2665_1940-1944

JANUARY 1940 SURVEY OF CUEEENT BUSINESS

Business Situation SummarizedBUSINESS did not undergo marked change in De-cember from the position prevailing at the end ofNovember, after allowance for the divergence in theusual seasonal movements between retail trade and in-dustrial production. The very substantial rise in con-sumer purchasing power in recent months of expandedactivity had assured the increase in retail sales over ayear ago that was realized. The irregularity in storesales which developed over the November month-endwas not significant, as higher pay rolls, larger farm in-come, and a year-end flow of dividends much in excessof that in 1938 brought trade through retail channels toa strong close for the year.

On the whole, industrial production was maintainedat a high rate during the month. There were seasonaldeclines in some industries but in total the let-up wasprobably less than usual for December. Steel ingotproduction, which in the spectacular autumn risereached the practical limits of capacity by the end ofNovember, tended to decline as the volume of neworders fell to a figure more in line with current utiliza-tion. Pressure for delivery of steel has decreased fol-lowing the announcement that prices for the first quarterof 1940 would be about the same as those listed for thepast several months. By the third week of Decemberthe rate of ingot production was off to 90 percent ofcapacity, against 94 percent at the end of November.This recession is not indicative of a general decline sincethe rate of steel production was above the operatingrate for the steel-consuming industries generally. Themore highly fabricated lines of steel manufacture are notsubject to such quick adjustments as those which char-acterize ingot production, and no signs of slackeningactivity have appeared among them as yet. In someof the metal industries incoming business remainedcomparatively high during November; e. g., orders re-ceived by metal trade concerns in Massachusetts wereas large as in September, though well below the Octobervolume. New orders in the other major industriesreported for this State were much smaller in Novemberthan in September.

Activity has been sustained in machine tool, aircraft,shipbuilding, and electrical equipment manufacturing.Automobile assemblies were stepped up in December asChrysler plants again came into production. Totalassemblies rose to about 440,000 units, the highest totalsince the middle of 1937. This represented a largervolume than retail sales plus exports, as stocking ofdealers continued. Domestic retail sales of passengercars in November amounted to 257,000 compared with241,000 in November 1938.

Output of Consumers' Goods Maintained.

In the industries manufacturing consumers' goods,operations continued high in December. Some down-ward adjustments occurred, but these were neitherlarge nor widespread. November figures show theextent to which the operations of these industries werepushed by the September-October buying. Output ofcotton textile mills, already high in October, increasedfurther in November. While some increase in the pur-chasing of textiles occurred in the middle of December,following the rise in raw cotton prices, the mills havebeen operating at a rate above the volume of incomingbusiness for some time. Woolen mills in Novemberalso operated at a very high rate.

The extent of the rise over a year ago in a number ofimportant areas of the economy is indicated by thecomparisons presented in figure 2. The rise in durablegoods manufacturesstill relatively depressed towardthe end of 1938is outstanding, as is the increase ofabout one-fifth in the volume of freight moved. Thegeneral advance in production and distribution broughtthe rise in the national income payment total to 6 per-cent. The price data given show that price changeswere not an important factor in the magnitude of thechange in dollar figures, though actual and anticipatedprice movements did have an important influence onthe volume of purchasing and sales during the finalthird of the year.

Estimates of the dollar sales of service and limitedfunction wholesalers prepared by the Bureau of Foreignand Domestic Commerce show a sharply increasedrelative gain over 1938 in the final quarter of the year.Moderate advance in the first half gave way to a widerincrease for the third quarter, but in the final 3 monthssales ran well over 10 percent in excess of the finalquarter of 1938 which was, it will be recalled, a periodof improving trade. For the year 1939, the percentageincrease in sales was 9 percent, the total rising from19,023 million dollars in 1938 to 20,700 million dollarsin 1939. The more important increases were in suchlines as electrical goods, metals and metal work, lumberand construction material, jewelry and optical goods,machinery, automobiles, and furniture. Sales of foodand farm products, which make up an important partof the total, showed only moderate increases as priceswere generally lower throughout the year. Pricechanges were not a factor in the larger annual sales totalfor this group of merchants, since they averaged lowerin 1939 than in 1938. It was not until the last quarterof the year that average wholesale prices moved higherthan a year ago.

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

January 1940

SURVEY OF CURRENT BUSINESS JANUARY 1940Income Payments Higher.

Reference to the chart on page 3 will reveal theunusual rise in income payments that has occurredduring the few months subsequent to the outbreak ofwar in Europe. The reaction in domestic markets tothis eventsuperimposed as it was on a rising trend ofdomestic economic activitybrought a rise in the indexof income payments to 88.8 in November (1929 = 100)from the August figure of 85.4. The advance in thisindex of more than 1 point a month for the past 3months means an increase in income payments on anannual basis from 69.7 billion dollars at the Augustrate to 72.5 billion dollars at the November rate.Some further increase in income payments probablyresulted from December business; for the year 1939 a

Farmers' incomes rose sharply after the prices ofagricultural products advanced in September. Theimprovement of the past 4 months has raised the esti-mated total of cash farm income for the year 1939 to$7,625,000,000, virtually the same as in the precedingyear. With Government payments of $675,000,000estimated to be almost $200,000,000 larger than in 1938,the total income of farmers of $8,300,000,000 frommarketings and Government payments is expected tobe about 2.5 percent higher than in 1938.

A marked rise in dividends, particularly in the finalmonth of the year, has been an important factor inincreasing the flow of income to individuals. It isestimated on the basis of data now available that divi-dends in 1939 were at least half a billion dollars larger

PRODUCTIONc

OTAL MANUFACTURING'RODUCTION*

DURABLE PRODUCTS

PERCENT) 20 4 0 60

3MEamSTEEL INGOTS H B H H B H B H H B i

PLATE GLASS

LUMBER

NONDURABLE PRODUCTS

PAPER.8OARD PRODUCTION

COTTON CONSUMPTION

SHOE PRODUCTION

BOH

mm*

wmam

i

* Federal Reserve Indexes

INCOME AND DISTRIBUTION0 10 20 30

TOTAL INCOME PAYMENTS

SALARIES & WAGES

CASH FARM INCOME.*

FREIGHT CAR LOADINGS

WHOLESALE SALES

TOTAL RETAIL SALES

GENERAL MERCHANDISE

CONSUMERS DURABLE GOODS

* Excludes Government Pay/nenh

PERCENT0 t 5 +10

PRICES-5

COST OF LIVING

RETAIL FOOD PRICES

WHOLESALE COMMODITYPRICES

ALL COMMODITIES

FARM PRODUCTS

FOODS

INDUSTRIAL COMMODITIES*

FINISHED PRODUCTS

RAW a SEMI-FINISHED

* federal Reserve Classification; excludes all foods 3. feedsD.D. 39-343

1

W////A

'V///////////Ai

Figure 2.Industrial Production, Income and Distribution, and PricesPercentage Change November 1939 from November 1938.

NOTE.All series shown on this chart are those regularly published in the Survey except wholesale and retail sales which are estimates of the U. S. Department of Com-merce and prices of industrial commodities which are compiled by the Board of Governors of the Federal Reserve System from data of the U. S. Bureau of Labor Statistics.

total of almost 70 billion dollars is indicated, as com-pared with 66.3 billion dollars in 1938 and 72.4 billiondollars in 1937.

Income payments in November were 310 milliondollars larger than a year ago, an increase of nearly6 percent. In general, the industrial sections of theNation have shown the greater improvement over thesame month of last year. Although salaries and wagesas a whole during November were only 6 percent abovethose of November 1938, aggregate pay rolls in thecommodity-producing industries were 208 million dol-lars or nearly 15 percent larger than a year ago. Whilerepresenting less than one-quarter of all income pay-ments, pay rolls in these important industries accountfor two-thirds of the increase in total income overNovember 1938. Factory employment in Novemberwas 11 percent higher than in 1938, and pay rolls wereone-fifth larger. In contrast, the governmental con-tribution to employee's income was nearly 10 percentless than November of last year, reflecting the lowerlevel of work-relief wages during 1939.

than the 1938 figure of 3.7 billion dollars, representingan increase of 14 percent. The marked increase individends relative to the increases in other types ofincomes reflects partly the more variable character ofthis type of income and partly the concentration of thepresent recovery in those industrial branches (notablymanufacturing) where share capital represents animportant factor of production. Enlarged dividendsreflect the substantial expansion in business profitsthat has occurred in the fourth quarter of 1939? Dataare not available at this time to compute the actualincrease in current profits, but recent months haveundoubtedly produced a volume of earnings which arenot far removed from the results of early 1937.Financial Markets

As in November, domestic and international financialmarkets were relatively quiet, aside from the drop inquotations of Finnish bonds which followed the attackof the U. S. S. R. on Finland. Prices of stocks andcorporate bonds on the whole did not show significantor material changes. Corporate security flotations on


January 1940

JANUARY 1940 SURVEY OF CURRENT BUSINESS

the open market achieved substantial volume after 3months of stagnation. The issues were predominantlyutility refunding operations; the amount of new capitalraised was small. That business concerns have re-quired some additional funds is evidenced by the trendof commercial loans; the amount outstanding withreporting member banks has increased $400,000,000since August to $4,400,000,000 in December.

As the 3rear ends the prospects for business in thefirst half of 1940 remain uncertain, though the level ofactivity is currently well above that of the first quarterof 1939. Production in the basic industries during thefinal quarter of 1939 has matched that of the bestquarter of 1929. But with industrial activity notbeing supported at present by a volume of incomingbusiness of corresponding magnitude, some readjust-ment in productive activit}^ can hardly be avoided asthe backlogs of orders are reduced. Buying policiesduring the fall rush were predicated largely upon cover-ing requirements for some months ahead rather thanupon immediate needs. As these commitments broughtcompany positions into line with their raised expecta-tions regarding sales trends and inventory needs, pur-chasing settled down to a replacement basis. Themere cessation of inventory accumulation can onlyresult in some decline in industrial activity unless a

prompt expansion in consumption, investment, orexport demand, not now in evidence, should come in asan offsetting influence.

What is uncertain at this time is the magnitude andduration of the reaction to come in the next few months.The fact that inventory holdings have been and are stillbeing enlarged through previous commitments is anunfavorable factor in the present situation. The atti-tude taken toward these holdings may largely deter-mine the extent of the readjustment. There are sev-eral factors on the favorable side which militate againstliquidation. The advance in prices, particularly retailprices, has not been as large as seemed likely twomonths ago. Hence, an expanded volume of goodsshould continue to be taken off the market by consum-ers. The prospects for farm income have been strength-ened by the December rise in the prices of a few agri-cultural staples, principally wheat and cotton. Activ-ity in the construction industry has been well main-tained during recent months, and a continuance of theexpansion of 1939 into the spring of next year wouldprovide added stimulus to the economic structure.Furthermore, there has been a sizable increase in com-mitments for capital expenditures by business in thepast 4 months and the activity created by it will befelt during the first quarter of 1940.

MONTHLY BUSINESS INDEXES

Year and month

Monthly Incomepayments, ad-justed *

tcC8

1is

Monthly average,1929-100

Factory em-ployment

andpay rolls

I3

VMonthly av-erage, 1923-

25=100

Cash farmincome 2

Monthly av-erage, 1924-

29=100

Industrialproduction,adjusted'

Freight-carloadings,adjusted ]

Retail sales,value, ad-justed i

Monthly average, 1923-25= 100

s

IIisI1929-

31=100

Foreigntrade,value,

adjusted1

1&

1?c?3

ctio

es,v

2c6

is

Monthly average,1923-25=100

Monthlyaverage,1926=100

1929: November1932: November1933: November1936: November1937: November1938:

NovemberDecember

1939:JanuaryFebruaryMarch _.AprilMay .June _.JulyAugust _.SeptemberOctoberNovember

Monthly average, Januarythrough November:

1929193219331936193719381939

100.056.860.585.886.7

83.183.4

83.383.084.183.083.484.183.785.486.888.188.8

100.061.156.982.589.181.584.9

100.655.459.483.884.8

82.483.0

82.382.082.181.081.482.882.884.084.486.787.5

100.059.755.079.286.879.183.4

100.859.361.585.987.584.284.784.484.484.883.884.385.485.586.787.088.889.6

100.063.958.282.889.082.385.9

104.466.281.2

104. 4103.792.894.494.694.394.093.893.394.395.396.097.3

101.2103.4

106.566.472.898.3

109.689.396.2

104.943.657.394.493.384.487.183.786.087.685.585.086.584.489.793.8

101. 6101.8

111.347.149.584.6

104.177.189.6

109.044.560.588.584.578.072.568.551.057.555.060.059.063.071.092.596.078.5

102.942.948.873.680.069.568.4

93.039.551.577.573.569.568.0

67.560.064.064.565.060.062.571.079.072.574.0

110657211488103104

1019998929298101103111121

121657710411285104

1106370114851031041009796929197100104111121124

122637610411282103

1107582112109102109110110110959810410691114121124

116728210411698108

10256608271

69696967666062676970778082

108555874796270

1046866676461616262626161616262636263

105726765686162

1086467949189

87

1036662818779

132.528.553.0

151.089.0

100.092.591.096.088.079.579.079.080.576.583.593.7

102.6

151. 236.945.6

102.1111.363.88.7

10132425272

5867

5563706470706972727267

115363653736867

10532406169

5554

5549535361585757596573

115353761815058

10327485856

9696

8673696763636773737672

120282455606371

144.455.460.593.792.186.4

106.990.577.192.385.390.094.789.688.793.996. 594.5

140.665.2

3 61. 390.598.884.690.3

93.563.971.182.483.377.577.076.976.976.776.276.275.675.475.079.179.479.3

95.565.265.580.586.778.777.0

i Adjusted for seasonal variations; monthly averages, except income payments, are based on unadjusted indexes.3 Average of 10 months, January, February, and April through November.

* From farm marketings.


January 1940

March 1940 SURVEY OF CURRENT BUSINESS

The Business SituationFEBRUARY passed without any signs of an expan-sion in the basic factors of demand which wouldbring a near-term reversal in the business downturn.While characterized by some unevenness among thevarious lines of manufacturing, the flow of new ordersis still generally restricted and below the volume ofproduction. Industrial output has declined sharplyduring the past 2 months and even with this reducedrate of activity, backlogs of unfilled orders have beenlowered further. As* evidenced by retail trade, con-sumption has eased off from the high December posi-tion. The latest data available, as of the end of Jan-uary, show a further substantial increase in inventories.

WEEKLY AV JAN - JULY 1939 * 100300

2 50WOOL YARNS-

-4A

v

t i l l

^ - W O O L

\

\ A7fif/?

1 1 1

CLOTH

\ , t 1 1 i i i I

r

A

i

V

1 1 i ! 1 1 1 1

VEEKLY AV. JAN-JULY 1939 = 100600

700

600

500

400

300

-ipo

100

0

1

1L COPPER

\ \

I/N1 1

h \ /\

Figure 2.New Orders for Selected Commodities, By Weeks, 1939-40

NOTE.Relatives have been computed from the weekly data (quantity) withaverage weekly orders for the 30 weeks, January 1 to July 29, 1939, as 100. The dataare substantially comparable for the period covered, although slight variationsoccur in the number of lumber mills reporting. Orders for wool yarn and woolcloth are compiled by the National Association of Wool Manufacturers, copperorders are sales of domestic producers as reported in the American Metal Market,and sales of slab zinc are from the American Zinc Institute.

The only major factor to resist the weakening tendencyin business so far this year is export trade; foreignshipments on a volume basisthat is, allowing forprice changeshave risen to approximately the 1929level and current reports indicate a continuance ofactive demand from abroad.

The declining flow of new orders in the late monthsof 1939 and in January and February of this year isrevealed by the data charted in figures 2 and 3. Thereduction in new business has been rather general andit is the factor behind the decline in production expe-rienced during the opening months of 1940. The revivalof buying of copper and zinc in the latter half of Fed-ruary, a typically sporadic purchasing move by con-sumers of these metals, stood out in the generallysluggish purchasing of other commodities.

The monthly series on manufacturers' orders for avariety of industries reveal a similarity in the pur-chasing swings of the past 6 months. More inclusivedata not available for plotting show deviations fromthe general pattern in certain lines, though the over-all picture thus far in 1940 is one of declining back-logs as the inflow of new business has not kept pacewith production or shipments. In some instancesfoundry equipment and the metal trades in Massachu-setts among those shown in figure 3the flow of in-

2500

2000

1500

1000

5001922-250

200

150

100

50

STEELBARRELS

/ \/ >

/

i i i i24= 100

FOUNDRY

//

I I I !

THOUSANDS OF TONS700

600

500

400

300

PAPERBOARD

AA/ \j \

i i i i

\\

1

!

* - ^ l l ~~m

1

MALLEABLECASTINGS

THOUSANDS OF TONSi ioo

METAL TRADES INMASSACHUSETTS

1926 = 1001 175

TEXTILE MILLS INMASSACHUSETTS

150

125

100

751926 = 100

1250

1 1JULY AUG. SEPT. OCT. NOV. DEC J A N FEB.

1939 1940

200

150

100

50AUG SEPT. OCT. NOV DEC. JAN . FEB.

1939 1940D D 4-O - 85

Figure 3.New Orders Received by Selected Manufacturing Industries,1939-40.

NOTE.The indexes of new orders (value) received by textile mills and metaltrades in Massachusetts are compiled by the Associated Industries of Massachusetts.The other series are those regularly shown in the Survey of Current Business andrepresent quantity, except the indexes for "Foundry Equipment" which are on avalue basis.

coming business compared favorably with the pre-warlevel. Machine tools and aircraft continue in anexceptionally favorable position both as regards neworders and the current backlog. Foreign businessrepresents a significant part of unfilled orders in both ofthese industries.Material Prices Reflect Weak Business Trend.

Contraction of industrial purchasing has had as acorollary the weakening in the prices of raw materials.The February index of 16 basic industrial raw com-modities recently made available by the Departmentof Labor averaged about 116 (August 1939 = 100) ascompared with the 1939 peak of 129; thus more than


March 1940

SURVEY OF CURRENT BUSINESS March 1940

one-third of the post-August price rise in these com-modities has been canceled. In the main, the wholesaleprice situation has been one reflecting the decline inbusiness activity, though some commodities haverecently risen in price because of special factors. Tinquotations, for example, rose slightly after the loweringof the export quota, and foreign sales were a con-tributing factor in the late February increase of copperprices.

On the average, prices of farm products and foodseased off during January and February, though someimportant commodities moved against the generaltrend. Wheat prices, which during January had lostsome of the previous advance, again moved upwardin February to about the December peak under the in-fluence of supply factors. Cotton prices substantiallymaintained the December gains, supported as they wereby the sustained high level of domestic cotton consump-tion and the marked contraseasonal expansion inexports after December.Sharp Decline in Production.

The contraction during January and February inindustrial output was contrary to the seasonal expecta-tion. The Federal Reserve adjusted index of industrialproduction dropped from the December peak of 128(1923-25 = 100) to 119 for January, and a further de-cline to about 109 is indicated by preliminary data forFebruary. Roughly half of the 19-point reduction isto be explained by the actual decrease in production and

the other half arises from the seasonal adjustment factor.The pace of the decline in this adjusted index of in-dustrial production has been somewhat faster than therise subsequent to August 1939. Production of steelingots, with a weight of one-fourth in the Decemberindex, has declined at as rapid a rate as it was raisedlast year; this change has been a major factor in thesharp fluctuation of the production index over the past6 months.

Steel production dropped from about 85 percent ofcapacity in the initial weeks of 1940 to around 65percent by the end of February. The seasonally ad-justed rate of output was lowered more than one-thirdfrom December to February. This precipitous declinewas not typical of the durable goods generally; manyplants in these lines held to a high rate of operationsduring January and February. Machinery concernsremained fairly active. Producers of fabricated steelproducts, according to the most recent employment andpay-roll data for mid-January, have curtailed outputsince December. Fabricators of nonferrous metalsalso reduced operations after December though stillholding operations at a very high level. Aircraft man-ufacturers continued to expand operations, and inJanuary had doubled the number of employees as com-pared with a year ago. Capacity operations for mostof the aircraft manufacturers are assured for some time,and substantial additions to plant and equipment arenow under way.


Year and month

1929: January1932: January1933: January1937: January1938:

JanuaryDecember

1939:JanuaryFebruaryM ar chAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

1940:January

Monthly incomepayments, ad-justed i

pS3I

Monthly average,1929=100

97.871.058.486.2

98.668.256.286.5

82.983.4

83.383.084.183.083.484.183.785.486.888.088.589.7

89.4

98.568.254.683.4

79.383.0

82.382.082.181.081.482.882.884.084.586.687.387.8

87.0

83.384.7

84.484.484.883.884.385.485.586.787.088.889.590.1

89.7

Factory em-ployment

andpay rolls

iir3


25 = 100

104.271.8

107.3

93.094.4

94.694.394.093.893.394.395.395.997.5

101.2103.4104.6

104.0

103.854.040.394.6

75.387.1

83.786.087.685.585.086.584.489.793.8

101.6101.6103.6

98.1

Cash farmincome 2

1Monthly av-erage, 1924-

29 = 100

66.052.557.553.559.059.567.575.593.0

107.090.079.0

67.5

81.0

86.072.0

76.573.072.568.070.563.563.066.573.576.576.579.0

78.0

Industrialproduction,adjusted i

Freight-carloadings,adjusted 1

Jj

Retail sales,value, ad-justed i

Monthly average, 1923-25 = 100

1197285114

81104

101

9298101103111121124128

119

1207163115

76104

1009796929197100104111121124129

118

1167775111

108110

110nono959810410691114121124120

127

1086253

104 110806293

90

1929-31 = 100

138.545.541.0

129.5

65.092.5

91.096.088.079.579.079.080.576.583.593.7

102.8108.5

92 124.0

Foreigntrade,value,

adjusted ]

If

Monthly average,1923-25 = 100

126393157

7567

556370647070697272726791

95

113422974

5254

554953536158575759657377

74

120312263

5296

867369676363677373768386

75

142.480.661.1

103.4

89.3106.9

90.577.192.385.390.094.789.688.793.996.594.5

113.5

101.3 I

&

1

Monthlyaverage,1926 = 100

95.967.361.085.9

80.977.0

76.976.976.776.276.275.675.475.079.179.479.279.2

79.4

1 Adjusted for seasonal variations; monthly averages, except income payments, are based on unadjusted indexes. - From farm marketings.


March 1940


Automobile assemblies have been relatively highduring the first 2 months of 1940. There was someslackening in January, but seasonal expansion wasagain in evidence in the latter part of February. Pro-duction of new cars and trucks for February approxi-mated 400,000 units as compared with 303,000 in Feb-ruary of 1939. Dealers' stocks of new cars have beenincreased to large totals by the high rate of assembliesthis year. Retail sales trends in this industry have beenstrong, in contrast with retail sales generally.

Although production of nondurable goods has tendedtoward lower levels, the change has not been so largeas in the case of the industries producing primarydurable products. Cotton mills, which have operatedat near capacity for half a year, did not curtail outputuntil February. January consumption of raw cottonwas practically at a record rate. Cotton mills havebeen cutting into their unfilled orders for some time andthis was true of February even with some curtailmentof output. Rayon deliveries though still high moveddownward during January and February.

Shoe production, which had not participated to anymarked degree in the 1939 spurt, failed to record theusual strong seasonal increase in January; moreover,production for the month was only slightly largerthan a year earlier, a much smaller increase than forthe nondurable industries generally. Production inthe paper and paperboard industries, after reachingrecord proportions during the fourth quarter of 1939,was curtailed during January and Februarys

In the petroleum industry the flow of crude oil in-creased seasonally during February and, at a daily rateof about 3.7 million barrels, w^ as roughly on a par withprevious record rates of output. Nation-wide outputwas about 11 percent higher than in February 1939.Production of the Illinois fields was up 150 percent andaccounted for over 10 percent of the total as comparedwith less than 5 percent a year earlier. The active rateof refinery operations has taken off the enlarged flowof crude oil and there has not been much change instocks of crude petroleum. Gasoline stocks, however,have continued to rise to record figures. Thus far thewar in Europe has not resulted in any significant in-crease in exports of petroleum and petroleum products,aside from a marked rise in shipments of lubricants.The disappearance of the German market and restric-tion of civilian use in belligerent and some neutralmarkets have been retarding factors in exports of petro-leum products.

Bituminous coal production in February fell offafter the increase in January, and output in the weekended March 2 was down to 8.8 million tons as com-pared with about 10 million tons weekly during January.With the reduced volume of coal output, loadings ofthis commodity in February showed a contraseasonaldecline of about one-seventh from the January dailyaverage.

Table 1.Weekly Indicators of

Indicator

Steel ingot produc-Paper production..Paperboard produc-

tion.Automobile assem-

blies.Bituminous coal

production.Electric power pro-

duction.Miscellaneous car-

loadings.

Unit

Percent of ca-pacity,

dodoThousands

Million tons__

Billion kw.-h..

Thousands

Dec.23,

1939

90.094.281

118

9.0

2.61269

Indus

Jan.13,

1940

86.187.874

111

10.02.59

261

Jtrial Activity, 1939-40

Week ended

Feb.10,

1940

71.7

88.271

96

9.9

2.52244

Feb.17,

1940

68.886.770

95

9.1

2,48241

Feb.24,

1940

67.186.669

9.1

8.8

2.46234

Mar.2,

1940

65.984.069

101

8.8

2.48256

4,1939

55.883.368

79

8.5

2.24233

In addition to the decline in coal traffic the move-ment of miscellaneous freight dropped considerably inFebruary, a change that reflected the general let-upin the movement of manufactured goods. Loadingsof forest products failed to show the usual increase inFebruary. The adjusted index of total freight trafficfor February was about 5 percent lower than in eitherJanuary or December.

The construction industry enters the active springbuilding season with a far smaller backlog of publicwork than in 1939 when the tremendous awards underthe 1938 Public Works program were on the books.Consequently stimulus from this source will be muchless than 12 months earlier. Construction undertak-ings financed from private funds have held at a highlevel but through February did not show signs of anymajor expansion which might offset the recessivetendencies in other sectors of the economy. Totalawards of new construction contracts in the first 2months of 1940 were about one-sixth below the com-parable 1939 dollar volume of contracts placed in theareas surveyed by the F. W. Dodge Corporation. Allof the reduction was in publicly financed projects;private work in the total was slightly above the year-earlier awards.

Residential building contracts have been runningabout on a par with year-earlier volumea positionthat is but moderately lower on a seasonally correctedbasis than last summer. Private construction otherthan residential has been somewhat higher than a yearago though not showing signs of attaining any suchvolume as that in the first half of 1937. As shown byfigure 4 the awards of contracts for factory buildingdid not record major gains in the fourth quarter of lastyear and there are few indications of any major increasein this field.

Income Payments Falling Off.It is indicative of the broad character of the business

contraction that the flow of income payments wasreduced as early as January. The decline in this slow-moving index was 0.3 point in January on a seasonallyadjusted basis, with the figure for that month 89.4


March 1940

6 SURVEY OF CURRENT BUSINESS March 1940(1929 = 100). Since the actual decline in industrialoutput was more rapid in February than in January,there is little doubt that a more sizable decrease in theincome-payments index will be shown by the Februaryfigures. Nevertheless, the flow of income is still rela-tively high; in January, for example, income paymentswere made at an annual rate of about 73 billion dollars,compared with the 1939 total of under 70 billion dol-lars and with the fourth-quarter average for that yearof slightly above 72 billion.

Total salaries and wages in January were estimatedto be 5 percent higher than a year earlier with laborincome in the commodity-producing industries upabout 12 percent. Factory pay rolls were 17 percentlarger than in January 1939.

As compared with December, however, total salariesand wages in January showed a more-than-seasonaldecline; the adjusted index fell from 87.8 to 87.0. Em-

MILLIONS OF DOLLARS60

50

40

30

20

10

0

\

\n\]1 K^A

/i r 1 I i ! i 1 1 i 1 - . . . . I

1936 1937 1938 1939 19400 0 4091

Figure 4.Value of Construction Contracts Awarded for ManufacturingBuildings, 1936-40 (The F. W. Dodge Corporation).

ployment in manufacturing was lowered slightly morethan seasonally expected from mid-December to mid-January, with a decline of 200,000 workers. Thecontraction of industrial output, it will be recalled, wasquite small over the same period of time. Employ-ment in retail establishments experienced the usuallarge drop from December as employees temporarilyadded for the holiday trade were released. Therewere declines of more-than-seasonal proportions in theconstruction industry, partly caused by adverse weather.In the aggregate, nonagricultural employment wasreduced by 1,160,000 workers from mid-December tomid-January largely as a result of the seasonal influ-ences at work at this time of the year. As comparedwith a year ago the number at work in nonagriculturalpursuits was about 1,100,000 larger.

Despite the fact that the decline in income wasrather small in January on a seasonally adjusted basis,retail trade did not make a good showing in that month.With the conspicuous exception of automobiles, retailsales in most lines fell more than seasonally after thehigh level of consumption attained in December, andthe reports available for February indicate little change

in this field. Automobile sales, however, have beengood during the first 2 months of this year. The finalfigures for January showed a less-than-seasonal declinefrom December, and a continued high rate of sales isindicated by partial data for February. Retail deliv-eries of passenger cars for January and February wereabout one-third larger than a year earlier.

The consumption pattern appears not to have beenaided by any general readjustment of retail prices sofar this year. Although food prices at retail wereslightly lower in mid-January than a month earlier,retail prices of shoes, clothing, other textile products,etc., have tended upward, according to available infor-mation. On February 1, the Fairchild index of selecteddepartment-store articles was fractionally higher thanthe January figure and was 3.6 percent above the posi-tion 12 months earlier.Further Increase in Inventories.

It is a reasonable deduction from the character of thecurrent business pattern that total inventory holdingsshould be accumulating at a less rapid rate than duringthe late months of 1939. Just as the business expan-sion of last autumn was based so largely upon the in-crease in this volatile investment area, so now the rapiddecline in activity appears to be the result of lessenedstock accumulation. No doubt this will show up to agreater degree when data for February become avail-able. During January there was a further substantialincrease in inventories, as the following data indicate.

Table 2.Recent Inventory Changes[December 1938=100]

JuneOctober-NovemberDecember

January

Month

1939

1940

Manufac-turers

98.5101.5104.5107.5

110.0

Whole-salers

104.0112.5112.5111.0

116.5

Depart-ment stores(seasonallyadjusted)

100104107103

104

Source: Manufacturers and wholesalers, U. S. Department of Commerce; depart-ment stores, Board of Governors of the Federal Reserve System.

Wholesalers' inventories increased about 5 percentin Januarya seasonal rise is usualafter a muchless than seasonal decline in the previous month.There was, however, a smaller increase in manufac-turers' stocks in January than in December and thesein total are in the neighborhood of four times as largeas wholesalers' holdings. The only data available inthe retail field, those for department stores, show asmall increase from December to January after allow-ance for the seasonal factor.

Export TradeAs the volume of industrial activity has receded, the

one area of demand to show continued vigor is theexport trade. Shipments of United States merchandise


March 1940


to foreign markets in January, valued at 359 milliondollars, were fractionally above the December total,contrary to the seasonal decline usual during this


IMPORTS FOR COHSUMPTiOH

1937 I , , 1

1938 1939I I

Figure 5.Value of Exports of United States Merchandise and Imports forConsumption, 1937-40 (U. S. Department of Commerce, Bureau ofForeign and Domestic Commerce).

period. At this figure, exports are almost three-fourthslarger than a year ago and higher than at any timesince the early months of 1930. On the basis ofvolumevalue adjusted for price changesthe com-parison with former years is even more favorable; thequantity index of exports for both December andJanuary was 140 (1923-25 = 100), only slightly belowthe best quarter's figure for 1929 of 143.

With exports in this volume for 2 successive months,it appears quite definite that the war has enlarged themarket for United States goods. This stimulus wasnot evident in the first 3 months of the conflict, duringwhich time our exports expanded little more thanseasonally. The export value in December and Jan-uary, however, was 20 percent above the average forthe 3 preceding war months despite the fact that thosemonths include the usual seasonal high points of theyear. Although this rise may not measure up to theanticipations which provided the basis of last autumn'sexpansion in business, it is of substantial magnitudeand an increase must be given adequate considerationin an estimate of the economic outlook, especially sincethe export movement has continued at this high levelduring February.

The average monthly increase since the outbreak ofthe war was significantly larger than the rise during thefirst 5 months of the World War, and it was concentratedto a much greater degree among industrial products thanin 1914. A paralleling of the spectacular 1915-19 ex-pansion in exports during the present conflict still seemsrather unlikely, but this should not cause one to over-look the fact that even the current volume of exports willprovide considerable support to business during themonths ahead.

With the totals virtually the same in both Decem-ber and January, the changes in either the commodity

or country composition of our export trade for the 2-month period were not of great moment. Most inter-esting of the changes from December to January was acontraseasonal increase in raw cotton exports of 16million dollars, which gave an unusually high Januarytotal of 59.9 million dollars. The shipments during themonth amounted to approximately 1,125,000 bales(500 pounds each) as compared with 327,000 bales inJanuary 1939. Although this volume is large for Jan-uary, the total shipments during the current cottonyearstarting in Augusthave not been unusuallyhigh, except in comparison with the low volume ofexports during the 2 previous years. A combination ofTable 3.Value of United States Exports (Domestic Merchandise), by

Groups and Principal Commodities[In millions of dollars]

Commodity

Total

Meats and lardLeather _Leather manufacturesCornWheat and wheat flourCanned vegetablesFruits (dried and canned)Leaf tobacco (bright flue-cured)Textile fibers and manufactures

Raw cotton..Wood and paper

Sawmill products _ __CoalPetroleum and products

Crude petroleumMetals and manufactures

Iron and steel-mill products, total-Iron and steel scrap

Ferro-alloys _.Aluminum, except manufactures..Copper, refined

Machinery, total3Electrical machinery and appa-

ratusMetal-working machineryTractors and parts

Motor trucks and bussesPassenger carsParts for assemblyAircraft, engines and partsChemicals and related products

Industrial chemicals and special-ties _ _

5months,Sept.-Dec.1938andJan.1939

1, 244.1

20.54.73.5

16.925.3

1.628.187.9

142.6102.139.215.522.2

151.337.8

149.873.017.07.13.2

32.6189.8

41.041.516.826.642.318.024.455.8

23.4

5months,Sept-Dec.1939andJan.19401

1,609.4

23.46.84.4

12.215.12.9

26.026.4

275.6214.247.915.834.5

168.036.6

271.0137.723.113.213.650.2

225.2

47.656.417.824.430.221.571.789.9

42.3

Per-cent-age

change

+29.4+14.4+44.7+24.6-27.9-40 .1+77.8- 7 . 4

-69 .9+93.2

+109.9+22.1+2.3

+55.6+11.1-3.0

+80.9+88.7+36.0+84.0

+323. 3+53.8+18.7+15.9+36.0+6.2- 8 . 2

-28 .6+19.7

+194. 3+61.3+80.6

Dec.1938andJan.1939

476.6

8.61.81.16.7

12.70.68.4

22.848.933.518.06.45.8

59.212.459.929.88.02.12.5

12.474.8

16.616.95.4

12.221.98.1

10.620.4

8.0

Dec.1939andJan.19401

715.3

11.92.51.57.14.21.45.09.1

129.6102.119.95.97.2

64.811.9

132.567.2

7.45.15.1

29.198.5

20.227.8

6.212.615.310.553.936.7

16.9

Per-cent-Page

change

+50.1+37.7+40.7+40.7+5.6

-67.1+157. 5-41.1-59.8

+165. 2+205.1+10.8-8.5

+23.0+9.4-3.9

+121. 0+125. 4

-6.7+138.1+102.9+135. 4+31.8

+21.6+64.7+13.1+3.5

-30.1+29.5

+408. 4+80.3

+110. 2

1 Statistics included for January 1940 are preliminary and subject to revision.2 Includes industrial machinery, electrical apparatus, agricultural implements,

office and printing machinery, railroad^equipment, and vehicles other than auto-mobiles and aircraft.

Source: U. S. Department of Commerce, Bureau of Foreign and Domestic Com-merce.

reasons accounts for the large increase in cotton exports;low stocks of American cotton abroad after 2 years ofreduced purchasing, the export payment plan, and thecotton-rubber exchange arrangement are the principalfactors. Cotton exports are not expected to be main-tained at January's level for an extended period.

The increase in cotton shipments in January offsetthe reduction in the aggregate of exports of othercommodities. Declines of a minor and frequentlyseasonal character occurred in most commodity classi-fications, but there were increases in such food productsas meats and lard, wheat and flour, dried and canned


March 1940

8 SUEVEY OF CURRENT BUSINESS March 1940fruits, and canned vegetables, and such nonfood prod-ucts as leaf tobacco, copper, aluminum, and coal.The major change in the country figures was the in-crease of 17 million dollars to the United Kingdom,three-fourths of which is accounted for by cotton.There were also much smaller increases to France, theU. S. S. R., Norway, and the Netherlands, which in partoffset the declines to most other countries.

The magnitude of the increase, as well as the shiftsin our export trade since August may be seen fromthe data presented in tables 3 and 4. Compared withsimilar periods a year earlier, exports for the first 5

EXPORTSMILLIONS OF DOLLARS80

UNITED

i

A\ rV

KINGDOM

A 1/ 1 /

1 1 Ml 1

F R A N C E

1111(

/

AJo1 1 M I 1 M M 1M M l I t M M


CANADA

A** Vii i , i ! , . i . i

AJ\/J M M , ! , , , , ,JAPAN

AJ| 1 1 II ! 1 M II

IAA /M M l l l M I I M M l l l M M

u. s. s.

1 v

R.

/

A. /1 1 1 1 1 I M I I 1

SWEDEN

ARGENTINA

a f\7

BRAZIL

1938 1939 1940 1938 1939 1940

Figure 6.Value of Exports of United States Merchandise By SelectedCountries, 1938-40 (U. S. Department of Commerce, Bureau of Foreignand Domestic Commerce).

months of the war rose almost 30 percent, while forDecember and January alone the increase was 50 per-cent. It is apparent that the rising trend, in evidenceeven before the war started (see fig. 5), has beenstrengthened in recent months. Although the char-acteristics of the trade have not been altered sig-nificantly in the past month or two, the period as awhole has brought some striking changes. Agriculturalproducts in generalwith the notable exception ofcottonhave not moved abroad in larger volume.The major declines shown in the table are for farmproducts: corn, wheat and wheat flour, tobacco, andfruits. In sharp contrast with these movements are the

large increases among the industrial products, of whichaircraft, metals and metal manufactures, industrialchemicals, and metalworking machinery are outstand-ing. Demand has been heavy for the products of thoseindustries providing basic materials or tools for warconditions, although the strict controls being exercisedupon certain consumption is adversely affecting exportsof other types of goods.Table 4.Value of United States Exports (Domestic Merchandise) to

Leading Countries[In millions of dollars]

Country

5months,

Sept-Dec.1938andJan.1939

Total.

Europe, totalFranceGermany 2 __United Kingdom... _BelgiumNetherlandsDenmark IFinlandNorwaySweden !___"_"'Union of Soviet Socialist Repub-

licsItaly IIIIIIIIIIZIIIIIIIIi:Rumania.Spain

Northern North America, totalCanada

Southern North America, totalCuba ......Mexico I..Netherlands West Indies

South America, totalArgentinaBrazilChile IIIIIIIIIIIIIIIIIIIIi;ColombiaVenezuela

Asia, totalChina, including Hong Kong and

KwantungJapanPhilippine Islands

Oceania, totalAfrica, total

5months,

Sept-Dec.1939andJan.19401

1, 244.1

554.658.763.5

235. 529.337.19.85.58.9

28.9

22.723.92.43.9

168.1165.0

108.731.124.417.0

115.229.526.99.6

18.518.8

213.4

23.3104.638.4

34.9

49.2

1, 609. 4

662.9311.7

.6258.625.254.512.65.6

21.748.1

36.133.72.5

18.0

242.9239.0

149.541.939.715.7

178.442.644.315.424.030.9

285.3

42.8123.648.1

39.4

50.2

Per-cent-age

ihange

+29.4+19.5+90.3-99.0+9.8

14.0+46.7+28.0+3.2

+144. 2+66.8+59.4+41.0+2.4

+357.1+44.4+44.8+37.6+34.6+62.4-7.6

+54.9+44.3+64.6+60.1+29.9+64.7+33.7+84.3+18.2+25.3+13.0+3.4

Dec.1938andJan.1939

476.6

206.921.820.288.511.515.44.11.83.2

10.1

10.09.51.21.3

53.952.9

43.812.811.06.2

46.910.811.73.98.17.8

90.5

10.346.215.2

13.4

21.2

Dec.1939andJan.19401

Per-cent-age

change

15.3

317.474.3(3)

115.99.3

23.15.11.77.9

14.6

21.816.7

.810.2

81.280.0

59.114.817.35.5

81.920.919.57.1

10.614.4

133.0

23.355.720.6

20.2

22.6

+50.1+53.4

+240.1+31.0-18.8+50.3+23.9

- 3 . 1+145. 7+44.0

+118. 2+76.6-36.0

+714.0+50.7+51.2+34.8+15.8+57.7-10.8+74.6+93.6+67.2+84.8+31.1+84.1

+46.9+125. 8+20.5+35.3

+50.5+6.7

1 Statistics included for January 1940 are preliminary and subject to revision.

2 For purposes of comparison, trade with Austria, Czecho-Slovakia, and Polandare included with that of Germany in all periods shown.

3 Less than $1,000.Source: U. S. Department of Commerce, Bureau of Foreign and Domestic Com-

merce.

From table 4 it may be noted that December andJanuary show less unevenly distributed increases, bycontinental areas, than was the case during the previous3 months when temporary disruptions were importantimpediments in the trade. The gain in recent monthsis rather evenly distributed except for the greater risein exports to South America and the relatively smallincrease for Africa. In late months the relative gainshave widened for each of the major regions. Withinany one of the regions there are large variations amongthe relative changes for individual countries. What isto be noted from the country data is that the gainshave not been restricted to war areas. Directly orindirectly, of course, the war has no doubt been the


March 1940

March 1940 SURVEY OF CURRENT BUSINESS 9

major influence. In such neutral areas as LatinAmerica, however, the influence has probably beenlargely indirect; it has raised business expectationsthere as well as here and has caused diversion of ordersfrom European suppliers to our markets. Though re-cording improvement, reports from Latin America donot indicate a change in basic economic conditionscomparable with the increase in our exports to that area.

It is an interesting commentary upon the characterof the business expansion of the last third of 1939 thatindustrial activity entered upon a declining phase at'just about the time that exports began to register asignificant increase. This is peculiar only because,had there not been a sudden change of expectations inSeptember, business would now undoubtedly be expand-ing under the stimulus of increased foreign demand.The size of the inventory accumulation during thefourth quarter of 1939, however, was such that it com-pletely outweighs the increase in exports which busi-ness is now realizing. The inventory increase duringthe previous quarter is estimated at approximately abillion dollars, whereas exports are now running in theneighborhood of 300 million dollars a quarter ahead ofwhat they were last summer. Although this increasein exports cannot be expected to offset the decline inindustrial activity arising from the cessation of inven-tory accumulation, it is a definite factor of strengthin the current situation which should aid materiallyin lessening both the extent and duration of thereadjustment.

Trends in FinanceFinancial developments during the first 2 months

of the year were not of particular significance fromthe standpoint of current business trends. Bankingand credit data reflected primarily the post-Christmasseasonal adjustments and the continuation of large-scale shipments of gold from abroad. The heavybalance currently due this country on account of theinternational exchange of goods and services is theprimary factor in this inward movement of gold. Freecapital transfers to the United States continue, thoughthey are considerably restricted by regulations in effectin most foreign countries. The inward capital move-ment is now probably more conditioned upon com-modity commitments than upon the desire for safety.

The loans to commerce, industry, and agriculture byreporting member banks declined seasonally during thefirst 6 weeks of the year. Loans to brokers and dealersdeclined almost $90,000,000, reflecting primarily therepayment of funds borrowed in connection with theGovernment's December financing. An increase ofover $270,000,000 in the investments of these banksduring this period served to offset the declines in loansand to add to their earning assets. The net change indemand deposits was an increase of $495,000,000.

Chiefly as a result of an increase in monetary goldstock of approximately $400,000,000 from the begin-ning of the year to February 14 and the post-holidayreturn of $170,000,000 of currency from circulation,the reserve balances of the member banks rose almost$450,000,000 to $12,151,000,000, and excess reserveswere thereby raised to $5,580,000,000.

Security prices have moved only moderately lowerduring the first 2 months of 1940, notwithstanding theslackening of business activity. Stock prices had notmoved up with the sharp advance in business and profitsduring the final quarter of last year. As a matter offact, industrial stock prices did not make any netadvance of moment after the fast September move.Currently, the Standard Statistics index of 350 stocks isno higher than it was at the end of 1938.

The announcement by the British Treasury that ithad requisitioned the security holdings of British resi-dents in about 60 important American corporations hadno obvious effect on quotations in the domestic marketsfor these securities. Unofficial British estimates haveplaced the current value of the securities at about$100,000,000.

Corporate securities issued during February were wellin excess of the January total, although flotations werestill primarily for refunding purposes.

Foreign exchange rates showed little net change fromthe beginning of the year to the end of February, al-though the interval was not without minor fluctuations.In an effort to check the weakness of the Mexican peso,which has persisted since about the middle of December,the Bank of Mexico announced during February that itproposed to stabilize the peso rate at approximately 6pesos to the dollar. At the end of February rigidexchange control was established in Sweden following aperiod of heavy capital flight.

213501-40 2


March 1940

April 1940 SURVEY OF CURRENT BUSINESS

The Business SituationRECESSION in business activity, in evidence sincethe end of December 1939, continued during March.Although the rate of decline, especially in manufac-turing industries, was less rapid than in the first 2months of the year the drop during the month on aseasonally adjusted basis was substantial. At theclose of the month the movement of the few businessstatistics available on a weekly basis was still towardlower levels with little indication of an early reversalof trend.

The contraction in industrial activity during thefirst quarter of this year has erased the spectaculargains made in the 4 months following the outbreak ofthe European war. The Federal Reserve index ofindustrial production, corrected for seasonal move-ments, was down to 109 in February, and preliminarydata indicate a drop of 4 points for March. Aggregatemanufacturing output was about 5 percent larger thana year earlier, almost entirely as a result of the higheroperations in the durable goods industries.

The volume of output in March was approximatelythe same as that of last August. A few durable goodsindustries are in an exceptional position either by virtueof a continuing flow of orders resulting from the waror because of previously accumulated backlogs. Butapart from these exceptions, the gain in the September-December production spurt has been canceled by theeven more rapid January-March decline. With thevolume of activity now about on a par with that ofAugust, the industrial situation differs from that of 7months ago in one important respect; the trend wasthen up, whereas it is now down.

The recent slowing in the rate of decline does notnecessarily presage a reversal in the curve of businessduring the spring months. Expectations of a generalupturn are based upon improvement in the rate ofinvestment outlays not apparent at this time, or upona change in the character of the war which wouldfurther expand our export trade. A significantly highervolume of productive activity is not implicit in thepresent volume of consumption expenditures and exporttrade, or in the prospective volume of expenditures forinvestment goods as revealed by new-order data forplant and equipment.

Insofar as the business outlook can be previewed, thekey to developments over the next few months lies inthe inventory situationas has been the case sinceSeptember. The decline in industrial activity so farthis year has resulted from a decline in the rate ofinventory accumulation. During February, the latestmonth for which data are available, the increase inmanufacturers7 stocks was slightly less than 1 percentas compared with the January increase of 2.5 percent.

For wholesalers the increase in January was 5.0 percentand in February 1.6 percent. With the further reduc-tion of output in March it is, therefore, probable thatthe over-all net inventory change in that month wasvery small regardless of whether the direction of themovement was slightly up or slightly down.

Hence, if the present volume of inventories is main-tained, as it may well be to provide a safeguard againstfuture war developments, a sidewise movement of in-dustrial activity over the near-term with fluctuationswithin a narrow range is probable. Any tendency forbusiness to let inventories run off, however, wouldresult in a deepening of the recession. Liquidation tothe extent of say a fourth or a half of the holdings ac-cumulated since September, involving a disinvestment ofupwards of $400,000,000 could hardly be offset by suchincreases in other types of investment as are likely tobe realized.

MILLIONS5

A-

3

2

1

O

Oh BALES

1924-25

1929-30

1934-35 1939-4-0

Figure 2.-Domestic consumption of Raw Cotton for Seven Months,August-February, 1924-25 through 1939-40 (U. S. Department of Com-merce, Bureau of the Census).

New Orders Continue Restricted.

The sluggishness of business purchasing suggests thatsome inventory liquidation is a decided possibility atthe present juncture; the time has just about beenreached when buying must advance if a reduction inholdings is to be avoided. Retailers appear to haveadopted a waiting policy in the face of the recenthesitancy shown in retail trade. If allowance is madefor the increase in prices as compared with a year agoand for the earlier date of the pre-Easter season, de-partment store sales in March did not make a favorablerecord.

The latest report by the National Association ofPurchasing Agents reveals that a cautious attitude pre-vails in industrial purchasing, with expectations offurther price weakness. New-order data now available,relating mostly to February business, do not indicateimprovement and, even in the few exceptions, such as


April 1940

SURVEY OF CURRENT BUSINESS April 1940

paper, new business is still below current output.New furniture business in February was about a thirdunder January and only a shade higher than a yearearlier. Orders in the steel and textile industries arereported by the trade to be well below productionwith backlogs declining. As may be seen in figure 2,mill consumption of cotton since August has establisheda new record for that period; a maintenance of thisrate for the remainder of the cotton year appearsimprobable under present general business conditions.

The monthly survey of manufacturers recently ini-tiated by the Bureau of Foreign and Domestic Commerceshowed a further decline in new orders from January toFebruary. The February total of new business, reportsfor which are restricted very largely to durable goodsproducers, was only 6.0 percent above a year earlierwhen orders were at a rather low ebb.

The automobile industry has been looked to as amajor support to the sagging business structure.Retail sales of passenger cars in the first 2 months ofthe year were unusually good, the average increase overthe previous year being more than 35 percent. Thereturns for the early part of March were less favorable,although they picked up as the month wore on. Stock-ing of dealers has proceeded at a rapid pace, however,so that field stocks are now highin the neighborhoodof a half million cars. Under these circumstances theusual seasonal increase in assemblies is not anticipated

by Ward's Automotive Reports and it is evident thatconsumer takings will have to be better than in earlyMarch if output is not to decline.

INDEX NUMBERS, 1923-25 = 1002 0 0

150

100

50

/RON

AUTOMOBILES

AND STEEL^j>

*s. J 1

1937 1938 1939 1940Figure 3.Indexes of Production of Iron and Steel and Automobiles,

Adjusted for Seasonal Variations, 1937-40 (Board of Governors of theFederal Reserve System).NOTE.Data for March are estimates of the U. S. Department of Commerce,

Bureau of Foreign and Domestic Commerce.

The preliminary data for March show that automo-bile production did not rise by the usual seasonal incre-ment in that month from the high volume of assembliesin January and February. March output of about425,000 units was, however, 15 percent higher than ayear earlier and the first quarter total was up 24 per-cent. Production in the automobile industry, there-fore, has held up in recent months much better than in


Year and month

1929: February.1932: February..1933: February.1937: February,193&: February _1939:

JanuaryFebruary.. _MarchAprilMayJuneJulyAugustSeptember.OctoberNovember..December..

1940:JanuaryFebruary..

Monthly incomepayments, adjusted i

Factory em-ployment

andpay rolls

Z

1 h3 o

Monthly average,1929=100

98.967.455.587.681.8

83.383.084.183.083.484.183.785.486.888.088.589.5

89.588.4

66.554.0

78.482.382.082.181.081.482,882.884.084.586.687.387.7

87.286.9

98.570.157.787.582.5

84.484.484.883.884.385'. 485.586.787.088.889.5

Cash farmincome 2

Isifr

+ ftC Z33


25 = 100

105.071.465.0

108.491.9

94.694.394.093.893.394.395.395.997.5

101.2103.4104.6

103.9102.2

110.855.441.4

100.177.5

83.786.087.685.585.086.584,489.793.8

101.6101.6103.7

98.397.8

fP


29=100

57.554.0

66.052.557.553.5591059.567.575.593.0

107.090.079.0

69.060.0

79.578.576.573.072.568.070.563. 563.066.573.576.576.579.0

79.083.0

Industrialproduction,adjusted *

Freight-car Retail sales,loadings, value, ad-adjusted l justed 1

1?11

Foreigntrade,value,

adjusted 1

Monthly average, 1923-25=100 1929-31 = 100

1186963

11679

1019998929298

101103111121124128

119109

118686111675

1009796929197100104111121124129

118108

1197880116103

110110110959810410691114121124120

125121

10960528262

696766606267697077808278

7873

10478666862

626262616161626263626362

6261

110 136.544.033.0

139.574.0

91.096.088.079.579.07.9.080.576.583.593.7

102.8108.5

124.0

*

Monthly average,1923-25=100

12845296776

556370647070697272726791

95100

11641268751

554953536158575759657377

7462

11827196251

867369676363677373768386

7562

124.165.252.789.474.2

90.577.192.385.390.094.789.688.793.996.594.5

113.5

101. 387.9

$2

II

Monthlyaverage,1926=100

95.466.359.886.3

76.976.976.776.276.275.675.475.079.179.479.279.2

79.478.7

1 Adjusted for seasonal variations; monthly arerages, except income payments, are based on unadjusted indexes. 2 From farm marketings.


April 1940


industry generally, although it is characteristicallysubject to wider cyclical swings.

This is one of the major points of difference betweenthe 1937 collapse and the current recession thus far, apoint which is well illustrated by figure 3. In 1937assemblies declined very promptly with iron and steeloutput and by relatively the same amount. But theyhave not done so during the first quarter of 1940. It isto be noted, however, that steel rose much above the1937 peak in the final months of 1939 so that the lack ofsimilarity with 1937 is not decisive. The essentialquestion is whether consumer demand for automobilescan be maintained despite the decline in income whichis occurring. While income payments had fallen onlyslightly in January, the February drop was 1.1 pointsin the adjusted index to 88.4, and a movement ofsimilar size is likely for March. This is a rate of de-cline comparable with the September-December rate ofincrease.Production Declining.

For the last week of March steel-ingot productionwas down to 61 percent of capacity, or 5 points lowerthan at the beginning of the month. Several of themajor industries that consume steel have apparentlyheld operations up at a better rate than steel output,and throughout the war period the use of steel hasnot fluctuated to the extent of the changes in steelproduction. Some producers of fabricated steel prod-ucts, on the contrary, have reduced operations sharply.The accompanying tabulation for steel barrels (heavytype) reveals wide swings since last summer. Februaryproduction, back to the summer level was only half aslarge as at the fall peak.

Steel Barrels and Drums[Thousands]

Month

1939:July .AugustSeptember. ._ _ _ .__ _.OctoberNovember . __ _ ___December.

1940:JanuarvFebruary

Neworders

785862

1,7311,9531,4721,259

841694

Produc-tion

750851

1,2041,6121,6361,469

1,138803

Ship-ments

757850

1,2071,5771,6531,457

1,158809

Ordersunfilledat end ofmonth

236248772

1,148967768

450335

Among the nondurable goods industries, the moderateecession of the first 2 months of the year was extended

into March. Preliminary indications are that produc-tion of these goods, as measured by the Federal Reserveindex, was no higher than in March of last year. Forthe entire first quarter the gain over a year ago was onlyabout 2 to 3 percent. The cotton-textile industry, al-though showing some decline, has continued to produceat an exceptionally high rate. Woolen-mill activityrecorded a moderate decline from January to February

and consumption of raw wool, according to preliminaryfigures, was more than 5 percent below the rate of thepreceding year. Shoe production for February, al-though increasing seasonally from January, was slightlysmaller than in February of last year.

In the paper and paperboard industries, the prelim-inary weekly reports for March suggest that the declinewas not very large during the month. Production inboth these lines was at about the August position.

Among the fuel industries there was a further declinein bituminous coal output, the result of seasonal influ-ences and the lowered rate of industrial demands.Crude petroleum production in. March increased toanother new record. Because refinery operations wereunusually high, there was but a slight increase in stocksof crude oil. As a result, stocks of gasoline rose abovethe 100,000,000-barrel mark to a record total; at theend of March they were almost one-fifth larger than ayear ago. Although domestic gasoline demand forMarch was estimated by the Bureau of Mines to beabout 6 percent above that of March 1939, the positionof stocks relative to consumption remains much higherthan in recent years.

The continued weakness of commodity and securityquotations reflects the decline in general business;price movements, likewise, have not been indicative ofa business upturn in the near future. March wascharacterized by minor declines in quotations of severalof the more sensitive industrial commodities. Printcloth, lead, tin, wool, silk, cotton, and hides werefractionally lower at the end of March than a monthearlier. Wholesale price indexes for farm productsand foods averaged slightly lower than in February,according to the weekly data. Although prices ofmost industrial products, both finished and semi-finished, have held at the higher figures established lastyear, the general level of industrial commodity priceshas been loweredmainly as a result of the changes inquotations of raw and semifinished materials. Thus,the comprehensive index of over 600 price series forcommodities other than farm products and foodscompiled by the Department of Labor, has declinedfrom the 1939 peak of 84.4 (1926=100) to 82.0 in thelast week of March. During the first 8 months of 1939,this index had averaged 80.5.Security Prices.

The uncertainty that characterized commoditymarkets was also the dominant note in the securityexchanges during March. Stock price movementswere largely confined to the narrow ranges of Januaryand February. The Standard Statistics index of 350industrial share quotations averaged fractionally above107 (1926 = 100) during March; about 7 points belowthe peak last fall. The March level, however, was 12points or more above the low point reached in April oflast year following the European crisis of that period.


April 1940

SURVEY OF CURRENT BUSINESS April 1940

Prices of corporate bonds also were little changedduring March after the slight decline during Januaryand February. The new-issues market for corporatesecurities continued relatively inactive during themonth. Aside from' the unusually large industrialissues for refunding purposes the flotation of corporatesecurities so far this year has been mainly confined toutility refunding. There was an increase in com-mercial loans during March though of such small pro-portions as to be of no material significance.

A Treasury refunding was effected at a low interestrate in March. Five-year %-percent notes were offeredin exchange for a called issue of 5-year 1 ^ -percent notes.Quotations of long-term Government issues strength-ened during March; yields on these securities declinedto a point but moderately below the record figurereached in June 1939.

Reflecting the substantial improvement in corporateand individual incomes last year, the income taxes dueon March 15 recorded a marked increase over those ofa year earlier which were based upon 1938 earnings.For the month of March, income tax collections (DailyTreasury Statement) totaled $665,000,000, an increaseof 31 percent over the collections in the comparableperiod of 1939. Collections w e^re smaller than thoseof March 1938.Export Demand Maintained.

February's export returns revealed a decline in for-eign shipments of 5.6 percent to $339,000,000 from theJanuary figure of $359,000,000, a reduction that is ac-counted for by the shorter month. A decline no greaterthan this amount is indicative of a well-maintaineddemand from abroad. On the other hand, in those re-cent years when the trend was rising, in 1937 and 1939,exports in February exceeded the January totals.

The detailed figures show that the contraction waslimited to a few commodities and a few countries, furtherindicating demand in general to be continuing at thehigh December-January level. Cotton shipments alonedeclined $15.6 millions from the high January total of$59,900,000. Nonferrous metals, aircraft, and cottonexports combined declined $26,300,000; hence, ship-ments of all other commodities on balance showed someincrease. Part of this increase is accounted for by thesale of 16 merchant ships for $6,100,000.

A decrease of more than $13,000,000 in shipments toJapan was the outstanding change in the country clas-sification. It follows the abrogation of the UnitedStates-Japanese trade treaty in January and severalmonths of very high exports to that country whichprobably were partly an anticipation of that event.The only other declines of significance were those tothe United Kingdom accounted for by cotton; to theU. S. S. R. because of the drop in copper shipments;and to the Netherlands, largely resulting from declinesin cotton and petroleum. The decline in exports to

these four markets was almost $32,000,000 and wastherefore partly offset by an increase in shipments toall other countries.

A fact of some importance in assessing the significanceof the increase in exports in recent months is broughtout in figure 4. The rise has been highly concentratedamong very few types of goods, namely, iron and steel-mill products, metalworking machinery, nonferrousmetals, aircraft, industrial chemicals, and unmanu-factured cotton. In February, for example, these sixitems showed an increase compared with a year earlier

MILLIONS OF DOLLARS MILLIONS OF DOLLARS

8 I INDUSTRIAL CHEMICALS

0

200

150

100

COTTON, UNMANUFACTUREDI

1938 1939 1940 1938 1940

Figure 4.Value of Exports of U. S. Merchandise, 1938-40 (U. S. Depart-ment of Commerce, Bureau of Foreign and Domestic Commerce).

of 169 percent, whereas all other commodities had risenonly 21 percent. Out of an increase in total exports of$122,000,000 they accounted for over $87,000,000.As the chart demonstrates, the increase in exportssince August would not be large but for the rise inshipments of a few products.

From the kind of goods involved it is apparent thatthe war has been the factor behind our expandingtradewhether to belligerents or neutrals. I t suggeststhat the maintenance of the current volume of trade isdependent upon the continuation of the war. Forthis reason the stimulus to the domestic economy fromthe increase in exports is likely to be less than would bethe case if it were more diffused and considered to be ofa more permanent character. The reluctance to expandplants is evident even in those instances where thebacklog is very large and demand is pressing capacity.


April 1940


FREE STERLING RESTRICTED

Following the announcement by the British author-ities of regulations which will reduce the demand forfree sterling, quotations for sterling in New Yorkdropped during March to new lows since the beginningof the war. The new regulations, effective March 25,require that exporters of rubber, tin, jute, and jutemanufactures, whisky, and furs from the United King-dom; rubber, jute, and jute manufactures from India;and rubber and tin from the producing colonies to speci-fied countries must secure paj7ment in dollars and otherdesignated currencies rather than in sterling as waspreviously the general practice.

The importance of this limitation on the demand forfree sterling may be judged by the fact that UnitedStates imports of the affected commodities in 1939 werevalued at approximately $250,000,000. Under the newarrangements, the British authorities will receive theproceeds of selected British and Empire exports in theform of dollars and other freely disposable currenciesand by the same means insure payment for these exportsat the official rate. It is significant that British coun-tries are important or principal suppliers of rubber, tin,whisky, and jute among the products which must bepaid for in foreign currencies beginning on March 25.Other more competitive exports from the United King-dom and sterling countries may still be paid for withsterling acquired in the free market at the lower ratesthere prevailing.

The relative magnitude of transactions carried out inthe market for free sterling is not precisely known.Nevertheless, the unrestricted option of persons wantingsterling to cover their requirements outside the officialmarket must have resulted in a substantial volume ofbusiness so long as offerings by holders of free sterlingwere sufficient to meet this demand at a price belowthe Bank of England's selling rate.

The major sources of supply of free sterling havebeen, on the one hand, pre-war foreign sterling balancesnot eligible for conversion into foreign currencies at theofficial rate and, on the other, sterling balances arisingfrom the payment by British importers for goodsinvoiced in sterling. In December and January,transfers of sterling from resident to nonresidentaccounts in British banks were placed under the samerestrictions as the conversion of sterling into foreigncurrencies, that is, were made subject to the permissionof the exchange authorities upon presentation of docu-mentary evidence of the specific transactions for whichpermits were required. The precise criteria used by

the authorities in allowing transfers of sterling fromdomestic to foreign accounts are not known, but it isprobable that the prevention of capital exports is aprimary purpose. The restriction of the supply of freesterling, resulting from these measures, in conjunctionwith the reputed depletion of pre-war foreign balancesin London, was followed by a firm tendency in themarket for free sterling. The rate weakened in Febru-ary under the pressure of reported offerings by Europeanand South American holders of sterling balances; and,in March, the New York quotation reached new war-time lows with the appearance of the regulationsdesigned to reduce the demand for free sterling.

The effect of British exchange regulations is to admitor force certain transactions into the official marketand to exclude others, which are permitted to clearthrough the unofficial or "free" market. The ex-istence and the extent of a free market for sterling arethus subject to the control of the British authorities,even though no attempt is made to influence day-to-dayfluctuations in rates. Transactions through the freemarket have facilitated the liquidation of sterlingbalances by persons outside the United Kingdom,although at some loss as compared with the rate forofficially approved transfers. At the same time therehas been a further depreciation of sterling and a con-sequent cheapening of British and Empire exports toforeign purchasers, on the one hand, and a furtherincrease in the sterling cost of British and Empireimports for which foreign exchange is not made avail-able at the official rate, on the other.

The need for dollar exchange on the part of theBritish authorities is reflected in the continued heavyshipment of gold to the United States. Imports ofgold from the United Kingdom and other Britishcountries (including Canada) aggregated more than$1,000,000,000 during the 6 months ended with Febru-ary. Receipts from the United Kingdom fell to rela-tively small proportions after September and accountedfor less than a fourth of the total. Shipments fromCanada, consisting in large part of gold previouslyplaced under earmark there for British account, ex-ceeded $600,000,000. Unusually large imports camealso from British India, Australia, and Hong Kong, andthere were substantial direct shipments from SouthAfrica. The extent to which these receipts of gold fromBritish sources may have been placed under earmarkin this country for British account rather than usedimmediately to obtain dollar exchange is not dis-closed.


April 1940

Mav 1940 SURVEY OF CURRENT BUSINESS

The Business SituationT? NLARGEMENT of the battleground in the Euro-*-^ pean war which came with dramatic suddenness onApril 9 had little effect upon domestic business trendsup to the end of that month. The major areas ofbusiness have either continued to sag since the end ofMarch or have followed a sidewise movement. Indus-trial production declined somewhat further duringApril, although the contraction for the month was thesmallest so far this year. Retail trade volumes havecontinued below the levels reached in the closing monthsof last year, and freight traffic, exclusive of coal, wasdown, on an adjusted basis, as compared with a monthearlier. Residential construction, discussed in thespecial article in this issue, is the one area to show amoderately improved outlook recently.

There has been some expectation that the develop-ment of the war to a more active stage in the springwould release a new buying wave in domestic marketswhich would head off the period of inventory liquidationthat appeared to be in prospect. But, according to theinformation now at hand, a broad buying movement insufficient volume to arrest the business decline has notyet occurred, and there is certainly no evidence of arenewal of inventory accumulation. There has beensome increase in business of a seasonal character andnew business in several other lines has expanded fromthe exceptionally low volumes that had been prevailing.Cotton grey goods were purchased in larger quantitiesin April, even before the spread of the war to Scandi-navia, than had been the case for some months, althoughnot enough as yet to stop the production decline in thatindustry. Purchasing of nonferrous metals had anotherof its erratic spurts, and there was improved buying ofhides. The one industry to receive a substantially en-larged volume of new orders, however, was paper andpulpan obvious beneficiary if Scandinavian suppliesare cut off from this market. The buying was heaviestin pulp, although kraft paper and paperboard orderswere significantly higher. Other types of paper weremuch less affected.Price Decline Arrested.

The spread of the war has led to some advance insensitive commodity prices. As may be seen in figure 2,the Bureau of Labor Statistics' index of 28 commodityprices has risen from 112 (August 1939=100), prior tothe invasion of Norway, to 116 on April 25, thus re-gaining the loss experienced during March. The gainis of minor character as compared with the spectacularrise of last September and canceled only part of thedecline from 124 at the beginning of this year to 112 onApril 3.

An advance in the prices of import commodities suchas tin, rubber, burlap, and cocoa, largely account for therise in the index, although several domestic foodstuffsgrains, hogs, and fatsalso increased. Wholesaleprices otherwise were generally unaffected, with theexception of pulp and paper quotations for the reasonalready mentioned. In contrast with the violentprice movement at the beginning of the war, the Aprilrise does not reflect substantially revised expectations ofwartime demand, either at home or abroad. It restsmore upon supply considerations associated with thedevelopment of the war and its possible influence uponshipping facilities.

bO

4 0

20

00

80

I

\\

NyM I M I M I M , , , , , i

THURSDAY FIGURES

. , ! , ! . , i . ,1938

Figure 2.Wholesale Price Index of 28 Basic Commodities, 1936-40. Plot-ted as of Thursday, Each Week (United States Department of Labor,Bureau of Labor Statistics).

Also in marked contrast to its reaction last Septemberhas been the behavior of the stock market. Since theinvasion of Norway the tone of the market has been oneof weakness except for the shares of particular industrieslikely to benefit by the turn the war has takenaircraft,shipbuilding, paper, and pulp. The moderate rise insecurity prices which began in the last week of Marchcarried over into the first week of April but this gain waseliminated during the remainder of the month. Thisset-back reduced stock and bond prices to about theirMarch positions; the Standard Statistics' index of 420share quotations closed the month at 92.4 as comparedwith 91.7 at the end of March. There were moresizable declines in the foreign-bond list, where the pricesof Danish and Norwegian bonds lost between 40 and 50percent of their quoted values within a short periodafter the war engulfed those countries.Production Continues to Decline.

Industrial production continued to move downwardduring April. Although sufficient data are not yetavailable to measure precisely the decline, it now ap-pears that the set-back for the month was much lessthan during the earlier months of the yearprobablyonly half as large as the drop in March.

Steel-ingot production, which was at 60.7 percent ofcapacity in the last week of March, was advanced alittle during the week of April 6, but thereafter relapsed


May 1940

SURVEY OF CURRENT BUSINESS Mav 1940

into a slow decline; the average output for the monthwas about 61 percent of capacity as compared with 63percent in March. Around the middle of the monththe price of certain major steel products was markeddown $4 a ton in an effort to stimulate demand. Theresponse to this price inducement was very light, ac-cording to reports from the trade, and new orders con-tinue below production, although not by so wide amargin as in the earlier months of the year. Towardthe end of the month it was announced that the pricecut would be withdrawn on May 1; it is not known asyet whether new business was substantially improvedby this announcement. Production at its current rateinvolves some reduction of backlogs, even though de-mand from abroad has increased appreciably since thestart of the war. Whereas exports of steel-mill productsaccounted for only 7 percent of output last August, thispercentage was 15 in March. The derived demandarising from larger exports of advanced manufacturesof steelmachine tools, trucks, etc.is also muchhigher now than it was before the war.

Automobile assemblies declined contraseasonally inApril, with daily average production down slightlyfrom March. Activity in the industry was held upbetter than seemed likely a month ago, because of therelatively favorable showing of retail sales in the earlypart of the month. Assemblies averaged better than

102,000 a week as compared with more than 103,000 inMarch. High dealers' stocks in the industry are nowbeing reduced by the current volume of sales, althoughat the end of April stocks were still above those of ayear ago.

Among the other industries for which April trendsare known, lumber output has expanded but by lessthan the usual seasonal. Activity at paper and paper-board mills has also risen during the month, if onlymoderately, in view of the changed situation wrought bythe war. Bituminous-coal production was at a lowerrate than in March, but was off less for the month thanin previous years. The output of crude petroleum, onthe other hand, was changed but little. Preliminaryindications are that cotton-mill activity continued todecline, despite the pick-up in purchasing reported fromWorth Street, and that shoe production, at approxi-mately the March figures, did not materially improvethe unsatisfactory showing of that industry for thisyear. Activity in a number of industries that areoperating upon large banks of unfilled orders, such asmachine tools, electrical machinery, aircraft, and ship-building, was maintained during the month at the highlevel of the first quarter.

A further indication of the declining tendency ofbusiness activity is in the movement of freight traffic.Loadings, other than coal, were off more than seasonally,


Year and month

Monthly incomepayments, ad-justed i

i !.-

Factory em-ployment j Cash farm

and income2pay rolls

SI 1VX3

G

Industrialproduction,adjusted l

ture

s

)Bjnu

nera

ls

Freight-carloadings,

adjusted 1

d in

dex

asm

nd

ise,

Q-ca

rlot

rc

ha

tha

Retail sales,value, ad-justed !

s * 1c05

5 *

Foreigntrade,value,

adjusted l

1 |

ft

| |

88

1IC

tiva

str

iC

on

Monthly average,1929 = 100


25 = 100Monthly av-erage, 1924-

29 = 100Monthly averag

2665_1940-1944

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Transcript of 2665_1940-1944