1939: Production And Trade

Recession and Recovery.

The year 1939 began with another recession in production and trade which lasted throughout the spring. Recovery from this decline had been under way for several months when the outbreak of the war added even greater impetus causing production and prices to increase rapidly. The volume of new construction was greater than it had been in 1938 and a larger proportion was for private rather than public undertakings. Employment and payrolls remained steady during the period of recession and advanced slowly in the fall. Labor disputes proved more numerous than they were in the previous year. The agricultural problem was alleviated in the fall by the rise of prices, but the carry-over of surplus stocks continued to rise and presented a problem of ever increasing seriousness. The government continued its system of crop loans and bonuses for curtailment of acreage and added an export subsidy for another crop, cotton. Retail trade improved a little compared to last year while foreign trade moved within fairly narrow limits until fall. The war, of course, caused a disruption of many normal trade channels, but provided advantageous openings in South America. In the field of international relations, the year brought several changes in treaty obligations, extension of credits to subsidize our trade and two international conferences on the stabilization of certain agricultural products.

Industrial Production.

During the first part of 1939, as in 1938, industrial production declined. The high point for 1938 according to the Federal Reserve Board's index (1923-25 = 100) was 104, reached in December. In January 1939, the index was only 101, and by April it had fallen to 92. These figures reflect primarily a decline in manufacturing. By June, there was general recovery in production and the index moved to 98 and was 103 in August. The outbreak of war provided a great impetus to recovery and the index rose to 111 in September and 120 in October. Decline and recovery were much more rapid in the durable goods industries than in the non-durable group. The index for durable goods industries dropped from 94 in November 1938, to 71 in May, was 92 in August and 122 in October. For non-durable goods the drop was from 114 in December to 105 in April, after which the index rose to 115 in August and 117 in October.

Production in many industries naturally followed the pattern of the general index but with varying degrees of intensity. The index for steel production dropped from 108 at the end of 1938 to 73 in the spring of 1939, rose to 105 in August, and 157 in October. At the end of November, mills were running at 94 per cent of capacity; the textile index dropped from 117 to 97 in April and rose to 123 in October; meat packing declined from 94 to 87 and was at 99 in October; petroleum refining dropped from 208 to 202 in March and was 221 in September. But there were other industries in which the pattern was different. The index for automobile production was 99 in December 1938 and 105 in January 1939, declined to 73 in May, rose to 87 in August but declined again to 78 in October. Wheat processing rose high in the spring, declined in the summer, but jumped again in September. Sugar meltings reached their low point only in June and even in October were well below the level at the end of last year. The production of minerals was well sustained throughout the year and rose considerably in the fall. The strike in the bituminous mines had cut production to less than half in April and May and anthracite production increased somewhat at that time. The effects of the war on the production of individual commodities were various, Steel ingot production increased nearly 50 per cent between August and the end of October; bituminous coal nearly 40 per cent; cotton consumption 20 per cent; paper production 18 per cent; wheat flour only 11 per cent and sugar melting some 4 per cent.

Construction.

The volume of new construction in 1939 will be higher than in 1938 although the recession in the building trades lasted longer than in industrial production. The Reserve Board index of value of contracts awarded (1923-25 = 100, adjusted) reached its high points, 96, in December 1938, and then declined to 63 in June 1939. In August, it was 73 and, after the outbreak of war, the advance continued to 77 in October. For residential construction there was little change in the level of activity from September 1938, when the index reached 56, until July 1939 when it was 62. In August, it improved to 67, a level maintained through the fall. An encouraging feature of the development of construction this year was the fact that the relative proportion of private construction has been mounting. Last year, public construction was greater than private construction. In February of this year, the amounts were practically equal and since then, except for the month of August, private construction has been considerably greater than public. Public utility projects still remain a very small part of the total volume.

Employment and Payrolls.

Employment and payrolls at factories remained remarkably steady during the recession of the spring. For employment, the Reserve Board's index (1923-25 = 100 adjusted), which was 94 in December, declined only to 93 in May and rose to 96 in August. The payroll index (unadjusted) dropped from 87 to 84 from December 1938 to January 1939, and then fluctuated within narrow limits until August when it rose to 90. In October, the indexes for employment and payrolls both stood at 101. The steadiness in employment during the first half year and the rise in the fall were common to both durable and non-durable goods industries, though employment in October in the former group of industries (index 94) was still far below the level prevailing for latter group (index 108). Even among individual industries the variations were slight. The exceptions were industries making automobiles, wearing apparel, and lighting equipment, all of which suffered a real recession in the spring. A few industries expanded rapidly during the year even before the impetus to production from the war had begun. Prominent among these was the aircraft industry, the index for which grew steady from 759 in August 1938 to 1606 in October 1939, and the shipbuilding industry whose index rose steadily from 93 in September 1938 to 132 in September 1939.

Labor Disputes.

Labor disputes were more numerous in 1939 than they had been in 1938. The number of man days idle in 1938 had never exceeded 1,200,000. In 1939, with the strike in the bituminous coal fields, the number of man days idle in March reached 4,877,000 and, in May, 3,516,000. Again in July, the total reached 1,137,000. In the fall a very long and costly strike tied up the Chrysler Motor Company. Meantime, no general modifications of the National Labor Relations Act were made. The second phase of the Fair Standard Labor Act went into effect in the fall raising the minimum wage for industries selling products in interstate commerce to thirty cents an hour and setting the normal working week at 42 hours. Again as in 1938 a rise in general productive activity made the transition to the new standards more easy.

Prices.

Until the outbreak of the war, movements of prices had been downward throughout the year. At the end of 1938, the all commodity index of the Bureau of Labor Statistics had stood at 77 (1926 = 100). It declined without interruption until it stood at 75 in August. The decline was caused almost entirely by changes in the prices of farm products and foods, the indexes declining from 68 to 61 and 73 to 67 respectively. The index for other commodities remained stationary at 80 throughout the whole period. At the outbreak of the war, there was a sharp revision upward. The all commodity index rose from 74.8 on Aug. 26 to 79.5 on Sept. 23. The prices of farm products and foods moved upward more rapidly than other commodities, the index for the former rising to 70 and the latter to 76. Later, however, they again declined slightly. The prices of other commodities moved up steadily to 84 at the end of October. This movement of prices was somewhat surprising since stocks of goods on hand especially of agricultural products, were exceptionally large, having declined but little since the crisis of 1937. Moreover, the movements were very different from those in 1914. At that time, the prices of tin, rubber, and sugar more than doubled in the course of a few days and lost nearly half the gain in a few weeks thereafter. Some other commodities also rose in price but few reached 20 per cent while the prices of other products like lard, copper and lead dropped in price. In September 1939 many products rose between 25 per cent and 50 per cent during the first week of the war. Rubber and tin were included together with cocoa, zinc, sugar, lard, corn, hogs and wheat. The revision afterwards affected mostly agricultural prices though even they did not return to former levels. Prices of imported and of industrial articles continued to rise throughout October and November. The higher prices, of course, were a factor in the favorable industrial developments of the fall.

Retail Prices.

Retail prices for food followed patterns similar to those of wholesale prices. The index of the Bureau of Labor Statistics (1923-25 = 100) dropped from 79 in December 1938 to 75 in August 1939. The index of cost of living (National Industrial Conference Board, 1923 = 100) covering food, clothing, housing, fuel and light remained practically stationary at 86. Fairchild's index of prices at department stores (December 1930 = 100) also remained stable at 90. With the exception of food prices, these figures reflect the stationary state of purchasing power and the fact that sales were not being pushed by a lowering of prices in spite of the recession of industry. In the fall, however, even retail prices rose and certain products, notably sugar, reflected the speculative demand of consumers for products of which there had been a scarcity during the World War.

Agricultural Prices.

Declining agricultural prices served to reduce farm income again this year until the time when war broke out. The index of value of agricultural marketings of the Department of Agriculture (1924-29 = 100 adjusted) which had been 68 in December 1938 declined to 60 in June. In the fall, the rise of prices occasioned by the war served to improve the situation for the farmers and the index rose to 79. It had been 73 in September 1938. However, the volume of products stored is so great that no rises in prices such as developed in the World War can be anticipated and, thus, even speculative rises are limited. This is particularly true of wheat, cotton, and corn. To be sure cotton production this year was no greater than last year, the October estimate being 11,928,000 bales while last year's crop was 11,943,000 bales. The corn crop, too, remained unchanged but the production of wheat declined. The winter wheat crop is expected to be 550,710,000 bushels compared with 686,637,000 bushels last year, while spring wheat is 188,735,000 bushels compared with 244,164,000 bushels. Already a reduction in corn acreage of 12 per cent has been announced under the control program for next year though many farmers feel that the minimum cultivation consistent with efficient farming has been reached already. The Government again subsidized the farmers directly, as well as attempting to raise prices through curtailment of production. The Commodity Credit Corporation made loans on a basis of 80 cents a bushel for wheat at Chicago and 57 cents for corn. Cotton loans were made at 8.3 cents per pound. Again this year the Government will be called upon to take up and store large parts of the crops covered by these loans thus swelling the carry-over of crops which is already large. To the export subsidy for wheat is now added a subsidy of 1½ cents a pound for cotton.

Retail Trade.

Retail trade this year was, on the whole, more prosperous than last year. Sales of department stores declined a little in the spring with an index of 89 (1923-25 = 100) in December 1938 and of 85 in May 1939. The recovery of the summer brought it to 92 in September. Chain store sales for the first seven months of the year averaged 111 (1929 = 100) compared with 106 for the same period last year. Sales of rural merchandise expanded considerably with an index which averaged 111 for the seven months compared to 100 last year. Automobile sales were even higher with an average index of 86 compared to 61 last year.

Foreign Trade.

Foreign trade, on the other hand, changed but little in value until fall. In the first seven months of 1939, exports amounted to $2,157,000,000 compared with $2,268,000,000 last year, while imports were $1,622,000,000 compared with $1,435,000,000 a year ago. Among imports, increases in crude materials and semi-manufactured articles account for most of the rise, while the decline in exports was in cotton and foodstuffs. When adjustment is made for seasonal variations the export trade proves to have been very steady except for a low month in January and a distinct rise in August and September. Import trade was low in the first four months and rose thereafter. The excess of exports over imports was much lower this year than last.

The outbreak of the war naturally disrupted the normal channels of trade. Yet in the early fall imports and exports increased much more than seasonally. Exports of cotton were especially heavy in both September and October. The arms embargo cut off the shipments of aircraft but after its repeal in November the volume rose again. Exports of other raw materials of war expanded earlier. In September, increases in exports went mostly to England and France; in October exports to these countries declined, while exports to Canada reached higher levels than in any recent year. Although the import trade expanded also, its expansion was at a relatively slower rate. As a consequence the excess of exports expanded and was more than $100,000,000 a month in both September and October.

The United States Government continued to foster foreign trade actively during 1939. The program of foreign trade agreements was extended in the spring by agreements with Turkey and Venezuela. The whole program thus covered 60 per cent of the trade of the United States. In the summer, however, the United States denounced her commercial treaty with Japan. This action will take effect in January 1940. The export trade of the United States has been extended through loans made by the Export-Import Bank to finance the purchase of American goods. Loans of this type have been made to Poland to purchase cotton and copper, to Paraguay and Brazil to stabilize their currencies and to buy American goods, to the Argentine to buy American cars, and to Portugal to buy railroad equipment. International conferences were held to attempt to regulate world production and marketing of wheat and corn. The Wheat Conference, held in London, dissolved on Aug. 29 because the problem of agreeing on the fair share of each nation in the export market proved unsolvable. The Cotton Conference met in Washington in the first week of September, but immediately adjourned because war conditions seemed to make any solution of a world marketing problem impossible. See also AGRICULTURE; BUSINESS; WORLD ECONOMICS.