1938: Production And Trade

Recession and Recovery.

The recession, which was so sharp during the latter part of 1937, lost its momentum in the early months of 1938, and recovery set in by summer. In the fall, this recovery became exceedingly rapid in spite of the political crisis in Europe. The improvement in production was general to most lines of industry. Both durable and non-durable goods industries were affected; though the former recovered but slowly. New construction began to increase early in the year and reached a volume greater than in 1937. Employment and payrolls suffered heavily in the early months of the year, but rose again by the late fall. This recovery helped ease the introduction of the Fair Labor Standards Act passed in the spring and put into operation in October (see also LABOR LEGISLATION). This law set maximum hours and minimum wages for all industries operating in interstate commerce. Prices at wholesale were still declining at the end of the year, with agricultural prices severely depressed. The farm situation remained serious, and drastic curtailment of acreage for most crops is probable for next year. Retail trade, though on a lower level than in 1937, rose rapidly in volume after June. The export trade remained above its 1936 level, but the import trade declined to its position in 1934; only at the end of the year did it recover again. Until October excess of exports remained continuously at about $100,000,000, a figure previously reached only in one month since 1929. New reciprocal trade treaties were negotiated with Czechoslovakia, Ecuador, England, and Canada.

Industrial Production.

Industrial production during the first quarter of the year continued the downward movement of 1937 at a very much slower rate. The index of the Federal Reserve Board (1923=100, adjusted for seasonal variation), which had stood at 118 at its high point in May 1937, declined to 80 in January 1938 and was at its lowest point of 76 in May. Recovery was apparent by July, when the index reached 83 and became rapid thereafter. In November, the index stood at 96. The decline had been much less drastic in the non-durable goods industries, and recovery began earlier with them. Their low point came in April, compared with June for the production of durable goods. Even at the end of the year the durable goods industries lagged far behind.

For the most part, the industries which suffered the most severe declines during 1937 recovered most rapidly in 1938. The index for steel had declined from 144 in August 1937 to 49 in March 1938. In October, it was 93. At the end of 1937, steel mills were operating at 25 per cent of capacity; in December 1938, at 40 per cent. The recovery in textiles was also rapid. The index for woolen cloth, for instance, rose from 50 in April to 91 in October. It had been as high as 106 in August. The automobile industry, which was affected by the recession late in 1937, suffered eventually very severely with a decline from 157 in August 1937 to 43 in July 1937. Its recovery came late, beginning only in October. The index for that month was 84 and for the rest of the year was higher. Certain industries such as petroleum refining and the manufacture of tobacco suffered hardly at all from the recession and advanced but little during the recovery. The production of minerals was well sustained. The Reserve Board Index declined from 116 in September 1937 to 92 in June 1938, and rose to 100 in October.

Construction.

New construction, which had lagged in the recovery of 1934, improved early in the recovery from this recession. It was especially encouraging that residential construction should have led in this forward movement. According to the value of contracts awarded in 37 Eastern states (reported by the F. W. Dodge Corporation) residential building reached a low point in January with contracts of $36,200,000. In February, contracts increased to $40,000,000, and continued to rise thereafter. In October, they amounted to $112,700,000, compared with $65,500,000 the year before. Public construction increased rapidly under the impetus of the renewed Federal spending program, initiated in April. In the six months from May to October, $634,400,000 of contracts were awarded for public works and public utility construction, compared with $482,300,000 during the same period of 1937. Thus, although commercial and factory construction has been small in volume, the Department of Commerce estimates that the value of total construction in 1938 will be $8,790,000,000 compared with $8,675,000,000. This is a high point for the post-depression period. In the pre-depression period (1920-29), the average value of construction per year was $11,583,000,000.

Employment and Payrolls.

Employment and payrolls broke sharply just at the end of 1937, a movement which continued, except for a brief interruption at the beginning of this year, until August. The decline in payrolls was more severe than in employment; for payrolls declined by 35 per cent while employment fell by 26 per cent. At the end of October, the Reserve Board Index of employment (adjusted for seasonal variation, 1923-25 = 100) stood at 88, and that for payrolls (unadjusted) at 84. At their high points for the post-depression period they had been 109 and 110 respectively. The decline in employment for the durable goods industries was more severe and more prolonged than for the non-durable goods industries. The index for durable goods industries declined from its high point of 109 in July 1937 to a low point of 71 in July 1938, while that for non-durable goods declined from 110 in July 1938 to a low of 92 in June. Although recovery, once begun, was more rapid for the durable goods industries, in October (the latest available figure) the index for this group was still only 78 compared with 97 for the non-durable group.

Labor disputes were less numerous during 1938 than during 1937. Although during the months of May and August the number of man-days idle was more than a million, still the year's record was no worse than that of other years since the recovery movement began. A general railroad strike threatened during most of the year in protest against announced cuts in wages. However, these cuts were postponed during prolonged negotiations between Carriers, Brotherhoods, and the Government, and finally, in November, abandoned altogether.

A feature in the employment situation in the fall was the introduction of the initial step in the Fair Labor Standards Act. A minimum wage of 25 cents an hour was established for all industries selling products in interstate commerce. The normal working week was set at 44 hours, but this could be extended if time-and-a-half was given. Certain exceptions to the regulations with regard to hours were allowed to seasonal industries. When the Act went into effect on October 16, the Federal Administrator estimated that only some 200,000 employees were affected by the wage provisions. Of these, some 50,000, chiefly in the pecan-shelling industry, were discharged. That the introduction of the provisions of the Act caused so little disturbance can be attributed in part to the recovery in industry which had taken place during the fall, bringing wage levels more nearly in line with those of the Act.

Prices.

The revival of activity in industry was not accompanied by generally rising prices. The index of wholesale prices for all commodities computed by the Bureau of Labor Statistics (1926 = 100), which stood at 81.7 in December 1937, declined without significant interruption until in November it was 77.3. The decline was not restricted to any group of commodities. The prices of farm products, however, were much more severely affected than those of other goods. Their index, which averaged 86.4 in 1937, declined to 67.8 by November. Among the prices of agricultural products, the price of grains suffered most with a decline from 92 in September 1937 to 51 in October 1938. Prices of food products dropped from 85.5 in 1937 to 73.9 in November 1938. Of this group, meat prices were affected most. The prices of 'other commodities,' including most manufactured goods, declined comparatively little. The general index for the group dropped from 85 in 1937 to 80.9 in November 1938. The behavior of prices in this revival is significantly different from that of prices in 1933. At that time they responded quickly to changes in basic conditions.

Retail prices declined only moderately during the year. The index for foods (Bureau of Labor Statistics, 1923-25 = 100) was 83 at the end of December 1937 and 78 in October 1938. For prices at department stores, the index (Fairchild's, January 1931 = 100) was 93 at the end of December 1937 and 89 at the end of October 1938. For the general cost of living, the drop was even less. The Bureau of Labor Statistics index (1923-1925 = 100) dropped from 85 in the last quarter of 1937 to 83 in the third quarter of 1938. Thus the lower levels of money wages were not compensated by changes in prices.

The greater decline in farm prices, though a familiar factor in most recessions, brought renewed pressure to solve the farm problem. Production, under the restricted acreage plans, was less in the year 1938 than in 1937. The cotton crop was 12,000,000 bales compared with 19,000,000 last year; corn, 2,500,000 bu. compared with 2,600,000 bu., and wheat, 940,000 bu. compared with 874,000 bu. This low production, combined with low prices, led to a substantial decline in farm income. The Government responded by a variety of actions intended to steady market prices. Cotton loans were made at 8.3 cents per pound for standard grade cotton. Since the market price has not reached this point, the Government will have to take over 3,000,000 bales. Added to the carry-over of 7,000,000 bales which the Government already has, this is equal to the average yearly production of cotton during the last ten years. Even though the crop in 1938 was not what would be considered a large crop normally, yet the market prices were very low. This is the result of the hangover of surplus stocks and the competition of foreign grown cotton, the volume of which is rapidly increasing at the subsidized price level. The situation with respect to wheat was similar, except that there was no heavy carry-over from previous years. Loans were made by the Government at 60 cents a bushel at the farm and at as much as 77 cents a bushel in marketing centers. An export subsidy of 17 cents a bushel was paid on all wheat exported. The acreage for next year will be curtailed to the limit allowed by law, and benefit payments will be raised from 16 cents to 26 cents a bushel. The corn supply was large in 1938 in comparison with the animal population. The Government made loans ranging from 57 cents to 61 cents a bushel. Meantime, they sold old corn, on which they made loans last year, at the market rate of some 35 cents per bushel. The Government also supported the price of butter by buying through the Commodity Credit Corporation. A large amount of this butter will be distributed through relief channels. The pegged price, high compared to those of other agricultural products, may well stimulate even greater production next year. All these measures afford temporary relief to the farmers, but give no solution to the underlying problems.

Trade.

Retail trade followed the same general course as production, though with narrower fluctuations. Department-store sales declined early in the year but increased in the fall. The index of the Department of Commerce (1923-25 = 100, adjusted for seasonal variation) declined from 89 in December 1937 to 78 in May 1938 and revived to 84 in October. Their stocks of goods on hand had declined sufficiently to allow a relatively normal volume of new orders to manufacturers. The index of chain store sales (1929-31 = 100, adjusted for seasonal variation), which stood at 112 in December 1937, was 108 in October 1938. Rural sales of general merchandise dropped similarly. The index was 126 in December 1937, 100 in February; rose to 114 in August, and 122 in September. It dropped again to 115 in October. The curtailment of farm income in the fall of 1938 did not affect farm buying seriously. Sales of automobiles declined very rapidly. For the first eleven months of 1938, they amounted to only 2,101,202 cars, compared with 4,482,740 cars during the same period of 1937. At the end of the year, however, sales were in greater volume than they were in 1937. In November 1938, for instance, 372,358 cars were sold, compared with 360,055 last year.

Foreign trade, of course, declined. During the first 10 months of the year, exports amounted to $2,542,800,000 compared with $2,667,900,000 for the first 10 months of last year. Imports fell off a great deal more proportionally. During the first ten months of 1938, they amounted to $1,613,700,000 compared with $2,597,200,000 last year. Among exports, a heavy rise in the volume of exports of food and a lesser rise in the exports of machinery compensated in part for the declines in other products. Among imports, all classes of products declined. For exports, when adjustment is made for seasonal variation, the decline was continuous throughout the year to October (latest available figure). For imports, the low point came in May, while September and October were the highest months of the year. Throughout the year, the excess of exports, a feature which developed at the end of 1937, continued. At the high point in April, the excess amounted to $115,000,000; and although it declined somewhat thereafter, it was still substantial.

Several new trade treaties were negotiated during the year. That with Czechoslovakia was signed in March and went into effect in April; that with Ecuador in August, operative in October; and that with England and Canada in November, operative in January. The lowering of duties is, in each case, on such products as are of special importance in the trade with the country negotiating the treaty, but through most-favored-nation agreements they are extended to other countries. The treaty with England and Canada is of special significance because these two countries are the most important foreign buyers of American goods. The United States granted concessions primarily on textiles, liquors, paper pulp and various agricultural products, while Great Britain and Canada lowered duties on foods and a wide variety of manufactured products. The drop in the value of the pound sterling at the end of the year, if continued, will have the effect of nullifying some of the advantage to the United States. (For trade treaties, see individual countries.)