ l 1,200 1/ ,.,000 - / i I l\· \. :;;yo I-" 400 r-- / !-·--T· ""'T''' . ~';--', /" 1 1 / L ././.~ \ ". \ .I '£:::11 - I ~ I. . 600 1 4.t /4-,-r-'\ -\ 800 20 / \ I " . ,,600 ,,400 ;' ;" ;" , - eoo / . TEUS. 600 400 .-.-. __ O<LAHO.'--..,.. E:~~d:-.::~ ~-C:~~~~l:~~-L ~.-:"-,df~::~. o o "" "... "41 ,,.., " .., "" 194~ 1946 1947 200 .. o " SOU ACE$: D(PAItrME HT OF GOt.I"'ER~ O£PAR Tt.lE NT OF LABOR .. ESTI MATEO With generally full employment, record peacetime production, and nearly universal backlogs of construction demand, most parts of the country have enjoyed a large volume of postwar construction activity. Nevertheless, such activity has varied from region to rcgion, with some areas experiencing more of the boom than others. Some of the reasons for these geographical differences are found 161 MONTHLY BUSINESS REVIEW in population trends, migration within and between regions and particularly to rapidly growing cities, geographical shifts of industry, and regional variations in income. The Pacific Coast States and the Southwest have enjoyed greater than average increases in population and income and have been particularly attractive as centers of industrial expansion. Thus, Texas, with 4.9 percent of the United States population in 1947, had 6.7 percent of the Nation's construction activity during the period 1939-47 and 7.3 percent during 1947, ranking second only to California in the latter year. In proportion to its population, Texas obtained 43.5 percent more than its share of the Nation's construction activity in 1939-47 and 47.2 percent more in 1947. Arizona had 56.7 percent more than her TABLE V NEW CONSTRUCTION BY TYPES IN TEXAS, 1939-48 (In millions or doUIU'3) 1939 1940 1941 Total new construction . . . .. . ... ...... $317.3 $357.9 $586.0 Private, total ............... . ... . . $199.4 $215 . 3 5281.1 Residential building ............. Nonresidential building ...... . . . . Public utility .... ... . ......... .. Fnrm .. Public, total ........ 96.2 41.3 48 .3 13.6 95.8 59.1 46.3 14.1 124.9 73.9 63.8 18.5 $117.9 $142.6 $304.9 1942 1943 19U 69.9 25.0 75 . 6 17 . 2 28.5 4.8 68.5 17.7 $855.2 $430.2 1946 1947 Jan ..Junc 1948 5352.8 $728.3 $1,019.5 $573.2 $164.6 $224.8 $595.2 5845 . 0 $464.6 $1,042.9 $549.7 5274.1 $187.7 $119.5 1945 42.5 24.5 84.5 13.1 50.4 91.5 71.3 11.6 258 .0 209.1 108.8 19 .3 $109 .5 $128.0 $133.1 Residential building ....... . ..... 2.0 11.0 23.4 11.2 40.9 12.0 Nonresidential building .......... 38.4 21.4 55 .7 249 .8 129 .7 41.5 Military and naval. ........ . .... 8.5 42.8 157.3 518.0 179.4 13 .5 Highway and street ............. . 49.3 40.2 39.3 36.4 19.3 13.5 Conservation and development .... 9.3 12.2 12 . 6 16.2 29 .0 14.2 Other public .......... . . ... ..... 10.4 15 .0 16 . 6 23.6 14.8 31.9 n. a.- Not available. SOURCES: United States Department of Commerce; United States Department of Labor. 1.6 42.4 38.2 23.2 6.2 16.4 17.7 21.1 12.9 46.0 7.6 27 . 8 428.7 232.2 161. 7 22 .4 277.1 93.4 84.3 9.8 $174 . 5 $108 .6 5.3 31.3 9.2 88.3 13.7 26.7 n. n.. 27.9 n. a. n. a. n. B. n. a. share in 1939-47 and 60.8 percent more in 1947. The five States comprising the Eleventh Federal Reserve District reported 22.2 percent more than their share of construction activity in 1939-47 and 25.4 percent more than their share in 1947. A partial explanation of this disproportionately large volume VALUE OF CONSTRUCTION CONTRACTS AWARDED IN THE UNITED of construction in the Southwest STATES, ELEVENTH FEDERAL RESERVE DISTRICT, TEXAS, AND lies in the wartime construction SELECTED CITIES, 1939-48 of military establishments and (In thOIl.W1d! of doU.ra) ordnance works and the large Eleventh United DaU.. For~ Worth Houston San Antonio Tena Di8trict Statal wartime and postwar expansion of 1939 S 21,623 $ 8,383 $ 33,992 $14,784 $179,337 $199,110 $3,550,543 1940 28,740 7,338 37,489 18,021 253,852 273,692 4,003,957 facilities in the iron, steel, machin1941 30,815 25,497 51,502 27,416 397,738 453,843 6,007,474 ery, n~)llferrous metal, oil refining, 1942 19,750 35,362 81,524 84,264 838,233 914,205 8,255,061 1943 21,238 11,584 319,272 356,925 3,273,990 aircraft, shipyard, chemical, and 8,545 22,595 1944 10,242 12,851 30,304 10,221 159,856 178,224 1,994,016 rubber industries. The tendency 1945 25,873 16,996 SO,081 28,889 264,604 278,944 3,299,303 1946 36,021 140,387 91,514 40,821 533,509 564,394 7,489,722 toward industrial decentralization 1947 49,416 l14,017 109,168 50,408 624,155 681,131 7,759,868 has particularly favored the 1948 January 2,713 615,206 Southwest, while the expansion of 12,823 3,599 51,776 55,691 9,683 February 10,223 681,967 petroleum production has also 1,754 SO,765 5,931 72,345 19,137 March 11,495 4,749 6,524 4,005 44,856 56,601 689,763 April 7,818 873,882 been an important contributing 3,570 15,152 2,889 50,043 54,764 14,396 970,789 factor. The industrial expansion 3,764 May 31,184 3,806 85,753 90,666 June 2,380 935,198 9,254 17,038 3,532 56,485 60,588 July 2,724 16,875 962,685 of this area not only has required 10,503 68,098 75,970 3,494 J an.-July 21,654 115,593 76,512 27,256 429,356 475,045 5,729,490 a tremendous increase in facilities but also has attracted many new SOURCE: F. W. Dodge Corporation. workers to the cities in the area. As a result the demand for housing, stores, office buildings, public utility facilities, schools, and other types of construction required to serve the added population has increased greatly. TABLE VI In 1947, the volume of new construction in the five States included in the Eleventh Federal Reserve District amounted to $1,603,700,000 or more than 14 percent of the national total, as com- 162 MONTHLY BUSINESS REVIEW pared with 9 percent in 1939. Texas raised its share from 5.0 percent to 7.3 percent of the national total during the period, as construction in 1947 rose to $1,019,500,000; in 1948, the Texas total may reach $1,200,000,000. An unusually high proportion of Texas construction has been in the private category-83 percent in 1947 and 81 percent in the first half of 1948. The forces supporting a housing boom have been operating somewhat more strongly in Texas than in most other parts of the United States. While the statistical picture is less complete for individual states than for the whole country, the figures indicate that Texas has ranked second only to California in postwar residential building, and it is probable that nearly 10 percent of the estimated 950,000 new dwelling units TABLE VII to be built in the United States in 1948 may be in Texas. Residential LARGE CONSTRUCTION CONTRACTS AWARDED IN TEXAS building in Texas in 1947 in terms JANUARY-JULY 1948 of dollar volume was 4.5 times as Dat£ of contract award Size (Dolla.rs) County (and chief cities) Type or project great as in 1939 and 15 times as Brazos (Bryan) ....... .... .... . .... . .. Office building February $1,000,000 great as in the war year 1943. Fur- Coke (Bronte, Robert Lee) ... . ..... . . . . Manufacturing plant July 2,000,000 thermore, in the first six months January 4,233,000 of 1948, residential building in the Dallas (Dallas, Garland, Grand Prairie) .. Apartment Office building February 1,000,000 March 1,690,000 State was 76 percent above that Science building March 1,117,000 for the same period of 1947 and Freight station Apartment April 1,000,000 1,000,000 reached a record high of $154,Manufacturing plant April May 3,000,000 h d Office building · 400,000 dunng t e secon quarManufacturing plant May 2,000,000 June 2,500,000 ter of 1948. Most of the residenOffice building May 1,365,000 tial building in Texas has taken EI Paso (EI Paso) ... .. . ... • .. . . ....... Grade crossing the form of single family houses, Falls (Marlin) ....... . ................ Hospital June 4,730,000 although in the large cities apart- Galveston (Galveston, Texas City) . ..... Street June 1,000,000 ment projects rival the single Harris (Houston, Baytown) ............ Tunnel February 6,500,000 family houses. Contract award February Apartment 2,125,000 February School 2,000,000 data for the first seven months of Apartment February 1,291,000 1948 indicated that apartments, February Office building 1,000,000 Apartment March 1,500,000 hotels, and dormitories valued at Department store 2,000,000 Apr!! Manufacturing plant Aprtl $27,386,000 were to be built in 1,000,000 April Store 1,000,000 Texas, with two apartment projMay Two-family houses 7,300,000 Department store May 6,000,000 ects in the Dallas area and three May Tunnel 4,000,000 in the Houston area valued at May Department store 2,000,000 School May 2,000,000 more than $1,000,000 each. Manufacturing plant June 6,000,000 July School 1,637,000 Nonresidential building in February 15,995,000 Texas since 1939 has reflected, Hill (Hillsboro) . . ..... . .• .• . •.•....... Dam and reservoir first, the building of war plants Howard (Big Spring) . ........... . ..... Hospital January 5,713,000 and, later, the postwar industrial Jasper (Jasper) and Tyler (Woodville) .. . Spillway July 2,821,000 and commercial expansion of the Nueces (Corpus Christi) ............... School January 3,263,000 Manufacturing plant May region. The industrial facilities 2,000,000 for military production built in Smith (Tyler) ................. . . .. ... Dam June 1,196,000 the Eleventh Federal Reserve Dis- Tarrant (Fort Worth) ... . ............. Office building January 1,000,000 March Grading 2,402,000 trict in 1940-44 were valued at April Religious blulding 1,500,000 $1,471,094,000, of which 77 perManufacturing plant May 1,500,000 cent were publicly financed. Tom Green (San Angelo) ... . . . . .. .. ... Dam and reservoir March 1,584,000 Texas received $1,371,379,000 of SOURCE: F . W. Dodge Corporation. such construction, including facilities for many types of industry. Although it has not been practical to use all of these facilities since the end of the war, those that have been used have contributed to the permanent industrial development of the area! Postwar industrial construction in Texas has included a great variety of projects, such as oil refineries, natural gas cycling plants, and a host of manufacturing plants which are contributing to 'For a discussion of the "Disposal and Utilization of War Mannfacturing Facilities in the Southwest," see the Monthly Business Review, March 1, 1948. MONTHLY BUSINESS REVIEW 163 the diversification of economic activity in the State and region. New refineries scheduled for completion in 1948 or 1949 are under construction at Port Arthur, Brownsville, Baytown, Beaumont, Houston, Corpus Christi, and Winnsboro. Other refinery projects are being planned or considered at Big Spring and Sunray, while expansion of present facilities is under way or planned in numerous locations throughout the State. Natural gas processing plants are more frequently located near the source of their chief raw material than is the case with petroleum refineries. Hence, the Southwest has a larger proportion of the Nation's natural gas plants than of its petroleum refineries. Natural gas processing plants scheduled for completion in Texas in 1948 and 1949 include the largest construction project of this type in the United States-the 220,000,000 cubic feet daily capacity cycling plant under way in the Seeligson field-and a large cycling plant of 166,000,000 cubic feet capacity in Bee County. Large gasoline plants include one of 13 0,000,000 cubic feet capacity at Kermit, one of 120,000,000 cubic feet authorized at Alvin, and one of 100,000,000 cubic feet under way at Carthage. A 100,000,000 cubic feet absorption plant is under way at Winnie, while many other smaller projects are under construction or planned in various parts of the State. Construction contract award data indicate that the total volume of industrial building may have passed its postwar peak in Texas as well as in the Nation. However, two contracts of at least $1,000,000 each w~re awarded during the first seven months of 1948 for manufacturing plants in the Dallas area, two in the Houston area, one in the Corpus Christi area, one in the Fort Worth area, and one in the Bronte area. August awards add to this list an oil company shop building at Houston and a tin processing plant at Texas City. Commercial buildings have been particularly numerous among the building projects of over $1,000,000 valuation for which contracts have been awarded in 1948 to date. During the first seven months of the year, these contracts included three office buildings in Dallas and one each in Houston, Fort Worth, and Bryan. There have been four department store and other large store contracts in Houston. In August a large shopping center in Dallas was added to the list. Largely because of the importance of pipe-line and gas utility construction, Texas has ranked first among the states in total public utility construction every year from 1942 to 1947. In Texas, even more than in most other states, there has been a shortage of utility facilities, with the result that the backlog of such construction is large. Numerous pipe lines are under construction or planned in the Southwest. From west Texas fields northeastward, the 516-mile crude oil line from Jal, New Mexico, to Cushing, Oklahoma, has been built as far as Wichita Falls, using 20- and 22-inch pipe. Plans for the Slaughter, Texas-Drumright, Oklahoma, 16-inch line have been revised to include 190 miles of pipe. The larger gas reserves now estimated for west Texas have stimulated consideration of a 20- to 24-inch 1,000-mile pipe line to the Los Angeles area. A 440-mile products pipe line will link Houston to Chicago via older lines. Natural gas lines from the Southwest to the industrial Northeast will include a 992-mile 30-inch line, while cons~ruction is in progress on a 1,584-mile 18-, 22-, and 24-inch line from the Texas Panhandle. Plans are being made for numerous other large interstate and intrastate pipe lines. In the extensive areas of the Southwest, highways are particularly important and street and road expenditures are following the national trend. In the five States included in the Eleventh Federal Reserve District highway and street construction totaled $151,300,000 in 1947, while in Texas such construction amounted to $88,300,000, placing the State third in the Nation. At midsummer this year, outstanding contracts in the State were over $100,000,000. The budget of the Texas Highway Department for the fiscal year 1948-49 (September-August) is $55,000,000, of which about $24,000,000 will be spent for primary roads. Farm to market roads will account for $16,500,000 in 1948-49, with $20,000,000 in prospect for 1949-50. About 4,300 miles of farm to market roads have been completed or placed under contract in Texas since V -J Day. This has involved about 800 projects located in practically every county of the State. The importance of such farm to market roads is indicated by the fact that in the United States 65 percent of all livestock goes to market by truck, as does 93 percent of live poultry, 42 percent of vegetables, 66 percent of milk, and 52 percent of eggs. Major cities in Texas may spend as much as $40,000,000 on streets and roads in 1949, while expenditures for the State may reach $100,000,000. 164 MONTHLY BUSINESS REVIEW The highway budget of Arizona for the fiscal year 1'948 is about $23,000,000, or more twice the amount of highway expenditures in the State in 1947. In New Mexico the budget is wise considerably above the 1947 level. In these States and throughout the entire Southwest, more highway construction would be undertaken if sufficient men, materials, and finances available. than likeeven were Military and naval construction was unimportant in Texas prior to World War II, but during the peak of war construction in 1942 Texas had over 10 percent of the national total and such construction amounted to practically half of all construction in the State in that year. Texas ranked first in this type of construction in 1942 but was second to California for the war period as a whole. Military and naval construction in Texas since September 1939 has totaled over $1,000,000,000, or slightly more than all that has ever been spent on Texas highways. If war housing, war plants, and all other construction necessitated by war were added to this total, expenditures in Texas for 1940-45 would amount to about $2,400,000,000. The effects of such construction activity and expenditures are far-reaching and lasting, even though such construction activity has practically ceased. By 1947, military and naval construction in the State had dropped to a peacetime normal of under 1 percent of all new construction, and the $14,500,000 of Army and Navy construction planned for Texas in 1949 is less than 3 percent of the wartime peak. Such public construction as schools, hospitals, other public buildings, and sewer and water works is especially important in Texas for much the same reasons that residential building is important to the State. Texas is overcoming her backlog of such construction as rapidly as the tight building situation and State and local government budgets permit. During the first eight months of 1948, contracts were awarded for $ 56,000,000 of educational buildings, $19,000,000 of hospital and institutional buildings, and $21,000,000 of sewer and water construction. Estimates for 1949 are $36,000,000 or more for educational buildings, $25,000,000 for hospitals, and $33,000,000 for water and sewer construction. While conservation and development projects have represented only from 1 to 5 percent of all Texas construction during the last nine years, such projects have considerable value from the longrun viewpoint. Contracts for irrigation and drainage projects, channels, canals, and dams totaled $25,671,000 for the fust eight months of 1948, with the estimate for 1949 being $34,900,000. Much of this type of construction can be deferred until needed to maintain cons'truction employment. Although crude petroleum and natural gas drilling are not usually classified as construction, they involve similar methods to those used in tunneling and pile driving. In 1947, the cost of drilling, plus the cost of casing but excluding the cost of production equipment, amounted in dollar volume to 24 percent of the value of all new construction activity in the five Stat~ of the Eleventh District. This percentage TABLE VIII was 23 in Texas, 28 in Oklahoma, 30 in New CONSTRUCTION EXPENDITURES FOR CRUDE PETROLEUM AND NATURAL GAS WELL DRILLING. FOR THE UNITED STATES AND SELECTED STATES. 1939-47 Mexico, and 37 in Louisiana. The corresponding (In thOU:!Iand! of dollars) Total Total figure for the United Year Arizona Louisiana. Oklahoma Texa.8 5 Stat& Other states United Sta.tes New Mexico $ 17 $43,699 $12,802 $20,948 $140,284 $217,750 $148,398 $366,148 States was only 5.5 per- 1939 1940 12,11 4 148,856 166,239 55,355 18,227 234,552 400,791 cent. Consequently, if oil 1941 166,314 21 ,330 177,091 50,214 7,757 245,6 15 422,706 128 1942 8,205 16,465 100 554 143,672 34,646 159,998 303,670 and gas drilling were con- 1943 228 20,022 138,928 206,214 345,142 29,453 6,749 82:476 1944 268 40,650 30,971 242,374 281,790 524,164 11,456 159,029 sidered as construction, the 120 55",1 23 12,078 188,092 1945 295,622 40,209 302,535 598,157 relatively high rate of con- 1946 207,532 108 61,799 13,776 46,476 320,331 650,022 329,691 70,507 20,276 238,074 377,653 62,290 1947 391,147 768,800 struction in the Southwest would be even higher. SOURCE: United States Department uf Com merce, The oil and gas industry, of course, also contributes to construction activity of the usual type. Thus, pipe lines, refineries, and other construction related to the movement, processing, and utilization of oil and gas add to MONTHLY BUSINESS REVIEW 165 the volume of construction. In addition, housing, commercial building, and other construction are required and paid for largely because of the presence of the oil and gas industry. Since the industry is expanding and has favorable prospects in the visible future, it should continue to make an important contribution directly and indirectly to construction volume in the Southwest. The future prospects of the construction industry in the Southwest depend largely on the same demand and supply factors which affect the construction outlook for the United States, although regional differences suggest a somewhat more favorable construction outlook for the Southwest than for some other areas of the CoUll try. Nationally, the existence of a very strong construction demand is indicated by such factors as the huge backlogs in heavy engineering-type projects, housing, and public utility and other construction. It may be noted that this huge backlog of unsatisfied demand should be expected at the present stage of the cycle, especially since the wartime restrictions delayed the construction boom predicted for the early 1940's. Moreover, the backlog of need is supported by a large accumulation of wartime savings, and the tendency to spend these savings on housing and industrial and business construction has been increased by the high and rising postwar national income. Additional factors increasing the strength of demand are the depreciation and obsolescence of existing houses and structures, most of which were constructed in the 1920's or earlier; an increase of nearly 20 percent in population and an even larger increase in the number of families since the end of the last real construction boom; and the wartime and postwar migration from farm to city, from east to west, and from north to south. The surplus of houses in areas which have lost population does not relieve the situation in the shortage areas. In addition to these material and social factors, the easy availability of mortgage credit has made the existing demand more effective. Mortgage credit cannot be regarded merely as a passive factor, for it has increased much faster tllan the physical quantity of all mortgageable real estate. Thus, the demand today, as at the end of the war, is at a record level, while the construction industry has only recently reached the point at which it can appreciably reduce the backlog. The supply side of the construction picture is far less impressive. The Nation" s fully employed construction capacity can increase only gradually from now on, with future new output records likely to be more striking in terms of inflated dollars than in terms of physical volume. There is, however, a very serious danger in the inadequacy of construction output as compared to demand. The limited capacity of the industry when faced with a tremendous demand has contributed to rising prices for real estate and rising costs of COI1struction. This high level of construction costs is, in turn, the greatest single factor of weakness in the pre~ent construction situation. The prices of new houses in the United States rose about 20 percent from mid-1947 to mid-1948, while incomes increased only 8 percent, with the result that some residential as well as industrial and public construction was priced out of the market. The existing backlog of demand and purchasing power obviously cannot buy as many houses and other construction products at high prices as at low prices. A decline in construction costs and prices would allow existing purchasing power to be spread over a larger number of houses, buildings, and other structures, with the result that the construction industry would be kept at full production and less subject to fluctuation for a longer period. A recession of the prewar type might effect such a reduction in costs, or, during the next year or so, defense expenditures, financial aid to other countries, and other factors might maintain general business activity at close to current levels, with the consequence that high costs might induce a more gradual falling off of demand in the construction market, resulting in some corrective reduction in construction costs. In view of the behavior of construction costs in the presence of excessive demand, it is difficult to classify as preponderantly favorable or unfavorable the recent easing of credit terms to home buyers. Amendments to the National Housing Act and the Servicemen's Readjustment Act now encourage loans to individual owners up to 90 percent of appraised values under $7,000 and up to 80 percent for values up to $11,000. Rental housing projects also receive more liberal credit treatment. There are doubts whether such easing of credit can add to a construction output which is already at capacity levels. 166 MONTHLY BUSINESS REVIEW With the basic strength of the national construction picture, the prospects for the Southwest are also favorable; in fact, it appears that construction prospects in the Southwest are further improved by a number of special factors. Many manufacturers want to place at least part of their productive capacity in or near the southwestern market, particularly since the population and income of the region are increasing faster than for the Nation as a whole. The rise in freight rates also has somewhat increased the advantages of producing in or near the southwestern market in the case of industries using raw materials obtainable in the region or shipped in at relatively low rates and in the case of industries whose finished products are shipped at high rates to markets in the Southwest. The Supreme Court decision outlawing the basing point system may result in giving southwestern producers a somewhat larger proportion of the southwestern market for cement, steel, and perhaps other products, thereby, potentially at least, inducing additional industrial expansion. National defense considerations also favor industrialization of the Southwest, and it is expected that the $6,000,000,000 in defense contracts to be placed in 1949 will be widely distributed geographically. Further incentives to national industrial decentralization and to the resulting greater industrialization of the Southwest lie in the improved human relations and worker morale in less congested areas, the public relations value of being a local employer in important local market areas, and access to the new reservoirs of labor available in less industrialized areas. All of these factors are made more effective by the large wartime and postwar accumulations of capital, which permit investments in new locations. Additional factors particularly attracting industry to the Southwest include the large supply of cheap natural gas for fuel and raw materials, the large supplies of petroleum, sulphur, and agricultural products requiring processing or suitable for industrial raw materials, the continued improvement of the great ports of the Southwest, and the accumulation within the Southwest itself of capital for industrial investment as the result of high incomes from agriculture, petroleum, and ocher industries. Industrialization is itself the cause of further industrialization, with each new plant tending to attract others to serve it or to buy from it. Thus, industrial construction in the Southwest would seem to have a generally bright future despite the recent falling off of such construction from postwar peak levels. Associated with such expansion of industrial facilities is the construction of many houses and apartments and various commercial, utility, public, and other types of buildings required in a more industrialized economy. For these reasons, construction may be expected to continue to account for a larger proportion of all productive activity in the Southwest than in the United States as a whole. Furthermore, the construction boom in the Southwest may last somewhat longer than in the more industrialized parts of the country. With the present backlog of construction demand, the national total ·of construction activity should be maintained at comparatively high levels until at least the early 1950's, with, of course, the possibility of some temporary recessions due to construction cost and price readjustments or to economic adjustments in other sectors of the economy. Since the construction industry in the Southwest may be expected to surpass the national average, the economy of the Southwest should enjoy a sizable economic stimulus from construction activity for an extended period of time. 167 MONTHLY BUSINESS REVIEW Review of Business. Industrial. Agricultural. and Financial Conditions DISTRICT SUMMARY Reflecting the effects of the intense heat and dry weather, the September 1 forecast of the Department of Agriculture revised downward the prospective production of principal crops in the Eleventh District. It is now evident that production of many crops in elus District will fall short of last year's harvest, a condition in contrast with the situation in the United States. This fact will tend to intensify the effect of declines in the prices of agricultural products upon the income of many of the District's farmers. Unfavorable weather also caused a marked deterioration in livestock ranges in many parts of the District and contributed to an increase in livestock marketings. Daily average production of crude petroleum increased slightly in August but was below the all-time peak reached in June. Refinery operations declined during August but were about 13 percent higher than a year ago. Oil well completions increased to exceed those of August last year by a substantial margin. The value of construction activity in the District in August increased 4 percent above the July level and was 11 percent above the August 1947 figure. Awards for residential building increased 28 percent from July to August and were 24 percent above the level of the comparable month last year. Departmen t store sales increased by a smaller amount than is usual in August, and the year-to-year increase was narrowed to 12 percent from 15 percent in July. Furruture store sales increased 15 percent in August as compared with July and were 23 percent larger than in August last year. The accelerated buying at furruture stores probably reflected to some degree efforts to acquire merchandise before the re-establishment of consumer installment credit control which became effective September 20. Commercial, industrial, and agricultural loans, real-estate loans, and "all other" loans, including those of a consumer type, showed increases during the five-week period ended September 15 at selected member banks in leading cities of the District. Likewise, deposits of individuals, partnerships, and corporations showed an increase of more than $76,000,000 during the period , while holdings of investments reflected a moderate decline. Bank debits were slightly lower than during July, but considerably above the level of August 1947. BUSINESS Reflecting increased deliveries of fall merchandise during August, inventories at reporting department stores showed a gain over the preceding month for the first time since April and were 6 percent larger than in July. The substantial increase of 30 percent in stocks from August 1947, the largest year-to-year gain for any month in 1948, may reflect in part prompt merchandise deliveries and sales smaller than had been anticipated. \'{ith orders for fall merchandise virtually completed and deliveries being effected prompdy, outstanding orders at the close of August were 11 percent smaller than a month earlier and 17 percent below those in August 1947. Reflecting the marked improvement in deliveries of merchandise and the caution expressed toward placing orders too far in advance, orders outstanding during the spring and early summer this year were only slighdy larger than in the corresponding months of 1947 ond during more recent months have shown a decline from the comparable 1947 periods. WHOLESALE AND RETAIL TRADE STATISTICS Number of reporting Retail trade: DCPBrtml'nt. atores: Total 11th Dist.... . Cor~8 Christi ... . . Dn1 ....... ...•• Fort Worth ........ Houst.on ... ; ...... . SnD Anlonio . .. .... Sbreveport. La.... . Other cities . . ...... Furniture • 4 7 4 7 6 3 18 Port Arthur .. ..... 43 4 5 3 t:ao Antonio •...... 4 Da.Ias ...... .... .. IJo:1ston . ....•.•.• • 23 Drup .... .....•... Dry go~ ... .. •.•• Groceries .... . . .. .. Hardware ........ . Tobacco d: products. 6 4 33 7 10 14 64 87 13 13 7 18 11 5 8 14 24 29 39 18 Who:asafe trade:· -2 • 2 -I 9 3 '7 18 -3 5 27 12 10 9 - 1 5 -7 t -3 'Compiled by United States Bureau of Cen.!lUl. (Wholesale trade figures preliminary.) tBtocks at end of month. tID.dicates change less tban one-half of one percent. DrDEXES OF DEPARTME~T STORE B.ILES AND STOCKS Daily average salea-(1 935-39-100) Uoadj ustcd • 11th District. Dalbs ...... The seasonally adjusted monthly sales index, reflecting a smaller than usual increase in August, declined to 419 percent of the 1935-39 average from the 436 percent of the previous month, but continued substantiaIly above the 376 percent of August 1947. 48 a~cres: Totailltb Din... .. Houston ..... The 10 percent increase in the dollar volume of sales at reporting department stores in this District in August as compared with July was less than the usual seasonal amount, indicating that back-to-school and other fall buying may have been slower than usual for this period. The August volume was 12 percent above the level of the corresponding month of 1947, and cumulative sales for the eight months were maintained at 12 percent above those of last year. Preliminary reports from department stores for the first two weeks of September indicate that District sales are running 20 percent ahead of the comparable 1947 period. firllls Percentage change in Net 8.'llcs Stock! I 8 mo . 1948 August. 1948 from August! 948 from August July compo with August July 1948 8 mo. 1947 1947 1047 1948 12 10 12 30 6 1 I -I 16 6 21 7 8 10 32 7 6 1 27 63 8 29 6 18 10 19 H 6 -1 21 17 7 7 7 6 U August July 1948 36.\ 333 426 1948 331 287 407 June 1948 345 293 420 Adjusted August 1947 327 308 330, Augus; 1948 419 391 484 July 1948 436 399 503 June 1948 406 358 483 August 1947 376 362 375r Stocks-(1036-30-100) AugUtlt Iltb District. 1048 410 Unadjusted' July June 1948 387r 1948 384 'Unadjusted Cor se&I!Ionai variatiOD. August 1947 318 August 1948 3ij3 Adjusted July June 1948 1948 358 306 August. 1947 282 r-Rel'ised . The rates of collections on both open accounts and installment accounts in August were again at the lowest levels previously recorded during the postwar period. The ratio of collections during August to regular accounts outstanding at the beginning of the month felI to the previous 1948 low of 51 percent reached in February and compares with the July level of 53 percent and a 1947 low of 52 percent reported in August of that year. The ratio of colIections to installment accounts was sustained at 18 percent, the postwar low at which it had been maintained dur- 168 MONTHLY BUSINESS REVIEW ing the previous two months, and compares with a ratio of 29 percent in August 1947. At the same time, the ratio of cash sales to total sales continued to decline and in August was 34 percent, compared with 36 percent in July and 39 percent in the previous August. TI,e dollar volume of August sales of reporting furniture stores in the District increased 14 percent from the July level and was 23 percent larger than during the previous August. The increase in August sales over July was the second largest monthto-month increase this year, and the increase from August of last year was the largest year-to-year gain in volume of sales for any month this year. The dollar volume of cash sales was 2 percent above the July level but 14 percent below that of August 1947. Credit sales, however, after having fallen 11 percent in July as compared with June, rose 16 percent above the July level in August and were 31 percent higher than in August 1947. As a result of the increase in credit sales and stability in cash sales, the ratio of credit sales to total sales in August rose to 88 percent from 86 percent in the previous month and compares with 82 percent in August of last year. While credit sales increased during August, collections remained at the level of the previous month but were 16 percent greater than in August 1947. Since credit sales increased during August and collections did not, accounts receivable outstanding at the end of the month were 5 percent larger than at the end of July. Total credit sales this year have shown increases over the corresponding 1947 period each month except February, the largest increase being in August. Accompanying the gain in credit sales has been a marked rise in accounts receivable, the amount in August being 58 percent larger than a year ago. The acceleration in credit buying at furniture stores during August probably resulted from the desire to complete arrangements for lower down payments and longer contract maturities before the new credit regulations became effec tive under Regulation Won September 20. Dollar volume of inventories in August was reported by District furniture stores to be 2 percent above the level of the previous month, after having declined for three consecutive months, and was 6 percent above that of August 1947. This would seem to indicate tbt furniture store executives are seeking to reach and maintain a level at which stocks are in line with sales. Population Changes in the Southwest A comparison of changes in civilian population between 1940 and 1947 in the fi ve States lying wholly or partly in the Eleventh Federa l Reserve District reveals divergent trends. In 1940 and in 1947, the five-state area, comprising Arizona, Louisiana, New Mexico, Oklahoma, and Texas, accounted for approximately 9.2 percent of the Nation's population, according to recent estimates of the United States Bureau of the Census; however, sign ificant shifts in population occurred during that period within the five-state arca. Be.tween 1940 and 1947, the population of Arizona increased 28 percent, a rate more than three times greater than the 8.6 percent increase for the Nation. Texas, with a population increase of 10 percent, also exceeded the average rate of growth for the United States; Louisiana and New Mexico experienced population increases, but the percentage gains were smaller than the average for the country, and in the case of Ncw Mexico, the percentage gain was substantially less than that of the five-state area. On the other hand, Oklahoma experienced a decline of 2.5 percent in its civilian popu lation. \Vhile each of the five States had an increase of births over deaths, Arizona was the only State of the group to realize a net in-migration during the period. The net out-migration from Oklahoma was so large that it exceeded the net natural increase in population and was the chief factor causing a loss of 58,000 in total civilian population in that State between 1940 and 1947. It is interesting to note some of the changes in per capita income in relation to population changes in the various States in this region between 1940 and 1947. Arizona, with the largest percentage increase in population during the period, had the smallest percentage increase in per capita income, 137 percent, according to recent reports by the United States Department of Commerce. Conversely, New Mexico, with the smallest percentage increase in population (exclusive of the actual decline in Oklahoma), realized the largest percentage increase in per capita income, 196 percent. In 1940 and again in 1947, the per capita incomes of Arizona and Texas led the group, although their positions were reversed. The 1940 per capita income in Arizona was almost 15 percent larger than in Texas, but by 1947 the per capita income in Texas was 1 percent above that in Arizona, as Texas showed an increase of 173 percent during that period. CHA..'iGES IN CIVILIAN POPULATION BY STATES FROM 1910 TO 1917· (Thousands of persons) Percentage change Civilian population Net natural Net 1088 to Net change in Civilian population rrom Aprill, 1940 Aprill,lQ40 increase Net migration armed £orcee civiliall population July], 1947 to July I, 1947 Arizona.. . 497,864 71,000 76 ,000 8,000 139,000 637,000 28 .0 Louisiana ..... 2,369,349 318,000 - 119.000 23,000 176.000 2.535,000 7.5 New Mexico . ...... ........ 631,185 90,000 - 76,000 7,000 6,000 538,000 1.2 Oklahoma ... ............. ........... 2,332,800 243,000 -2SO.000 22.000 - 58.000 2,275,000 - 2 .6 T..... .... .......................... 6,389,349 844.000 -141).000 63.000 641.000 7,030.000 10 .0 Total fivHtatearea .. ............. 12,1 11,147 1,566,000 539,000 123.000 004,000 13.015.000 7.5 Total Uoited Stat.. ............. 131,41)1.985 11.738,000 1,016.000 1,496.000 11,258.000 142.660,000 8.6 tEstimates are rounded to the nearest thousand without beillg adjusted to group totals, whicb are independently rounded. Derived figures are baaed 00 the unrounded absolute numbers. SOURCE: United States Bureau or the Census. AGRICULTURE TIle hot, dry weather during August was responsible for declines in the indicated production of cotton, sorghum grain, rice, hay, sweet potatoes, and peanuts in Texas; moreover, prospective per acre yields of most crops are lower than in 1947. Moderate to substantial production declines are forecast for all important crops except rye, flaxseed, and sorghum grain. The decline in over-all agricultural production in Texas is in striking contrast to the record physical volume of crop production expected for the United States. The Nation's production of feed grains is expected to exceed previous records by a substantial margin, the production of food guins is the second largest on record, and oil seed production lllay reach a new high, along with large production of fruits and vegetables. Record production is in prospect for corn, soybeans, rice, peanuts, and pecans, while near-record production is indicated for wheat, oats, sorghum grain, fl axseed, and dry beans. Although the unfavorable weather conditions during August caused crop losses, some of the late crops were benefited by rains in September. Harvesting operations were well advanced at midmonth, despite occasional interruption by showers. Planting of winter commercial vegetables was delayed by the August heat and drought, but September rains have been beneficial to farm operations and growing crops. Range and pasture feed have been 169 MONTHLY BUSINESS REVIEW deficient in most areas of the Eleventh District during the summer, except in certain northern Panhandle counties of Texas. Livestock are in fair to poor flesh generally, despite supplemental feeding in some areas, and marketing of livestock during August was relatively heavy because of range feed shortages. A United States cotton crop of 15,219,000 bales forecast on September 1 represents an increase of 50,000 bales over the forecast made a month earlier and is more than one-fourth above the 1947 crop and the 10-year (1937-46) average. The Texas crop, estimated at 3,300,000 bales, is 200,000 bales below the August 1 estimate and slightly below the 1947 crop but is 14 percent above average. It is estimated that 2.2 percent of the Texas cotton acreage in cultivation on July 1 has been abandoned, leaving 8,998,000 acres for harvest. TI,e better-thanaverage yield of 176 pounds of lint per acre forecast for the TEXAS COTTON PRODUCTION BY CROP REPORTING DISTRICTS (In thOUSBUda of bales":""'500 lb. gross '1ft.) Crop indicated September 1 1948 as percent of 1947 113 32 315 129 293 160 800 500 17 710 185 145 28 270 155 330 152 85 101 113 88 100 128 88 86 120 113 3,437 3,300 96 1948 I'ClX'rting districta 1945 15 lOS 380 17 587 11 9 1947 lOS 946 '94 15 810 27 227 166 131 1946 35 198 270 14 482 96 99 15 185 46 229 1,794 1,669 l·N .... _, ..•. , ..... .. . 1-8 ..........•.•.. 2. 3. 4 5 .. 6. 7 . .......... 8 ........ ..... 9 .. 80 10. State .. ............. ISO State compares with an estimated yield of 313 pounds for the Nation. Cotton harvesting was virtua: ly completed in southern and southcentral counties of T eXlS about mid-September, and many farmers were destroying stalks for insect control. Harvesting was progressing rapidly in other parts of the State, despite. occasional interruption by showers. The September 1 forecast of a 725,000 bale crop in Louisiana is 25,000 bales larger than the August 1 estimate and 44 percent above last year's crop. A production of 350,000 bales was forecast for Oklahoma, compared with a crop of 330,000 bales in 1947. A record crop of 245,000 bales is forecast for New Mexico, and near-record production of 300,000 bales is in prospect for AriZona. CllOP l'RODUCTJON-(In thousand. 01 bushel.) - - - - Texaa Average 193H6 1947 Winter whCllt..... ... 45,686 Corn. .. . 0................... 70.'22 34,370 4,049 2.894 1,383 4.311 6.121 Barley .............. Cottoll t. ..... .... .. . All hayt ........... Potato.., I,..h. . .... CASH FARM I)lCOME BY MAJOR INCOME GROUPS FOR TilE STATF.9 OF TITF. ELEVENTH FEDEIlAL RESERVE D1 STllICT, 1947 cmlPARED WITH 1946 (In thousands of doUars) Livestock and livestock Government Crops products payments A,i.ona ................ 1947 $ 119,974 $ 71.868 $ 2.165 1946 102,955 58,796 3,153 ", 1947 222,289 107,434 9,079 Louisiana. 1946 172,732 82,725 11,795 UI47 74,664 102,262 3,689 New :Mexico.. 1946 60,103 93,041 3,913 OkL,homa. . . . .1947 314,2OS 336,200 8,467 277,'\18 16.873 1946 233,260 Texas...... . .. . 1947 1,140,993 80[,549 23 ,9 14 19'6 706,218 675,689 38,502 Five Stat" ... ....... . . . 1947 ",872,125 $1,418,403 $47,314 1946 $1,265,268 $1,187,749 $74,236 SOURCE: United States Department of Agricultu~. Bureau of Agricultural Total farm income $ 194,007 164,004 338,802 267,252 180,615 147,OS7 657,962 527,631 1,966,456 1,420,409 $3,337,842 52.527,253 EconomiaJ. The Texas rice production forecast on September I was 23,092,000 bushels, compared with the record crop of 23,700,000 bushels harvested last year. The 502,000 acre crop this year is 6 percent above the acreage harvested last year, while the prospective yield is estimated at 46 bushels per acre, down four bushels from last year and slightly below the 10-year average. The production of sweet potatoes in Texas was forecast on September 1 at 3,995,000 bushels, which is slightly lower than the previous estimate and considerably below the 10-year average of 5,121,000 bushels. Peanut production, placed at 334,050,000 pounds, falls short of last year's crop of 351,120,000 pounds. A near-record production of 44,250,000 pounds of pecans is more than double last year's crop and 65 percent above average. Production forecasts for Irish potatoes and broomcorn were unchanged from a month earlier. Rains received in the Lower Rio Grande Valley during the first half of September greatly benefited growing tomatoes and peppers, and all planting and transplanting operations were expedited by the improved moisture conditions. At mid-month, early planted tomatoes in the Lower Valley counties were blooming, while the crop in the Eagle Pass district was irregular but showing inlprovement. Conditions were favorable for tomatoes and peppers in the Winter Garden area, and planting of vegetables in the Corpus Christi area was awaiting the drying of fields. Harvesting operations at mid-September were limited principally to cantaloupes in the Trans-Pecos area, watermelons from the Gray County arca in the northern Panhandle, and potatoes in the Hereford-Plainview area, all of which were nearing completion. States in Eleventh District·_ Estimated Average 124,270 M,169 113,001- 48,592 31,248 2,620 3,437 47.566 14,734 2,370 3,300 123,899 65.166 12,1204,348 1,436 1,319 4,271 4,714 4,7043 4,636 4,400 9,978 9,260 8,760 Sept. I, 1948 1937-46 Estimated 1947 Sept. I, 1948 238,71Z159.60287,664 101,7'6 69,006 '0,008 9,23011,2134,685 4,920 Potal.octl, swcct .... 4,676 3,99.5 14,366'" 12,566':' 11,683'" Rice .. " ... ,.".", 16.688 23.700 23.092 36,991 0 45.155 0 44 ,9670 • Figuree are combined totals for five States lying wholly or partly ill the Ekvcuth Fcdcml RCllerve District: Texas, Arizona, Louisiana, New Mexico, and Oklahofllll. t Ill Lhou ~U\ds of hales. tIll thousands or tonR. -Arizona, New Merico, OkL1.homa, aud Texas. ':'Louisi:nm, Oklahoma, Slid Texa!!. cLouislana. and Texas. SOURCE: Llliloo State:! Department of Agriculture. Although the September 1 estimate of Texas corn yield per acre is slightly above Jast year's yield and one bushel above average, the 47,566,000 bushel crop in prospect is slightly below the 1947 crop and 'about one-third below average because of the greatly reduced acreage. Production of sorghum grain in the State, which was forecast at 82,478,000 bushels, is much below the August 1 forecast but compares favorably with the crop harvested last year and the 1O-year a verage. The estimated yield of 17.5 bushels compares with 18 bushels produced last year and an averlge of 16.6 bushels. CASH RECEIPTS FROM FARM MARKETINGS (In thou&.'\nds of dollars) May 1948 State Arizona •. , . . Loui8iana .... .. New Mexico .. , Oklahoma Tel:as .. May Cumulative ~ceipta 1947 --January 1 to May 31---.. 1948 1947 $ 82,145 I 01,363 114,042 96,4A7 50,433 48,665 274,44A 184,807 676,656 678.919 Crops Livestock Total Total $ 6,602 13,OS8 1,135 9,255 43,472 $ 7,984 7,157 7.121 260543 93,248 I 14.586 I 12.396 20,216 8.256 34,798 136,720 13.616 7,413 27.985 116,433 Total. ........ 173,522 "41,053 1214,576 1171,8'3 11,110,346 SOURCE: United States Dcpmlmcnt of Agriculture. ",187,919 CASH RECEIPTS FROM FARM MARKETINGS (In thousands of dollars) June June 1048 State Arizona ..... Louisiana .. , .. Ko ....• Mexico. Oklahoma . Texas TCJtaL Livestock Crops $ 15,024 $ 5,093 5,627 8,9'1 1,750 4,'30 71,244 38,277 53,562 94.826 ..... UI7,207 $151,617 Tolal S 20,117 14,568 6.230 109.521 148.3gB $298,824 SOURCE: Voitel StatcJ D~pJ. rtwcut. of Agricult!Jro. Cumubtive reeeipts 1947 .....--January 1 to June 3{)--.. 1948 1947 Total 102.262 91,M3 $ 17,292 96,487 128,610 12.026 56,663 48,965 6,744 294,328 274,448 106,562 827.307 676,6.'".. 176,657 $319,281 St,401J,I10 SI.t87,910 170 MONTHLY BUSINESS REVIEW Range and pasture feed showed some improvement in eastern, central, and southern areas of the District during the first part of September following general rains which effectively broke droughty conditions and started some new grass . In the northern Panhandle counties of Texas, where showers were received during August, grass is supplying excellent grazing. In the western part of the District, dry grass is short and rain is urgently needed to start new range feed. Some supplemental feeding was being carried on in central and western parts of Texas during the first part of September. Prospects are good for fall and winter wheat pastures, as a limited acreage of wheat was seeded in the northern High Plains in early September and seeding was expected to get under way on a large scale there and in the Edwords Plateau areas after mid-September. Cattle in the northern Plains counties of Texas, where range feed was generally abundant, were in good condition early in September. In some eastern, central, and southern counties of Texas where dry f eed was very short, cattle have shown considerable shrinkage despite supplemental feeding. Elsewhere, cattle were holding flesh fairly well on cured grass. Demand for stocker cattle continues very strong, and contracting of this year's calf crop was fairly active around mid-September. Sheep and lambs in Texas were in only fair flesh in parts of the plateau country and in poor flesh in much of the Trans-Pecos area at mid-September. It is expected that if rains come soon there will be a strong demand for ewes and new lambs for replacements. Also, if the present winter wheat prospects materialize, lambs will be in very strong demand for grazing. LIVESTOCK RECEIPTS-{Number) - - - F o rt Worth,- -- _ - - San Antonio - - _ August August July August August July 19'8 89.247 31,086 Hop ...•.... ... ......... 32,928 Sheep .................. . 165,828 19.7 70.561 46,276 30,300 102,291 1948 69.831 22,799 37,863 124,602 1948 3Q.238 3!,616 7,625 98,571 1941 29.620 20,026 5,204 SO,014 1948 26,520 17,914 0,862 54,599 Cattle ... Calves •........ COMPARATIVE TOP LIVESTOCK (Dollars per hundredweight) _ - - F o r t Worth Augus~ August July Claos 1948 1947 1948 Bed steers .. , .. . 133 .60 125 ,00 135.00 Stocker steers .... . . . 31.00 22,00 28.SO Hcifcl"9 and yearlings. 33,60 25.00 35,00 23,60 18.00 Butcher cows. 24 .50 C~lves ................ . 2'.00 32.60 28,00 Hogs ................ . 30,00 28,10 28,76 Lambo , 29,00 24,00 31.60 PRICES August 1948 128,00 28,05 27,00 24.00 28.SO 28 ,25 27,00 San Antonio - - August July 1947 1948 12'.00 132.00 27,76 21.60 24,60 30,26 11 .50 25.00 24,00 32.60 27,SO 29,00 21.76 26,60 Livestock marketing in T exas feli to a low level during July, as. rains over most of the grazing areas of the State gave promise of an improvement in the supply of grass and range feed. However, the drought of August caused livestock raisers to market in very large volume, raising receipts at the Fort Worth and San Antonio markets 38 percent over July and 41 percent over August 1947, As sheep ranges suffered the severest drought damage, receipts of sheep and lambs at these markets during August rose 74 percent over the same month last year and, contrary to the usual seasonal change, rose 48 percent over July. Cattle and hog receipts were up 28 percent and 14 percent, respectively, over August of last year, while calf receipts were down about 1 percent. The mid-month price report of the United States Department of Agriculture indicates that prices received by farmers for most crops and livestock declined during the month ended August 15. Declines in prices received for all grains, hay, cotton and wool were continuations of trends eviden t in previous months. Cottonseed, after advancing steadily for four months, declined substantially, Moderate declines occurred in prices received for beef cattle, veal calves, and lambs, while hog price., continuing the upward trend of the previous four months, made a slight increase. Spot commodity quotations reveal that from August 15 to mid-September, prices received for cotton, grains, and most classes of livestock fluctuated within very narrow margins, FINANCE Among the principal changes in the condition of selected member banks in leading cities of the Eleventh Federal Reserve District during the five-week period ended Sptember 15 were increases in most of the major loan and deposit classifications and a moderate decline in total investments. Total loans of these banks amounted to $1,046,089,000 on September 15, or $1 5,017,000 more than the amount reported on August 11 and over $18 4,000,000 above the total outstanding approximately One year ago. Commercial, industrial, and agricultural loans followed an irregular pattern during the fiveweek period, rising between August II and August 25 by $5,975,000 and then declining during the last week in August and the first week in September, During the week ended September 15, however, the volume turned upward again, as these loans increased by $3 ,818,000, Real-estate loans increased during the five-week period by $2,133,000, continuing the steady increase that has characterized the movement of this classification of loans throughout the year. The category "all other" loans, which includes consumer loans, showed a substantial increase of $7,461,000 during the last three weeks in August and the first half of September. Reports indicate a continuiog strong demand for credit for commercial and industrial purposes and for real-estate and consumer transactions. The more- than-average increase in consumer-type loans during the last week in August and the first week in September may have been influenced by the earlier announcement that Regulation W would be re-established, effective September 20. Seasonal demands for commercial and indusrrial loans have added their strength to the generally strong underlying demand for those types of credit. As a further step toward restraining inflationary expansion of bank credit, the Board of Governors of the Federal Reserve System announced on September 8 an increase in the amount of reserves required to be maintained with Federal Reserve banks by banks which are members of the System, That increase in CONDITION STATISTICS OF WEEKLY REPORTING MEMBER BANKS IN LEADING CITIES-Eleventh FederaJ RMerve District (In thollMmia (If dollars) Sept, 15, Sept. 17, August II, Item 1948 1947 1948 Total loans and inve6tments ...................... . 12,287,623 12,156,543· 12,276,496 1,040,11 5 Total loans-Net; ...... . ...... ...... ...... . 1,024,799 862,049- 1,031,072 Tatalloans-Grosa ................... . ... . .... . 1,040,089 Commercial, industrial, and agricultural loans . . . 712,574 574,793 705,923 Loans to brokers and dealers in securities ....... . 0,355 7,480 7,043 Other loans for purcbasing or carrying securities .. 60,000 70,183 60,491 75,823 88,013 Real-estate loans. . . . . . . . . . . . . .............. . 80,880 557 Loans to banks . .. .... . . . . . . . . . .............. . 316 672 178,524 133,449 All other loans ..... ... . . ... . .......•.......•• 171 ,063 1,294,494 Total investments . ... . . .. ............... .. .. . . . 1,241,53' 1,244,424 U. S. Treasury bilb .......................... . 44,523 18,607 46,930 U. S. Treasury certificates of indebtedness ... ... . 197,077 213.402 186,435 U. S. Treasury notes . . ................. . . . ... . 116,690 127,413 122,H8 u. S. Gove~n.ment bonds (inel. gtd. abligntiona) .. 701,717 829,762 767,487 Other securities . . ...........................• 121,527 105,320 121,424 516,058 Reserves with Federal Reserve Bank ... .. .......... . 478,784 S02,455 315,392 Balances with domestio banks .... . ... . ........•...• 326,555 282,272 Demand deposita-adjuated· ...... . . . ........ , .. .. 1,037,808 1,820,567 1,910,486 410,004 378,533 417,570 37,000 26,201 35,0118 Interbank deposita . ......... .. ............... . ... . 615,207 5!)~= S6~~! Borrowings from Federal Reserve Dank ............ . None 1irtit~~~Go~~~~~~i d~~~·.:';: ::::::::::: :: ·Ineludes all demand depoeit.s other than interbank and United States Government, less cash items reported 88 on hand or ill process af collection. tAfter deductions for reserves and unallocated oharge-offs. -Prior to J unc 30, 1048, the individual clas:Jes of loans were reported net; howM'er the Bmount of reserves dooueted subsequent to June 30, 1948, was so small as to have no significant effeet upon the comparability af the data. reserve requirements raised the requirement on net demand deposits for central reserve city banks from 24 to 26 percent, cf- 171 MONTHLY BUSINESS REVIEW fective September 24, for reserve city banks from 20 to 22 percent, also effective September 24, and for nonreserve city banks from 14 to 16 percent, effective September 16. The reserve requirement on time deposits was raised from 6 to 7-)1, percent for all classes of banks but was made effective September 24 for tbe central reserve and reserve city banks and September 16 for the nonreserve city banks. This action was taken on the basis of the temporary additional authority given to the Board of Governors at the recent special session of Congress permitting the Board to raise reserve requirements of member banks 4 percentage points against net demand deposits and 1-)1, percentage points against time deposits above tbe legal limit at the time of the Congressional action. Remaining authority of the Board of Governors to raise reserve requirements of member banks would permit, if the situation should demand, a further increase against net demand deposits of reserve city banks and nonreserve city banks of 2 percentage points and an increase in the reserves on net demand deposits of central reserve city banks by 4 percentage points. Bank debits reported in 24 cities in the District were 6 percent lower in August than during the preceding month bUl were 19 percent above August 1947. Banks in three-fourths of the reporting cities reported declines in bank debits during August as compared wit h the July level, while the remaining cities reported more or less moderate increases, with the exception of T exarkana, which reported an increase of 23 percent. Bank debits during August were lower in the largest cities of the District, including Dallas, Fort Worth, Hous~on, El Paso, Austin, and San Antonio. Little change from the preceding month was reported in the annual rate of turnover of deposits. For the past few months, the deposit turnover has been running at slightly more than 13 times a year, and while this is considerably above the rate of a year ago, only fractional changes have occurred in recent months. BANK DEBITS, END-OF-MONTH DEPOSITS, AND ANNUAL RATE OF TURNOVER OF DEPOSITS (Amounts in thou.&u](Js of dol1n.N1) _--Debits- - _ Annunl rate of turnover Pctg.change over End-of-montb Deposits of individuals, partnerships, and corporations at selected mem ber banks in the District increased by $76,077,000 during the five weeks ended September 15 . Relatively moderate fluctuations occurred each week from August 11 through September 8, with an increase of more than $78,000,000 being reported for the last week of the period. Demand deposits adjusted showed an increase of $27,372,000, while interbank deposits increased by $30,736,000. Gross demand deposits and time deposits of the member banks of the District increased during August, as the former type of deposits rose to $5,112,411,000 and time deposits increased to $591,551,000. The increase in gross demand deposits during August occurred at the country banks of the District, which reported a growth of more than $23,000,000 in their demand deposits, while the expansion of time deposits occurred at the reserve city banks, as this type of deposits increased at those banks from $375,215,000 to $379,803,000. Reserve city banks reported a moderate decline in gross demand deposits, while country banks reported a slightly smaller volume of time deposits. . Date AUgU8t 1946, August 1947 ~rilI948 . .. _ ay 1948 . ... June 1948 . .. July 1948 ... .. . . August IM8 . . G""" demand $4,914,883 .. 4.845,031 4,987,656 4,997,789 5,044,942 5.096,434 5,112.411 Arizona: Tucson . ..... Louisiana: Monroe ..• _.. Shreveport ... New Mexico: Roswell. August 1947 1948 $ 57.445 22 33,030 123,228 12,450 32.990 88,840 101.931 AusIin ............ 97.942 Beaumont .. . . ... . . Corpus Christi ..... 88.412 10.215 Corsicana . ........ 967.703 DaUas ........... 106.454 EI Paso ......... 305.777 Fort Worth . . .... 69.462 Galveston .. ..... Houstoo . . . _..... 1.053.278 15.045 Laredo . . . .. . .... 54.016 Lubbock ........ 34,331 Port Arthur .•.... _ 30,166 San Angelo . . .... _. 233.757 San Antonio . ...... 19,562 Texarkanat .. . ..... 38,931 Tyler .. ,_ . ........ 47.474 Waco . . . .......... 53,123 Wichita FaUs ...... deposits· 1948 -4 Aug. 31. 1948 $ 85,278 1948 8.3 1947 7.2 10.0 9.4 8.4 8.2 9.0 9.4 12.5 11.6 11.8 13.4 6.5 16.1 11.5 13.3 8.8 14 .0 7.8 10.0 10.4 9.2 8.9 10.4 8.6 9.0 7.9 8.5 12.5 27 14 15 -3 21 8 13 1 -6 -3 2 6 8 -9 -11 -12 -2 -4 -12 -9 -10 3 -4 23 41,069 162,582 -9 -5 Tex.&.!: Abilene •. ' •• _.. . _. Amarillo ...• _.. _, . July 3D 8 24 19 20 4 20 29 4 9 11 17 12 49 15 6 25 18,146 41,975 86.218 104,779 08.450 81,202 19,083 724,709 1ll.591 278,412 97,747 902,804 23,435 65,OSI 39.298 38,978 318,637 23,041 54,341 64,289 81,843 -11 -2 -3 Augu$ 7.4 11.2 10.1 14.3 5.3 14 .6 10.2 13.0 7.8 12.7 8.4 10 .9 9.6 8.4 7.9 7.2 8.4 8.8 7.1 July 1948 8.8 10,3 10.3 9.1 9.2 13.3 12 . 1 11.9 13.3 6.0 17.6 12.8 16.1 9.2 14.8 8.8 10.6 11.5 8.9 9.2 8.6 9.7 9.2 8.3 11.4 13.3 13.4 -6 $3,562,788 Total-24 cities ...... $3,675,562 19 ·DemRnd and time deposits at the end of the month include certified. and officers' checks outstanding but. exclude deposits to the credit of banks. tTbi! fiJl:ure includes only one. bank in Texarbna, ~el(as. -:r:otal de~its. for all banks in Texarkana, Texas--Arlmnsas, includmg two banks located III the Eighth District, amounted to $29,422. OROSS DEMAND AND TIME DEPOSITS OF MEMBER BANKS Eleventh Federal Reserve District (Averages of daily figures. 10 thOUSl\nds or dollars) Combined total Reserve city banks August C;ty August Country hanks Gr0S8 Gr0S8 Time demand Time demand Time $496,842 $2.402,647 $316.175 $2,512,236 1180,667 540,172 2,324,623 338.401 2,520,398 201,771 574.507 2,354,485 362.306 2,623,171 212,201 509.656 2,384,586 358,943 2,613,203 210,713 576,282 2,415,559 364,548 2,629,383 211,734 587.716 2,456.933 375.215 2,629,501 212,501 591,551 2,449,802 379,803 2,662,609 211,748 Principal, changes in the condition of the Federal Reserve Bank of Da llas for the month ended September 15 reflected an increase of $7,658,000 in Federal Reserve notes of the Dallas Bank in actual circulat ion, bringing the total outstanding on September 15 to $617,275,000; a decline in holdings of United States Government securities from $976,665,000 to $96 0,988,000; and a decline in total gold certificate reserves of approximately $35,800,000. Foreign loans on gold showed a r~l atively small increase, while discounts for member banks declined to $792,000. SAVINGS DEPOSITS Eleventh Federal Reserve District August 31,1948 C;ty Louisiana: Shreveport ..... Number of Number of reporting banks 3 depositors savings 32,810 Percenta~e savings change in Fort Worth .... ........ Galveston ....... . . .... Houston ............... Lubbock ........•.•.•. 3 8 2 4 4 8 2 2 5 3 3 12,167 142,797 32,247 43,110 23,293 101,362 6,362 Wichita. Falls . .... , . ,_. All other ................ 55 1,433 38,862 10,029 7,052 62,894 Total. ........ 102 514,418 Port Arthur ........... San Antonio ........... Waco .........•.•.••.• (In millions of dollars) eposits from Amount of savings August 31, deposits IOt7 $ 24.876,671 - 5.3 6,246,144 77.935,685 22,160.701 34,031,062 2I,{l13,785 72,958, 193 4,869.965 1,779,230 45,486.503 9,772.135 4,634.158 53,958,202 $380,622,434 .5 weeks ended 1948 -1.7 - 8.0 -0. 1 -5.1 - 2 .2 0 .1 4.0 -6.1 - 1.4 - 3.0 2.4 - 0.8 0 .4 - 0.4 - 0.4 - 1.0 -0.8 - 0.5 0 .03 - 0 .1 - 0 .5 - 0 .7 - 0.3 0 .5 - 0 .5 - - 0.7 Cumulative changes Changes in weeks ended. July 3t, Telta8: Be.a.umont . . ....... .... Dal..las .•.............. El Pa8o ............... MEMBER BANK RESERVES AND RELATED FACTORS Eleventh Federal ~serve District 0 .5 Item Sept. 15. Sept. 8, Sept. 1, Aug. 25. Aug. IS, 1948 1948 1948 1948 1948 Federal Reserve creditlocal .................. Interdistrict commercial &: 11.5 - 1.4 2.3 - Jan. 1 to Sept. 15, 1948 1. 8 12.1 4.0 -2.0 -12 .0 4.8 1.8 - 1.7 - 1.8 -16.3 55.4 -119.1 119.0 2.0 2.1 financia l transactions ... -11.3 Trea.euryopcrations ...... 13 .3 12 .2 CurrencytransactioOll..... 3.6 -5 .7 -3.2 12 .6 - 5.0 Ot;:d~t:e~!hBank .. _ 0.1 0. 1 0.7 -0.6 -0 . 1 Other Fedcral Reserve accounts... ........... Member bank reserve 0.4 -0.1 0.2 -0.1 0.2 22 .9 Sept.15, 1948 -10.6 0.6 0 .6 6.2 balanccs ............ ... 17,4 28.0 7.6 -1.7 -10.1 41.2 12.7 Note: Amounts preceded by a minus sign reduce reserves; all others add to reserves. 172 MONTHLY BUSINESS REVIEW CONDITION OF THE FEDERAL RESERVE DANK OF DALLAS (In thousands of dollars) Item Totttl goki certificate rcsenres .•.....•. , ...•..•.... , Discoullt9 for member banks ...•.•.••.•••••.•.•.... Foreign loalls on gold .. , ..... , ..•.•...••••.•••.... U. S. Government securities ...................... . Total earning assets ............... ...... ........ . Member bnuk reserve deposits .•.........•......... Federal Reserve DOLes in actual circulation ......... . Sept. 15, Sept. 15, August 15, 1948 $549,212 792 8,002 960,988 979,382 876,794 617,276 1947 $487,866 300 974 950.148 961.422 811.651 616,437 1948 5585.019 3.750 7.912 976.665 988.327 847.497 609,617 NEW MEMBER BANK Tbe Empire Slate Balik of Dallas, Texas, a newly organized institution, opened for business September 20, 1948, as a member of the Federal Reserve System. Tbis bank has paid-i>. capital furuls of $1,200,000, including capital of $750,000, surplus of $250,000, an.d undivided profits of $200,000. Its officers are: Ellis C. H1tggin.s, President; Mic!:x11lx Nash, Executive Vice President; T. W. Rutledge, Vice President; and Clyde E. Crosby, Cashier. INDUSTRY The daily average production of crude petroleum in August continued at ncar record levels in the Eleventh Federal Reserve District and in the United States set a new record of 5,516,987 barrels daily. Production in the District, which averaged 2,693,000 barrels daily, was only 2,008 barrels under the record level of June and was 24,392 barrels daily larger than in July and 186,600 barrels in excess of that in August 1947. Production outside of the Eleventh District rose to 2,823,087 barrels daily, exceeding the rate for the previous month by 32,979 barrels and the August 1947 rate by 189,638 barrels. the July rate, though 8 percent above that for a year ago. The seasonal peak in gasoline consumption was passed without evidence of shortage. The high level of refinery operations during the spring and summer months has enabled the industry to make considerable progress in building up stocks of refined products, despite the heavy demand, This has been facilitated by increased imports and decreased exports, with the Economic Cooperation Administration purchasing its requirements largely from offshore sources. The Interstate Oil Compact Commission, in a recent report, estimated the United States demand for crude oil and natural gas liquids during the October 1948-March 1949 winter season at 6,743,000 barrels daily, or 449,000 barrels more than last season. Stocks of refined products are above levels of a year earlier, ranging from 13 percent for gasoline to 31 percent for residual fuel oil, and are better distributed geographically. With some increase in imports, supplies should be adequate to meet the winter demands. Affecting the national picture has been the reduction of refinery operations in California during September due to labor difficulties, resulting in some diversion of petroleum products from the Midwest to that area and in an embargo being placed on exports of such products from the West Coast. Drilling operations, as measured by the number of wells completed, continue at high levels, with the August figures for both the United States and the District moderately exceeding those for July and considerably exceeding the completions of August 1947. The value of construction contracts awarded in the Eleventh District during August was $75,883,000, which is 4 percent above the July level and 11 percent above the August 1947 figure. Residential building contract awards in August were 28 percent above those of July and 24 percent above those of the same month of last year. Nonresidential construction for VALUE OF CONSTRUCTION CONTltACTS AW AllDED CRUDE OIL PRODUCTION-(Bo"ol,) August 1948 Total production A,.. Te1M: District 1.. . .......... 2 ....... .•...•. 3 ..... .•.•...• 4.. ....... ..... ... 5 .. . ......... . .... 6 ...............•. Other 6 ........... 7b ... 70 .. ......... . . 8 ............ •• . 9 ..........•.•.... 10 ................. Total Texas ............... New Mexico .........••...... ........... . North Louisiana ..•.•• , •.•...• Total Eleventh District .... . Outside EleYenth District ..... United States ............... 898,400 5,547,700 15,297,350 1,762,400 1,623,660 9,439,160 3,731,350 1,677,000 1,354,600 21,304,600 4,278,900 2,670,000 75,886,300 4,112,850 3,511,760 83,510,900 87,515,700 171,026,600 Dailyavg. production 28,981 ]78,!l58 493,463 260.400 49,150 304,489 120,366 50,890 43,697 703.374 138,029 86,148 2,447,945 132,673 113,282 2,693,900 2,823,087 6,616,987 (In thousands or dollars) lncrease or decrease in daily average production from July 1948 66 1.677 2,221 1,423 818 991 -890 1,683 765 12,426 1,61H -2,525 20,239 3,992 161 24.392 32.979 67,371 August 1\)47 5,475 19,624 6,380 9,052 9,629 -19,069 4,410 11,660 4.165 IH,OOS 11,092 2,580 148.993 24.019 13.648 186.660 189.638 376,298 SOURCE: Estimated from American Petroleum Institute weekly report.o. Refinery operations, both in the District and the Nation, declined slightly in August as compared to July but continued welL above the rate of a year ago. Crude runs to stills averaged 1,741,000 barrels daily in the Eleventh District, or 32,000 barrels daily less than in July but 205,000 barrels above August 1947. The average for the United States was 5,589,000 barrels daily, or 98,000 barrels below the previous month but 372,000 barrels above August 1947. Stocks of crude oil at the end of August were 2 percent above July levels but fractionally below • year ago. Gasoline production in August was 1 percent below August 'T' August Eleventh Dist rid-total .. ResidentiaL .......... . All other ....... ... ... . United SI.:ltC3· -tot.ul. ... . Residential ....... . All other .. . 1948 5 75,883 24,748 51,135 854,091 337,660 618,541 1947 5 68,120 19,930 48,190 823,216 3()8,937 514,279 puly 1948 5 72,907 19,309 53,688 962,685 iU9,699 612,986 January 1 to August 31 1948 1947 $ 650,623 5 <51.020 182,664 166,774 367.969 284,246 6,883,581 4,976.115 2,5 10,818 2.018.724 4,072,763 2,957,391 ·37 states east of the Rocky Mountains. SOURCE: }.... W. Dodge Corporation . BUILDING PERMITS August 1948 City No. Valuation Louisiana: Shreveport ....• 308 $ 986,024 Texa.s: Abilene ........ 79 330,296 Amarillo ....... 240 1,196,200 Austin ... 447 2,270,410 426 Beaumont 881.880 822,917 200 ~Ir~~~ ?h.r~~l~: 1,370 5.279,627 143 696,773 F.I Paso ... 679 1,968,123 Fort Worth ..... O:llveRton ...... 156 178,192 Il sUI;ton ....... 780 8,047,000 Lubbock. _ ..... ~"IO 887,564 Port Arthur _... 206 475,63 1 Ran Antollio .. ' 1,295 3,421,734 161 751,000 Waco .•. . ...... Wichita Fall! ... 99 260,900 : Total . .. -----6,909 '28,363,785 Perceutage Percentage change Jan.1toAug.31,1948 change valuation from valuation Aug.194i July 1948 Ko. Valuation {rom 1947 2,684 $ 23,333,617 38 26 38 22 79 - 44 4 -21 -23 -16 43 17 169 42 -18 -27 20 15 21 -30 - 39 - 15 63 -iU -80 -7 -57 16 -13 - 35 13 - II 6 740 1,589 2,742 2,901 2,458 1l,029 986 4,883 1,322 6,226 238 3,644,035 7,684,917 17,308,040 6,954,138 12,063,789 64,708,578 6.733,796 19,937,472 2,797,655 69,436,797 9,473,776 2,353.243 24,760,877 8,797,1 79 2,90.1,2611 25 45 29 69 19 87 61 26 76 55 21 53 46 61 62 52,095 5282,893,175 59 1,905 1,126 9,983 1,222 599 MONTHLY BUSINESS REVIEW August was 5 percent below July but was 6 percent above a year ago. Contract awards for the first eight months of 1948 were 22 percent above the corresponding period of 1947, reflecting increases of 10 percent for residential and 29 percent for nonresidential construction. Cotton consumption in the United States in August was 728 ,732 bales, or 101,339 more than in July and 18,131 more than in August 1947. The demand for cotton textiles continues largely on a current requirements basis, with the number of cotton consuming spindles in operation during the last week of August being fractionally above a year earlier. A number of New England mills have recently closed due to cost as well as market factors. DOMESTIC CONSUM PTION AIm STOCKS OF COTrON-(Bales) August Consumption aL: 1948 Texas mills. ... . . ... ............ . . . ...... . . . .. 12,090 UniLed States milia. ............. ..•. • . •. •. . . .. 728.732 U. S. atocb-end of month : In consuming est.abliabmenta. . . . . . . . . . . .. .. . . . . . . 1,246,848 Public storage and compresses. .. .. . . . . . . . . . ... .. 1,723,6 16 August 1947 11,887 712,1164 J . lS.~,48 l 840,201 July 1948 11,936 627,393 1,471,644 1,335,996 173 COTTONSEED AND COTrONSEED PRO DUCTS August 1948 _ - - T , m a - - _- -United Statee-~ August 1 to August 3 1 AugU6t I to ."ugust. 3 1 This aeason Last. season Tbis season La8t eeaeon Cot"'n,.,..j ""';. ed at milia ("'na) . .... 101,233 120,322 373,048 167,444 CoI"'.".,..j ("'na)....... . . . .. . 87,3 18 61,311 173,000 101,9 17 Cott.on9CCd on band August 31 (t.ons). .. 168,1 00 113,439 289,068 165,055 Production or product.z: 61,2(1) 18,248 31,032 Crude oil (thousand r unds) ... , .... . 26,036 BO,666 46,971 Cake a.nd meal (tons .. .......... , .. 42,414 29,662 13,046 39,314 23,141 19,238 Hulla("''''') .... . .... . ............ . 31,738 Linters (running ba les) ... . . 19,226 53,165 28,096 SWcks on hand August 31: 12,163 4,006 8,405 Crude oil (thousand pounds), . . . ,.,.. 4,717 6,532 74,554 26,722 Cake and meal (tous) . . , ..... , ... ,. . 33,700 11,900 44,219 34,554 Hulla (tons).. . . .............. . ... . 19,100 101,348 20,672 71,888 Linters (running bales) . . . . . . . . . . . . . . 48.824 SOURCE: Unitod Statca Bureau oC Census. ,"""cd Employment this summer reached new highs in both the District and the N ation. The preliminary estimate of nonagricultural employment in Texas during September is 2,294,600, or 15,000 more than in Jul y or August. The return of teachers to schools, the seasonal fall increase in retail trade, and the recruiting of additional workers for defense plants account for the September increase and, with the re-entrance of students in schools and the demand f or cotton pickers, account for a tightening of the labor market.