Rev Frbrich19471031 | Bonds (Finance)

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MO N T H L Y R E V I E W of Financial and Business Conditions \ Richmond® o __ ___ F ifth F ederal va. R eserve lie ......D i s t r i c t Federal Reserve Bank of Richmond, Richmond 13, Va.______________________________________ October 31, 1947 Business Conditions U SINESS activity in the Fifth Federal Reserve Dis­ trict showed moderate to substantial improvement in September when compared with August on a sea­ sonally adjusted basis. Those seasonally adjusted indica­ tors showing the grea
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  MONTHLY REVIEW of Financial and Business Conditions   ___   \ Richmond®o __  Fifth va. Reserve Federal lie  ...... District Federal Reserve Bank of Richmond, Richmond 13, Va.  ______________________________________  October 31, 1947  Business Conditions B USINESS activity in the Fifth Federal Reserve Dis-trict showed moderate to substantial improvement in September when compared with August on a sea-sonally adjusted basis. Those seasonally adjusted indica-tors showing the greatest improvement include wholesale trade lines, which had shown the greatest sales declines down to August, and sales of retail furniture stores. De-partment store sales made somewhat more than a seasonal recovery but have not established a pattern that as yet in-dicates a rising trend will prevail in the remaining months of the year. Department store stocks at the end of the month fell to the lowest seasonally adjusted level since May 1946. Building permits rose 2 per cent from the previous month after seasonal correction, to establish the third highest month of record since 1921. Building con-tracts seasonally adjusted, however, declined in September by 6 per cent from the August level. Cigarette produc-tion rose 2 per cent after seasonal correction but remained somewhat below the levels early in the year. The seasonally adjusted index of cotton consumption rose 3 per cent from August to September, due mainly to a gain in North Caro-lina mill usage. The August manufacturing employment index rose slightly from July and indications are that a fur-ther small rise has occurred in September. Business fail-ures, seasonally adjusted, rose 48 per cent over the August level, and while the September index was below the July peak it was five times higher than September 1946. TradeDepartment store seasonally adjusted sales in the Fifth District during September rose 7   per cent above the August figure, to a level 2 per cent higher than in September 1946.  Trade reports indicate that a part of this gain was due to sales of seasonal merchandise normally coming in October and November, which shift was occasioned by the early cold spell in the last two weeks of September. If the de-partmental figures for September show this shift to be of much importance, October sales will probably fail to in-crease by seasonal proportions, particularly since summer weather has been in evidence most of the month. It is still too early to get a clear notion of the degree of strength in consumers’ outlays for department store merchandise, but when the November sales are in hand a much better under-standing of the consumers' ability or willingness to pur-chase will be possible. DEPARTMENT STORE SALES & STOCKS, FIFTH DISTRICT 0935-39-100,SEAS. AOJ) ............  ) ■ —  . ... / /- \ — )1SALES1/AT1/STOC ; k s  ) --- /  p T  1 1940 1942 1944 1946 As may be noted from the accompanying chart, depart-ment stores permitted their stocks of goods to fall substan-tially from the peak level at the beginning of the year to the end of September. In the spring, stores were generally of the opinion that their stocks were too high for the then going rate of sales, and, too, there was considerable apprehension that the sales rate might itself deteriorate in the last half of of the current year.Since sales have maintained an irregular sidewise move-ment, department stores have found it necessary to repur-chase from manufacturers and jobbers an amount of goods not only adequate to maintain the more or less flat level of sales after seasonal consideration, but to rebuild inventories to a level compatible with such a level of sales. Store buy-ing policy, however, is still a cautious one, and it should not be expected that a continuous broad expansion in in-ventory accumulation would ensue unless the sales trend gives unmistakable evidence of continuing an indefinite ex-pansion, which thus far has not been the case.Retail furniture store sales, seasonally adjusted, gained 34 per cent from August to September, to regain most of the losses experienced from the peak month of June. Im-provement in the rate of completion of new residential structures has been one of the strong supports to the retail furniture market. A somewhat better rate of factory ship-ments of quality furniture has also added strength to the sales level.  2MONTHLY REVIEW Wholesale seasonally adjusted sales of dry goods, drugs, groceries, and industrial supplies established alltime high records in September, in the Fifth Federal Reserve Dis-trict. Other lines of wholesale trade also rose from August to September, except hardware and electrical goods. This generally rising level of wholesale sales is a reflection of a reversal of retailers’ previous purchasing policies of re-ducing inventories. Such wholesale sales as were witnessed in September are likely to carry over into October before the retail customers have rebuilt their stocks to take care of the postsummer revived trade level.Wholesalers' new orders placed with manufacturers, together with those made directly by large retailers, have given the textile and apparel industries of the District what appears, at the present time, to be a shotinthe arm. Evi, dences from appropriate departmental figures, both in the District and the nation, indicate that the unit sales of many of the types of textiles and apparels manufactured in the Fifth District are smaller in quantity than in the early part of the year or in the latter part of last year. It would seem reasonable, therefore, to assume that, unless retail sales show a definite expansionary trend after seasonal correc-tion, the recent rise in the physical volume of production of these goods would be shortlived, strength in their whole-sale prices to the contrary notwithstanding. Cotton Consumption In view of the very substantial forward sales of num-erous important constructions of cotton gray goods as early as July, it is surprising that cotton consumption in the Fifth District mills made no better showing in September, when the seasonally adjusted index rose only 3 per cent from the year’s low level of July and August, to a level 8 per cent below that of September 1946. The widespread extension of vacations in July and August explains the low levels of consumption in those months, but why September con-sumption has continued to lag still remains to be clarified. It hardly seems possible that the shifting of looms to finer goods that occurred between spring and fall could accountfor the difference in consumption in the first five months of the year and in September. Construction Our seasonally adjusted index of building permits in 29 cities of the District has risen substantially since the year’s low point of March. The September index at 300 per cent of the 193539 average was 2 per cent higher than that of August and 42 per cent above that of September 1946, and within 1per cent of the recent peak level of March 1946. Construction contracts awarded, which dol-larwise are many times larger than permits, have also risen somewhat on a seasonally adjusted basis since July, but are still well below the peak of May 1946.Residential construction on the site has made substan-tially better progress thus far in 1947 than was shown in1946, and a large number of projects under construction remain to be completed. The very urgent housing needs have been filled in most areas of the District as is evidenced by the States’ Labor Market Reports. Early this spring, when employment levels were expanding generally throughout the District, numerous area reports of labor conditions highlighted the fact that inadequate housing facilities were then a definite impediment to employment expansion. This factor in the latest Labor Market Reports is mentioned in only one city of the District. There has been a considerable number of small industrial expansions and additions, mainly in the textile and apparel industries, in recent months, but on the whole very few large projects have been started in the manufacturing field. Railroads, public utilities and public works, however, have been going ahead on their expansion or modernization programs, and some of these have run into sizable figures.Unemployment levels, the District over, were reduced in September due in part to seasonal employment expan-sion in tobacco and food processing industries, and to a reduction in the labor force occasioned by a resumption of schooling by temporary employees. BUSINESS INDEXESFIFTH FEDERAL RESERVE DISTRICTAverage Daily 1935-39 = 100 — Seasonally Adjusted Sept.% ChangeAug. JulySept.Sept. 1947 from1947194719471946Aug. 47Sept. 46Bank Debits ...............................................................................321308285303+ 4+ 6Bituminous Coal Production*...................................................159162124160— 2— 1Building Contracts Awarded .... . ......... - .................................. 286 306 249 261 — 7 4- 10Building Permits Issued............................................................ 300 294 280 211 + 2  + 42Cigarette Production ................................................................ 237 233r 243 230 + 2  + 3 Cotton Consumption................................................................. 141 137 137 153 + 3 — 8Department Store Sales............................................................ 303 282 301 298 + 7 + 2 Department Store Stocks.......................................................... 247 260r  272 262 - 5 — 6Electric Power Production .... . ................................................ 249235222Employment—Mfg. Industries* ............................................ 132 130 133Furniture Orders....................................................................... 283 235 185Furniture Shipments ................................................................ 207 219 210Furniture Unfilled Orders........................................................ 594 491 438Furniture Sales—Retail ........................................................... 293 219 224 267 + 34 + 10Gasoline Consumption.............................................................. 182 153Life Insurance Sales.................................................................. 250 230 252 265 + 9  — 6Wholesale Trade:Automotive Supplies** ........................................................ 315 255 295 286 + 24 + ioDrugs ..................................................................... . ................. 2862692642824- 64* 1Dry Goods ......................................... . ........................... . ........ 287238197221+ 214- 30Electrical Goods** ..............................................................73748754— 14- 35Groceries .................................................................................. 289 271 287 267 + 7 -f- 8Hardware ................................................................................. 153 163 146 116 — 6 4- 32Industrial Supplies** ..... ...................................................... 3573112872754- 154- 30Paper and Its Products** .................................................... 181 166 172 181 + 9  0Tobacco and Its Products**................................................ 104 98 110 111 4* 6 — 6Business Failures .................................................. . ................... 37 25 45 7 + 48 4-429♦Not seasonally adjusted   **1938-41 = 100  MONTHLY REVIEW 3 Report of the Municipal Bond Market*  The issues of new longterm bonds and notes offered to the investment market during the first half of this year were marked not only by an amount that exceeded that of the comparable period in 1946 but by a significant change in the composition of the financing. Both features were accounted for by an unprecedented growth in the offerings of state and local governments. Whereas longterm issues of bonds and notes by corporations declined from a little over $2 billion for the first six months of 1946 to $1.9 billion for the com-parable period of this year, issues by states and municipali-ties expanded from $584 million to $1.3 billion, an increase of 130 per cent.Included in the latter increase were over a half billion dollars of veteran bonus issues, but even though these are excluded, the total of ordinarypurpose financing would be in excess of the 1946 halfyear volume. This reflects the activation of many postwar programs designed by states and municipalities to provide for wardeferred mainte-nance, improvements, and expansions. It would appear also that many municipalities have found it impossible to delay any longer construction programs that have been held up as a consequence of high costs. State and Municipal Bond Offerings—Fifth District  There are presented in the following table statistics on the bond offerings of states and municipalities in the Fifth District for the first six months of this year. Excluding the $9,625,000 issue by Maryland for general and postwar construction, it will be seen that on a dollar basis improve-ments and extensions to water, sewer, and sanitary systems were, for the District as a whole, the most important pur-poses for which debt was incurred. School building and improvements ranked next, accounting for about 15 per cent of the total funds borrowed, and repairs and construc-tion of streets, roads, and bridges required bond issues amounting to 12 per cent of the total issued in the District. STATE AND MUNICIPAL BOND OFFERINGS    January 1-June 30, 1947Maryland _______Virginia _____ W. Virginia N. Carolina S. Carolina Fifth DistrictStreet, road, and bridge building andimprovement ...................................... Electric light system .............................. MiscellaneousMetropolitan district issue.................Public buildings ............................. Parks & playgrounds..   Fire alarm & station....General obligations ..... Cemetery ....................Amount%Amount%Amount%Amount%Amount % Amount%9,625,000* 65.1  ......  ...... ...... 9,625,00034.31,822,50012.31,225,00053.8726,00026.22,188,50034.8820,00043.26,782,00024.22,000,00013.51,050,00046.2812,50012.9218,00011.54,080,50014.62,000,000* 72.31,150,00018.3200,00010.53,350,00012.0100,0000.7 . J. . ... 1,491,00023.71,591,0005.71,000,0006.81,000,0003.620,0000.3500,00026.4520,0001.840,0000.342,0001.5270,0004.3129,0006.8481,0001.7200,0001.3225,00073.00020.0003.61.2425,00073.00050.0001.50.30.330,0001.60.240,0000.640,0000.1Total .................................................... l . 14,787,500 100.0 2,275,000 100.0 2,768,000 100.0 6,290,000 100.0 1,897,000 100.0 28,017.500 100.0 * State issues.Source: Weekly listings in The Commercial and Financial Chronicle  .  The foregoing percentage breakdown is only approxi-mately correct inasmuch as the specific purposes of such issues as Metropolitan District (Baltimore County), re-funding and improvement, and general obligations were not disclosed in the general announcements of the bond offer ings.It will be noticed that none of the states of the District issued bonds to finance veterans’ aid and bonuses.f The General Assembly of Maryland adjourned on March 31 without taking any action on a bonus bill amounting to $100 million. Unless a special session of the Assembly is called, the proposal will remain dormant until at least Janu-ary 1949 when the Assembly next reconvenes.Of the total $28,017,500 of bonds issued by states and municipalities of the Fifth District during the first six ♦This report is intended to supplement the survey of the municipal bond market that appeared in the April 1947 issue of the Monthly Review by pre-senting data for the Fifth District on state and municipal bond offerings during the first six months of 1947, proposed issues, and commercial bank holdings of municipals. In tracing the progress or deterioration of important factors affecting or resulting from the experience of the market during the first half of this year, some duplication of remarks and reference is un-avoidable.fExcept for a small ($2,500,000) loan fund provided for veterans by North Carolina, no veterans’ aid or bonus payments were granted by the states of the Fifth District following the first World War. A bonus bill enacted in Maryland in that period was invalidated by the Court on grounds of be-ing unconstitutional. months of this year there Were only two state issues; these, however, accounted for 41 per cent of the total. Maryland offered for sale $9,625,000 of certificates of indebtedness covering 15 year loans for postwar construction, and West Virginia issued $2,000,000 of bonds to finance road con-struction.Including both state and municipal issues, Maryland ac-counted for 53 per cent of the District total, North Carolina 22 per cent, West Virginia 10 per cent, Virginia 8 per cent, and South Carolina 7 per cent. If we exclude state issues, it will be found that local governmental units in North Carolina offered a larger number and a greater dollar amount of bond issues than did the municipalities of any other state of the District. Comparable figures of local government borrowing from January 1to June 30, 1947 are shown in the following table. No. of IssuesNorth Carolina Maryland Virginia South Carolina West Virginia 3997 12 2 69 Amount$ 6,290,000 5,162,5002.275.0001.897.000 768,000$16,392,500  4MONTHLY REVIEW Although Maryland municipalities floated only 9 bond Proposed State and Municipal Bond Issues —issues as compared with 39 in North Carolina, the face Fifth District value of the former was only 18 per cent less than that of T , . ' . *, , « ithe latter, $5,162,500 as compared with $6,290,000 in North lt   was srtatf:d in the preceding article1that . . . theCarolina. Whereas only one of the 39 offerings in North prospect of a large volume of new issues continues to beCarolina amounted to $1,000,000, three of the nine Mary ,the ,f°™n?nt conditioning factor of the (municipal) marland municipal issues were in the $1,000,000andover class. ket Without minimizing the demand side of the picture,In none of the other three states did individual municipal it appears that the quoted statement is still a valid one.issues amount to as much as $1,000,000. Although there was, as we have seen, a record amount of new security issues offered by states and municipalities durIt is interesting to note that although the volume of state ing the first six months of this year, all indications supportand municipal financing for the country as a whole for the the view that that volume is not likely to be an abnormal onefirst six months of this year increased 133 per cent over that over the next few years. That is, it is expected that therefor the preceding sixmonth period, the Fifth District ex will be a heavy and fairly protracted flow of new financingperienced a decline of 52 per cent. To some extent, this by states and municipalities from the huge reservoir of reduction was not as unusual as the comparison might seem needed improvements and extensions dammed up duringto indicate. The total amount of District bond financing in the war years—not to mention the approvals and proposalsthe last half of 1946 was swollen by a number of large indi for veterans’ aid and bonuses—that will need to be bondvidual issues. For example, in Maryland there were a city financed.issue for $23 million, a sanitary district issue of $1 million, The latest compilation by “The Bond Buyer” of its inand two county floatations amounting to almost $3 million, ventory of proposed state and municipal bond issues sumWest Virginia had two county issues of $975 thousand and marized in the table is indicative of the large potential sup$1 million, respectively, and a state issue of $2 million of j It will be seen b a comparison of the f0n0wing tableroad bonds, bouth Carolina, with a total amount of bond  __   _   ã,, a '*i 10 / 1*7  ã c i   d ãfinancing in the first six months of 1947 of less than $2 with the one in the April 1947 issue of the Monthly Remew, million, had in the preceding sixmonth period two county ™at tf ratf of expansion of local government issuesissues totaling $6 million and a state highway bond issue of throughout the country fell oft during the first half of this$6 million. Of the five states in the Fifth District, North year This reflects in part the tremendous volume of salesCarolina was the only one in which municipal financing in during the period. State and State Agency figures for thecreased, rising from about $4.5 million in the last half of United States, however, registered very marked increases1946 to about $6.3 million for the first six months of this despite sales of about $600,000,000 of state veterans’ aidyear. bonds. INVENTORY OF PROPOSED   STATE AND MUNICIPAL BOND ISSUES   (Amounts in thousands)  ___________  Total  __________   State & State Agencies  _________Municipal_________ 7-1-47 11-15-46 7-1-47 11-15-46 7-1-47 11-15-46United States $6,113,682 $4,576,915 $2,687,780 $1,520,577 $3,425,902 $3,056,337Fifth District 257,883 104,472 67,000 21,625 190,883 82,847Maryland 129,507 47,163 2,000 6,625 127,507 40,538Virginia 15,625 6,485 .......   .......  15,625 6,485West Virginia 54,386 2,271 50,000 .......  4,386 2,271North Carolina 49,393 41,181 15,000 15,000 34,393 26,181South Carolina 8,972 7,372 .......   .......  8,972 7,372Source:The Bond Buyer. Although proposed bond issues by local governmental quence of the increases noted, the District’s share of theunits in the United States expanded only 12 per cent in the nationwide total had expanded to 4.2 per cent by July 1,period covered in the foregoing table, similar proposals in 1947.the Fifth District increased 130 per cent. Against the in It will be noticed in the preceding table that the growth of crease of 77 per cent in intended issues by states and their the inventory of proposed issues in the Fifth District is dueagencies, the Fifth District experienced a growth of 210 mainly to the increases registered in Maryland and Westper cent. The net results show an increase of 34 per cent in Virginia. In the former state, a decline in proposed statetotal state and municipal bond proposals for the country as issues was more than offset by an increase of almost $87,a whole and an expansion of 147 per cent in the Fifth Dis 000,000 in the local government area which boosted thetrict. total for the state as of July 1st 175 per cent over the earlier The increase in the District inventory is particularly im figure. Inasmuch as the $100 million Maryland bonus billpressive in view of the very large amounts of bond offerings kas not Pr°gressed beyond the idea stage, it is not inand sales during the fiscal year ended June 30, 1947. As of cluc‘ed “ ^ceding table. Percentagewise, the increaseNovember 11, 1946 the inventory of proposed state and m thef Dlstfinct tof   w,a* d”e_ argely to the growth of the . . \ . x1p.. . , , ~inventory figure for West Virginia from $2,271,000 onmunicipal bonds in the Fifth District was equal to about 2.3 November   1,1946 to $54,386,000 on July 1, 1947. This, inper cent of the total for the entire country. As a conse turn, was due to the appearance of $50,000,000 of proposed 1See reference at beginning of article. issues by the state. The inventory for the District con
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