review of the year 1927

Review of the Year 1927Source: The Review of Economics and Statistics, Vol. 10, No. 1 (Feb., 1928), pp. 1-17Published by: The MIT PressStable URL: http://www.jstor.org/stable/1928503 .

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TheReviewofEconomicStatistics Beginning with February I928, the quarterly months of publication of this REviEw will be February, May, August, and Novem-

ber instead of January, April, July, and October, as heretofore.

VOLUME X FEBRUARY, I928 NUMBER I

REVIEW OF THE YEAR 1927

I927 business in general was substantially above normal and its volume even approached

the high level of I926. Indeed, both the dollar volume of business transactions, as measured by bank debits outside New York City, and the

I926. Thus, railroad earnings and carloadings were lower, partly in consequence of the coal strike; the construction of new buildings declined; the production of iron and steel, automobiles, railroad equipment, and other basic

CHART I.-THE INDEX OF GENERAL BUSINESS CONDITIONS

FPrice of industrial stocks A Price of r-ailroad 5tocks(af terlOdl) M4 ewYork Citti bank debits (beforel3g6

+4 J3ank debits for 140 cities outside N.Y.C. 4 DWholesale commodity prices C Rates on tort-time morej

4.

I-pcuaion

A- pecu1ation B-Business o Q

I C~~~~~-MoneyjCMn ~ - -

B-u5ines I

i ?545'G 7a910111a2 I)45 67091011Y1 E4 3e56 7 8 9910111212 67e91011 5 34567 8910111212 3456679101115l 2345 67a 910111Z 1l2I 1922 19E5 1924 19?5 926 1927

physical volume, as reflected by electric power production, exceeded the record of the preceding year by more than the amount we allow for normal growth. Certain industries which were unfavorably situated in the previous year (not- ably rubber, cotton textiles, and leather) bet- tered their positions in I927; the construction of new engineering projects and road building increased; agriculture-especially in the North- west-prospered; and retail trade was well maintained. A number of important industrial groups, however, failed to equal the records of

materials fell off substantially; and the flood of oil brought depression to that industry.

During the first three or four months of the year the number of freight cars loaded, the volume of manufacturing and mining, and new building construction were well maintained but the tendency during the remainder of the year was moderately downward. Despite the decline in these important branches of industry, the distribution of commodities to dealers and con- sumers continued in large volume, the general wholesale price level turned upward after the

[ I ]



2 THE REVIEW OF ECONOMIC STATISTICS

middle of the year, agricultural conditions improved, and outside bank debits continued to expand. Meanwhile, Curve B of our index chart moved on a distinctly lower level in I927 than in I925 because wholesale prices, although advancing after June, averaged below those of the earlier year. In retrospect we may characterize I927 as one of well sustained general business in spite of dullness or depression in individual industries and the decline of railroad traffic and the volume of manufacture in the second half of the year.

One of the most significant developments of the year was the rise of average wholesale commodity prices. This began in June and continued without interruption until October. The increase of commodity prices is significant not because of its magnitude - the increase amounted to a little more than three per cent - but because it was the first real interruption of the steady decline in the world level of gold prices which had been in progress since the autumn of I925. This decline we have attrib- uted to adverse European developments connected with the return of important countries to the gold basis, combined with high money rates abroad, and the absorption by the United States of a large volume of gold. In the third quarter of I927 the federal reserve banks reduced their rediscount rates and gold moved out of the United States. The expressed purposes of the rate decrease were "to assist foreign buyers in making their autumn purchases of grain, cotton, and other American farm products" and "to attract a larger volume of the financing of the exports to the baanks of this country, and consequeintly to reduce the demand for credit for this purpose -Abroad," thus . . . "exerting, a favorable influence in the international financial situation."' In both particulars the policy proved successful.

Probably the most spectacular development of the year was the steady advance of security prices. Industrial stock prices advanced month after month until October, receded moderately, then resumed the advance and closed the year at a new high monthly average. Railroad stock prices were also strong and in September attained the highest figure on record. Bond prices in December reached the highest level in 13 years

and the issue of new securities surpassed the previous record of I926 by a third. The expansion of new securities and the increase of stock and bond prices were obviously a consequence of the easy money situation rather than the dis- counting of great business expansion and the general increase of profits.

Although the reversal in the movement of commodity prices may have been the most significant occurrence and the increase of security prices the most spectacular feature of the year, the interrelations of these and othel developments were, from an economic point of view, the most interesting and suggestive. These developments were the decline in money rates, the reversal in the international movemnent of gold, the increase of bank investments and collateral loans, and the influence exerted upoll gold movements and the money market by federat reserve operations, particularly transactions in government securities and changes in discount rates.

The money market was unusually easy during the year and the tendency of rates was downward. Thus, rates on prime eligible bankers' go-day acceptances, bid and asked, were 3Y4-3 8 at the end of I927 as compared with 3 3-3V8 a year previous. The course of rates from season- to-season, however, was contrary to the usual seasonal movement. Thus, money rates rose moderately between March and June - when they usually experience a seasonal decline to the lowest point of the year, - then declined in July and August - when they usually advance in response to the summer-to-autumn expansion of business, - and finally moved horizontally between September and December at the lowest level of the year - when, in response to seasonal demands of trade, rates usually attain the highest level of the year. In short, except for the decline in January and February -a normal seasonal movement which occurred in I927 -

the movements of money rates in 1927 were the inverse of those normally occurring in pre-war years and reflccting the seasonal expansion and contraction of business.

The explanation of the unusual course of money rates during the first half of the year is to be found, in part, in the tremendous volume of new security issues, and the increase of security prices and o-f collateral loans, and during the second half of the year in the reduced demands 'Federal Reserve Bulletin, September I027, p. 6x3I.



REVIEW OF THE YEAR I927 3

for bank credit by manufacturers and the rail- roads, but it is to be found mainly, at least after May or Juhe, in federal reserve operations. That is to say, the continuous purchases of securities between June and the end of the year, and the reductioni of discount rates in the summer, con- stitute the real explanation of the unusual course of money rates in I927. In other words, the large purchases of securities of the sccond half of the year, coupled with the reduction of the rediscount rate to 312 per cent, resulted in a general easing of the money market. These operations are, of course, also directly connected with the reversal in the international movement of gold which took place in September.

In spite of large importations of gold during the first eight months, the net result for the year after allowing for the exports of the last four months and for "earmarking" was a substantial reduction of our stock of the yellow metal. Under ordinary conditions such a development, even with an efficient central banking system, would mean rising interest rates, pressure upon security markets, and perhaps the beginning of a change in trade conditions which would presently check the outward flow of gold. But under the very unusual, and even abnormal, conditions resulting from the war, which placed us in possession of such a large percentage of the world's gold supply, the exports of gold produced little or no effect on money rates. This is because the federal reserve banks were able and willing to expand federal reserve credit to an extent that offset gold exports. After the end of August, net gold exports amounted to approximately I40 million dollars; and an additional loss to gold stocks of the country was sustained because of the "earmarking" of some 75 million dollars for foreign account. During this interval, total federal reserve credit-as represented by the sum of (I) discounts and rediscounts and (2) acceptance and security holdings of the reserve banks -rose 540 million dollars. Although part of this increase was in response to the normal demands of the autumn and holiday trade, it is noteworthy that holdings of government securities by the systenm, which represent primarily operations undertaken at its initiative and designed to influence the money market, rose I30 million dollars- an amount not far from our net gold exports.

In short, financial conditions in the United States were made favorable for the export of gold by the reduction of the rediscount rate of the Federal Reserve Bank of New York on August 5 and by the other banks between July 29 and September I2; and the outward movement of gold during the ensuing months of the year was facilitated by purchases of government securities by the federal reserve banks. These purchases placed funds in the market, offset the effects of the outward movement of gold, and made possible the continuance of low money rates and an easy market. At the same time the purchases relieved the member banks of the necessity of greater borrowing from the reserve banks. The result, as we have said, was an unusually easy money situation. The reduced demands from manufacturing industry contributed to some extent to this condition of ease; but besides the outward movement of gold there was another hardening influence on money during the autumn and early winter in the large volume of security issues. In the last quarter of the year, flotations were the highest on record, averaging almost 950 million dollars a month; while, in the second quarter, a somewhat smaller volume of flotations (926 million dollars monthly) resulted in congestion in the bond market sufficient to harden money rates. The experience of I927, even to a greater extent than that of previous years, indicates clearly the important influence exerted upon the money market by federal reserve operations, particularly transactions in government securities.

OUTPUT, TRANSPORT, AND TRADE The year I927 was one of substantial pros-

perity and. the general volume of business approached the exceptional level of I926

(Chart 2). Indeed, bank debits outside New York City, the most reliable single index of the dollar volume of business, and the production of electric power, an index of physical volume, attained new high records. For the year actual outside bank debits totalled 282.4 billion dollars, a figure 5 per cent above that of I926, the previous high record, and io per cent above I925;

and the production of electricity per business day, in kilowatt-hours, was 9 per cent greater than in I926, and 2I per cent greater than in I925. Other individual indexes, however, reflect




CHART 2. - ACTUAL FIGURES FOR FIVE SERIES: MONTHLY I925, I926, I927

BANE DEBITS OUTSIDE NEW YOB%ITY Unit: 51,00,000,QO/_

1% 1996 'Np

11~~* _ _ __ - _ . _

1 I 3 4 5 6 7 8 9 10 11 1I

ELECTRIC POWER PRODUCTION -OO ___ __Unit: 1,000,000 kilowatt hours

997

900 9- -_ _ _ _

169 - - ---- 2 z 4 5 CD 7 8 9 10 11 10

Daily averagef FREIGHT CAR LOADING*

Unit: 1,000 cars

_.0 ,1 I 1 _ _

Z 3 4 5 6 7 t 9 10 11 I-. * Daily avepnage

BUILDING CONTRACTh AWARDED-NEW FLCOR SPACE ___ Unit:_1,000,000 sq.ft.

1995!

50 - _ _-- - F *1 : 4 5 6 7 5 9 10 11 1L

PIG-IRON PRODUCTION 49 - Unil: 1,000,000 tons

199 - _ 1 t 4 5 6 7 8 9 10 11 10

a decline in certain important groups of industries. Thus, the yearly totals of freight car

loadings, the area of new floor space of building contracts awarded, and pig-iron production were all less in I927 than in I926. Freight car loadings per business day in I927 were 3 per cent less, the area of new floor space of building contracts awarded was 2 per cent smaller, and pig-iron production was 7 per cent less in I927

than in the previous year. Moreover, the three series just named reflected less active business at the end of I927 than at the beginning. In fact the items for March I927 compared favor- ably with corresponding items of the two preceding years while the items for November and December were below those of the corresponding months of both I925 and I926.

New building. As compared with I926, the year I927 showed a considerable decline in the volume of private building in municipalities, but very little decline in the dollar volume of general construction. For the cities in Bradstreet's list, the value of permits in I927 was I0 per cent less than in I926; while the value of contracts awarded in 37 eastern states, according to the F. WV. Dodge Corporation's reports, was onlv i per cent smaller than in I926. The mainte- nance of the value figures for construction contracts at so high a level was due chiefly to the increased volume of public works and utilities, including road building; and it is this class of construction also which had accounted for the increase shown in I926 compared with I925.

On the other hand, the Dodge figures for floor space, which apply to buildings proper, reached a peak in I925 and declined in both I926 and I927, as did building permits. Moreover, the value of iesidential building, the largest class into which the Dodge reports divide the total, declined in these two years. This class of building forms a much larger portion of the permits than of the contracts figures - in I925, it accounted for approximately 6o per cent of the former and 40 per cent of the latter.

Our adjusted index of the value of contracts awarded, which is based upon the Dodge figures for a portion of their territory (the 27 North- eastern States) ,1 showed only narrow fluctuations during the year, at a level slightly below the highest figure in I926. The adjusted per-

1 For the 37 states now included in the Dodge reports, data are available for so short a time that it is difficult to make satisfactory correction for seasonal variation.




mits index (based on Bradstreet's figures) declined in the first few months of the year; from May to October it was practically stabilized; and in November and December averaged well above the level of the preceding six months.

In 1927, there occurred the first pronounced decline in building costs and building materials prices since the middle of I924. The Bureau of Labor Statistics index of building materials prices (Chart 3) had fluctuated irregularly from mid-i924 until the end of 1926, averaging I02.3 in 1924, IOI.7 in I925, and IOO.O in I926. From

a figure of ioo.i in November I926, it dropped almost continuously to 90.2 in November I927. The M. C. Tuttle index of the cost of construct- ing a reinforced concrete factory building in New England (also shown in Chart 3) had risen sharply on April I, 1926, chiefly as the result of an advance in wages. The figure then reached -205.5 (19I4= IOO)- was maintained until the beginning of 1927; but later the index dropped to 195.5 on May i, I927 and to I93.5 on August I. It remained at this level for the remainder of the year.

Agriculture. The composite production of the I7 principal crops, including cotton, as shown by an average based upon their total yields weighted in proportion to their values for I917-26, was 2.2 per cent less than in I926; and the per capita production, computed by the same method, was 3.4 per cent less than last year, and 4.8 per cent less than the average for the last ten years. There were generally increased harvests, however, in the leading crops except cotton, and these favorable crops together with a rising level of farm prices in I927 combined to improve the

general agricultural situation. That the actual production of leading crops except cotton was greater than in I926 is evident from the accompanying table. The output of wheat, our principal food crop, was the largest since I9I9, as a result of a large increase in spring wheat which more than offset a decline in winter wheat. Barley output attained a record level, and the production of rye, buckwheat, flaxseed, potatoes, and hay increased substantially. The outstanding decline, as we have indicated, was in the production of cotton. Because of the damage caused by the Mississippi flood and later in the year by the weevil, the crop of I927 was the smallest since I923 and only 7I per cent of that of I926. It was the decline in the cotton crop which caused the decline in the composite index of production of I7 crops to which we have referred.

Although composite production declined, composite values increased in 1927. The total value of the 55 principal crops amounted to 8,429 million dollars, a figure 635 million dollars, or 8 per cent, greater than that for I926. Many of the important crops contributed to the increase of total value, but corn and cotton contributed the greater part as a result of the large advances in prices accompanying the short crops of these staples. The value of corn was 285 million dollars greater than a year ago, and the value of cotton 27I million dollars greater. The outstanding decline in value is shown by white potatoes. The heavier yield was accompanied by a price decline which resulted in a farm value

CHART 3. - PRICES OF BUILDING MATERIALS (UNITED STATES BUREAU OF LABOR STATISTICS) AND BUILDING

COSTS (M. C. TUTTLE): MONTHLY, I923-27

(For building materials prices, I926 = IoO; for building costs, 19I4 = IOO)

Scale for Scale for materials cost

110 \Btilding malerials prices

Woilding coals .... 1A _________5.

. 100- ...... .. *. OO0

90 0 10 190 19 ED 19 E4 1925 19Z6 1927

Production Percentage Crop Unit* of I927 to

1926 1Q27 I926

Corn ............ bu. 2,692.00 2,786.00 I04 Wheat.. . . bu. 83 I.00 87I.70 I05 Oats ............ bu. 1,,246.80 I,195.00 96 Barley ........... bu. I84.90 265.60 I44 Rye. bu. 40.80 58.57 I43 Buckwheat ....... bu. I 2.68 i6.i8 I28

Flaxseed ......... bu. I9.34 26.58 I37 Rice ............ bu. 4I*73 40.23 96 Potatoes,white .... bu. 354.30 402.I0 II3

Potatoes, sweet... . bu. 82.70 93.93 II4 Hay . . . . ......... ton 96.o6 I 23.5 I I29

Tobacco .......... lb. I ,297 .90 I,237.80 96 Cotton ........... bale I 7.98 I2.79 7 I Sugar beets ....... ton 7.22 7.74 107

* Millions.




I13 million dollars less than in I926. Owing to the large crop, the price of wheat experienced a decline also; but the value of the crop was only 2 per cent under that of a year ago.

Manufacturing and mining. Manufacturing output in I927, as shown by our adjusted index, averaged Ioo, as compared with io8 in I926 and I07 in I925 (Chart 4). The general movement of the monthly index during the year was downward, reflecting sharp decreases in the constituent indexes for basic materials and for equipment and vehicles, while the index for consumption-goods showed only narrow changes.

The outstanding development of the year in manufacturing was the marked decline in the output of automobiles. In May, the production of Ford cars ceased entirely. The shut-down of the Ford plant, which continued during the summer and autumn months, accentuated the usual seasonal decline in total automobile production, and our adjusted index fell from IO9 in the first quarter of the year to 88 in the second, and to 68 in the last quarter. The number of cars and trucks produced during the year was less than in any year since I922. It was not until the first week of December that the new Ford car was announced.

The decline in the output of automobiles last year, together with greatly curtailed buying of new railway equipment, was reflected in a decreased output of iron and steel. The actual

production of pig iron and of steel ingots was almost eight per cent below that in I926, and

ADJUSTED INDEXES OF THE VOLUME OF MANUFACTURE

AND OF MINING

(Normal = iOo)

I926 1927

Series Fourth First Second Third Fourth quarter quarter quarter quarter quarter

Manufacture ........... io6 I05 Io3 99 95 Equipment and vehicles . 101 iI 0 IOO 87 75

Automobiles ......... 99 IO9 88 78 68 All basic materials ...... io8 io5 I02 IOO 96

Steel ingots ......... I02 III I I2 95 83 Pig iron. I02 IOI I02 9I 84 Leather .87 90 82 84 84 Cement ............. I35 ii8 I42 I57 I38 Cotton group .IO9 I07 io8 IIO io8 Wool group .96 9 70 78 88

All consumption goods... 107 I02 io6 105 103 Food group. I02 95 I02 95 96

Slaughterings ...... go 89 I02 I03 86 Tobacco group. I04 I03 io8 IIO I04 Boots and shoes . 93 86 87 IIO 89 Carpets and rugs. 95 94 95 86 96 Gasoline. . . . . . . . . .. I42 I44 I33 I39 I42

Mining .0.... IO9 IO9 95 92 91 Fuels ................. 9 1 1 O 93 91 90

Bituminous coal. I07 II4 77 75 76 Petroleum . I4 II5 II3 II5 II2

Metals ................ II2 I05 100 95 96 Copper . . . . . 1 20 III io8 107 I09 Zinc ................ I25 I23 II4 I09 II4

Iron-ore shipmentst- I03 . . . 89 78 75

t The lake season opens in May and closes in November.

CHART 4.- ADJUSTED INDEXES OF TH-E VOLUME OF MANUFACTURE: COMPARISON OF THE YEARS I925, I926, AND I927

(Normal = ioo) ico - - - -- - - - Ico - - - -- - - ~ All lies Basic Consumption comnbined materials goods

* :19e5 g 100--- 100 \* 4 , 0

l9~~~~~~~~~~j7E -

0 0~~~0 0 .07 4579O14I~4 79Q1 ~ 1~4 70111




the monthly adjusted index for iron and steel fell from I I4 in April to 8o in November. Among the other series which enter the basic- materials group, the index for paper production averaged below that of I926, while the indexes for cement, leather, and cotton-textile production advanced. The index for wool-textile output showed no change.

The consumption-goods index, unlike that for basic manufacture, remained above normal throughout the entire year. For the first half of the year, the index averaged higher than in the correspondinig period of I926; in the second half year, however, it averaged slightly below. This decline was due mainly to sharp decreases in the indexes for cattle slaughterings and wheat-flour production, although the indexes for sugar meltings and the manufacture of tobacco and snuff also averaged below those for the last six months of I926. However, for certain industries included in the group, production in I927 was greater than that for several years. The boot and shoe industry, for example, enjoyed the most active year since I923; cigarette pro-

CHART 5. ADJUSTED INDEXES OF THE VOLUME OF iIINING: FUELS AND METALS, MONTHLY, I923-27

(Normal = ioo)

I9z 192L4 19cjJ 93Z 1927'

duction was the largest ever recorded; and gasoline production, which amounted to over I3,880 million gallons, was also the highest on record.

Mineral output, as well as manufacturing production, averaged lower in I927 than in I926.

Both the fuels and metals groups shared in the decline, the index for the fuels group falling from an average of IIO in the first quarter of the year to go in the fourth quarter, while that for the metals group dropped from IO5 to 96 (Chart 5). In the latter months of I926 and the beginning of I927, operations in the bituminous coal industry were speeded up in anticipation of the strike (called on April I) in the unionized coal fields. Thus our index of bituminous coal production

advanced from 98 in October I926 to I2I in March I927. During the next four months, however, it fell sharply, reaching 68 in July; but in August, production increased more than usual in that month and our inidex advanced ten points, to 78. In the remaining months of the year, output showed little more than the usual seasonal changes and the index fluctuated between 75 and 78. Productioni of anthracite coal also averaged below normal in I927; the adjusted index advanced from 88 in the first quarter of the year to 97 in the second (after the strike had been called in the bituminous coal fields), and later fell to 86 in the third and fourth quarters. Petroleum production, on the other hand, reached record levels. The sharp decline in the index of metal mining was shared by all the con- stituents of the group.

Emnployment in manufacturing industries of the United States declined during I927 and was at a lower level in each month than in the corresponding month of I926. At the end of the year it is probable that there was more unemployment than at any time since the summer of I924. According to the index of the Bureau of Labor Statistics employment in December I927 was 85 per cent of the average level in I923 compared with 9I per cent in December I926. Wages in general were firm in I927 despite various flat reductions at the close of the year made especially by certain New England textile mills; and labor was reported to be efficient. The chief industrial disturbance of the year was the strike of the unionized bituminous coal miners which was initiated on the first of April and was only gradually settled, first by agreement in the Illinois fields on October i, and later in most other areas either by temporary compromise or by the opening of the mnines on a non-union basis.

Freight-car loadings. A large volurne of distribution in I927 is reflected by our index of total freight-car loadings, despite the sharp decline of the index during the year (Chart 6). The monthly average was 3 per cent under the record of I926, and i8 per cent greater than the average for I9I9-23. The sharp decline of the inidex took place between February and Decem- ber and was from the highest point ever reached (I29) to the lowest level (III) since the summer of I925. A contraction in the loadings of coal and coke (the third largest class of commodi-




ties), resulting from the bituminous coal strike, was partly responsible for the decline in the total, but reduced loadings of every other class of freight also contributed to the result. Ship- ments of merchandise (1. c. 1.) and miscellaneous freight combined declined ii per cent, between February and December; loadings of forest products fell I3 per cent; of ore, 38 per cent; and shipments of grain and grain products and live stock also declined somewhat. At the close of the year the adjusted figures for numerous classes of freight were at the lowest level since I924. Shipments of merchandise (1. c. 1.) and miscellaneous freight have not been smaller since September I924; of merchandise (1. c. 1.) freight, since December I924; of forest products, since the end of I922; of live stock, since the end of I92I; and of ore, since the spring of I922. Loadings of coal and coke reached a low point in July, when they were the smallest since July I924.

Wholesale and retail trade. The situation in retail and wholesale trade in I927, as shown by the reports of the Federal Reserve Board, was mixed. The sales of department stores were maintained at just about the level of I926,

while the sales of mail-order and chain stores increased substantially. The dollar volume of wholesale trade, on the other hand, was 3 per cent smaller than that of I926 and less than that of any other year since I922, partly because of lower prices. It may be that a change in merchandising also has contributed to the contraction of wholesale trade for mail-order and chain-store sales have greatly expanded in recent years.

The decline in wholesale trade in I927 compared with I926 affected most classes of goods. Groceries declined 4 per cent; meats, 6 per cent; dry goods, 5 per cent; women's clothing, 4 per cent; hardware, 5 per cent; and furniture, 3 per cent. On the other hand, sales of men's clothing

CHART 6. - INDEXES OF DAILY AVERAGE CAR LOADINGS OF VARIOUS CLASSES OF FREIGHT, ADJUSTED FOR SEASONAL VARIATION BUT NOT FOR TREND: MONTHLY, I9I9-27

(Monthly average I99-23 = IOO, except that for the group coal and coke the year I922 is omitted from the base and for the group merchandise (l.c.l.) the first seven months of I9I9 are estimated)

Total Total f-orc5i ~~~~~~~~~~~~~~~~~~~~~~prod ucts oe raus

100 - A I0 AA I I I ! _ I I IA

'~~~/-vR Is# ,h%, TN1ti

1-h, ~ ~ ~ ~ ~~~u4 V MciscAU) aI )rms \/ J t 10nd misc. 0 1t Grain and grain I ra nr al n 100 i,;iitt ItE7tr^"; ~~g~~~~T 1 (~ ---0-----1- ~~0 1'^Z -t ^ g ''1 GraxnIsrrmF

I I it Mdst. (I.c.1) and MISL pro~~~~~~~~~~~V 'A uctprdst

loo0 j ------ to4k Live stock

M d

f I4

I I

Ore I

I , Or i i

I * I1 1 I.I I I I I', i I I '11 '

U a~~~~~~~~~~~~Caladck

L II I1

1919 1920 1921 1902 1923 19d4 1905 i926 1927 1919 1920 o 1921 1922 1923 1924 1925 1926 1927




and drugs were both i per cent greater, and boots and shoes increased 3 per cent.

The contrast in certain branches of retail trade compared with wholesale trade is indicated by the following figures: sales of mail-order houses increased 4 per cent; of grocery chains, 23 per cent; of 5 and iO chains, Io per cent; of drug chains, I3 per cent; of shoe chains, 2 per cent; and of candy chains, 5 per cent. Music stores were the only group of chains to decline, sales being I5 per cent less than last year; while sales of cigar chains were equal to those of a year ago.

Our adjusted index of department store sales, as shown in Chart 7, was 2 per cent less than in I926. In I927, as in I926, a general downward movement prevailed during the first half of the

year, and a general upward movement in the second half. Department-store stocks, corrected for seasonal variation only, were just about the same as a year ago and showed a similar movement. In both years stocks stood in the first quarter at exceptionally high levels, near I40 per cent of the i9I9 average, and then declined to a low point of I30 per cent in August, and advanced to about I37 per cent in December.

COMMODITY PRICES During I927 the decline of prices which began

in the latter part of 1925 came to an end. The revised index of the Bureau of Labor Statistics turned slightly upward in June and by October had advanced a little more than 3 per cent. In November and December it was slightly lower than in October; but in December the index was

only one per cent below the level in December 1926. The movements of the revised B. L. S. index and our weekly index for the period since January I924 are plotted on Chart 8; and the B. L. S. index numbers of 4I groups of related commodities and the index numbers of "all commodities" for the last three months of the year and for December I926 are included in the accompanying table.

The most striking feature of price developments in I927 was the contrast between the

movements of agricultural and non-agricultural commodities. Agricultural prices, as a group, remained almost unchanged during the first half of I927, whereas non-agricultural prices declined considerably. During the second half of the year prices of the non-agricultural group changed very

CHART 7. - INDEXES OF DEPARTMENT-STORE SALES AND STOCKS: I923-27

(Sales, adjusted for irregularities of the calendar, trend, and seasonal variation. Stocks, adjusted for seasonal varia-

tion, monthly average for 919= ioo) 140 -----

100 5a1eb ~

90- - i9a5 19E4 1905 - 10@- 1907

CHART 8.-- WEEKLY INDEX OF WHOLESALE PRICES (FULL LINE), AND U. S. B. L. S. MONTHLY INDEX:

I924-27

(Weekly index, I9I3 IOO. Monthly index, I926 =Ioo) 165-

160 -105

155 ...lO

150-

145 ...7 9

1401 90

15 19?4 19?5 1926 197

CHART 9. - U. S. B. L. S. PRICE INDEXES FOR AGRI- CULTURAL AND NON-AGRICULTURAL COMMODITIES:

MONTHLY, I925-27

(Average for I9I3 IOO)

M~O

160 .. : . i__t.

1~D-0ICU] Ur a

140 AgriuI, , i.

1 1345678911112L4567891011621 Z34567891011. 2 19E5 1926 19E7




little, while the agricultural group rose sharply from June to October, and thereafter declined only slightly. These contrasting movements are delineated on Chart 9, where the B. L. S. price indexes for the agricultural and non-agricultural commnodity groups are plotted.

Among agricultural commodities, the most important advances during the year were in cotton and cattle prices. From an average price of I2.68 cents per pound in December I926, cotton rose to 2I.93 cents in September I927 and then declined to 19.58 in December. Cattle (good to choice steers at Chicago) advanced from $9.82 per hundred pounds in December 1926 to $I5.92 in November I927. Hogs (light, Chicago), on the other hand, showed a marked downward tendency during most of the year. Changes in wheat prices throughout the year were moderate, whil-e corn prices showed more marked fluctuations. Wool prices were higher in December than in any other month of the year, and were 6 per cent higher than in Decem- ber I926.

The advance in hide and leather prices was one of the most noteworthy developments of the year. Packer, heavy native steer hides rose from I4 cents per pound in March to 25 cents in December, an increase of 79 per cent. In June the price rose above that in I9I3 for the first time since the spring of I923 and in December it was 36 per cent above the I9I3 average. Oak sole leather also rose sharply from 49 cents per pound in May to 62 cents in December.

The marked decline in crude oil prices, which got under way during the last quarter of I926, did not come to an end until April I927. For the remainder of the year the price of mid- continent crude held at $I.27 per barrel, almost exactly one dollar under that of October I926.

Iron and steel prices moved downward until late in the year. The composite price of pig iron (Iron Age) fell from $I9.94 per ton in December I926 to $I7.55 in December I927, the lowest monthly price since December I9I5. The composite steel price fell over 6 per cent during the first eleven months of the year, but rose slightly in December. Copper reached its lowest point for the year in June, and then rose approximately I2 cents per pound by the end of the year. The price of bituminous coal, despite the strike in the union fields, declined until mid-

summer; and the moderate advance which took place during August and September was followed by a further decline in the following three months. The price of furnace coke declined per-

BUREAU OF LABOR STATISTICS PRICE INDEXES FOR COMMODITY GROUPS

(I926 monthly average = ioo)

Dec. Oc t. Nov. D)ec. Sub-group I926 T927 I927 T927

Grains . 96.9 99.2 99.6 I02.0

Livestock and poultry 93-5 I05.5 ioo.8 97.9 Other farm products. 95.2 I06.7 I08.3 I09.7 Butter, cheese, anid

milk I07.4 I07.2 I08.3 110.0

M\'eats ............. 98.4 I00.0 100.9 99.6 Other foods ......... 99.6 97.2 99.I 97.7 Ilides and skin-s..... I03.3 I28.0 I31.6 I36.4 Leather. 99.4 II6.5 II7.1 I22.4 Boots and shoes ... . 99.8 105.6 I06.3 I07.I Other leather products IOO.O I08.9 I09.2 I09.4 Cotton goods ....... 93.3 Io6.o I04.6 I03.3 Silk and rayon .... . 92.4 85.4 83.6 83.2 Woolen and worsted

goods . . . . . . . . . . 98.4 98.o 98.I 98.4 Other textile products 99.7 95.7 94.9 96.7 Anthracite coal ...... 98.8 96.o 96.9 96.8 Blitumnitnous coal . 1... I07.9 99.6 97.8 97.4 Coke ...1... 103.3 93.9 92.7 91.9 MavLufactured gas.. . . 98.I 97.5 97.2 96.2 P'etroleum product-s. . 93.7 67.5 66.6 66.2 Iron- anid steel .......100.O 94.0 93.5 93-7 Nonferrous metals. . . 96.9 89.9 9.3 92.-3 Agricultural imple-

ments ............ I00.0 98.9 98.9 98.8 Automobiles. . . . . . . . I02.3 I02.2 I02.2 I04.6 Other metal products. 99.4 I00.7 I00.7 100.7 Lumber . 98.9 9I.2 89.2 88.o Brick. . 97.5 93-3 91.3 92.2

Cement. . 99.4 96.5 96.5 96.5 Structural steel..... . I02.1 9I.9 89.4 91.9

Paint materials ...... 97.6 87.0 85.7 86.5 Other building mate-

rials .0 I0. 9I.7 9I.2 92.5

Chemicals .......... 97.7 IOI.8 I02.3 102.2

Drugs and pharma- ceuticals . ........ IOI.2 86.2 85.2 8I.9

Fertilizer materials.. . 99.3 94.I 94.9 95.0 Fertilizers. . . . . . . . . . IOO.O 92.5 92.9 95.2

Furniture .......... 99.5 97.0 97.2 97.I

Furnishings ........ 98.3 99.4 I00.0 99.8 Cattle feed .1....... I05.3 II6.7 122.4 I28.9

P'aper and pulp..... . 93.7 9I.6 91.3 90.9

Rubber. . 78.i 70-5 77.8 84.2 Automobile tires.. 78.6 74-9 71.2 69.9 Other miscellaneous. . 99.7 99.9 99. I 98.6

All comnuoditics.. . 97.9 97.0 96.7 96.8



REVIEW OF THE YEAR I927 II

sistently throughout the year, falling 75 cents per ton during the twelve months.

CREDIT AND MONEY RATES Gold movements. On January I, I927 the

total stock of gold coin and bullion in the United States as reported in the circulation statements of the Treasury Department, stood at 4502

million dollars. Each of the first four months of the year saw an addition to this large sum, and on May i, the gold in the country amounted to 4609 million dollars, the largest figure on record and approximately one-half of the world's stock of monetary gold.' During the remainder of the year an almost unbroken contraction occurred, so that on December 3I, the stock of gold had been reduced to 4376 million dollars. This figure was I26 million dollars, or 3 per cent, smaller than that for January i, and also the lowest since August I925. The greater part of the increase of I07 million dollars in the stock of gold in the first four months of the year is accounted for by net imports of gold amounting to 87 millions of dollars, the balance of 20

millions resulting mainly from withdrawals of gold from earmark for foreign account.2

From May to August, gold imports continued each month to be greater than exports, the net import excess for the period amounting to 6o millions of dollars. But in May the earmarking of gold for foreign account assumed an importance which had never before existed, and earmarkings were more than sufficient to offset the net imports of gold during the months May to August. In fact, there was a net decrease, spread over the four months, of 2I millions of dollars in the monetary stock of gold.

In September, after the reduction of the New York discount rate to 312 per cent, gold began to move outward and in the last four months of the year I4I million dollars left the country (chiefly to the Argentine and Brazil) and of this,

I2I millions went out in November and Decem- ber. Meanwhile earmarkings for foreign account were large, and amounted to 82 millions of dollars. Thus in the four months September to December net gold exports and earmarkings of gold reduced our stock of gold by over 2I2

millions of dollars. Between January i and December 3I we suf-

fered a loss from our monetary stock amounting to I26 millions of dollars. This decline resulted entirely from earmarking operations since there was a net increase of 6 millions through actual movements of gold in the year as a whole. That is to say, the net imports in the first eight months were I47 million dollars and net exports in the last four months were I4I million dollars, leav- ing a net import for the year of 6 million dollars.

On January i, I927, May i, I927, and Decem- ber 3I, I927 the distribution of gold coin, bullion and certificates between the United States Treasury, the federal reserve banks and general circulation was as follows:

(Million dollars) Jan. i, May i, Dec.31,i I927* I927* I927t

Held by United States Treasury: Gold Reserves against U. S.

Notes, etc. . . . . . . I54 I55 I55 Gold held as assets . . I94 I58 I74

Held by or for Federal Reserve Banks:

Bullion, coin and certificates in Federal Reserve Banks . I,0 II I,I2I I,0I7

Bullion, coin and certificates in U. S. Treasury . . 1........ I629 I,766 I,557

Held in general circulation: Gold Coin . ............ 423 389 399 Gold Certificates. . I,092 I,OI9 I,074

4,502 4,609 4,376

*Report does not include gold bullion or foreign coin outside of vaults of the Treasury, Federal Reserve Banks and Federal Reserve agents.

tReport does not include gold bullion or foreign coin other than that held by the Treasury, Federal Reserve Banks and Federal Reserve agents. Gold held by Federal Reserve Banks under earmark for foreign account is excluded, and gold held abroad for Federal Reserve Banks is included. Previously, gold earmarked for foreign account was included in reports. This difference does not seriously vitiate comparisons for the dates given above, since earmarkings, though contributing to the changes in gold stock, did not become of great importance until after May i.

From January through April, when our total monetary stock increased by I07 millions of dollars, the gold reserves of the federal reserve

1 See this issue of the REVIEW, P. I9, for a chart showing monthly changes in the stock of gold.

2 The monetary stock of gold is also affected somewhat by domestic production of gold and the movement of gold into and out of use in industry and the arts. But the net influence each month is comparatively small as is indicated by the fact that in I923 the annual excess of domestic production of gold over the annual consumption of new gold, according to the reports of the Director of the Mint, amounted to I2 million dollars; in I924, to I4 million dollars; in I925, to I4 million dollars; and in I926, to 5 million dollars.



I2 THE REVIEW OF ECONOMIC STATISTICS

banks increased by 247 millions of dollars while holdings of the United States Treasury declined 35 millions and gold and gold certificates in general circulation declined I07 millions. In other words, during the first four months of the year the federal reserve banks gained gold partly through imports, withdrawal from earmark and domestic production, partly from general circulation, and partly from the United States Treas- ury. Between May I and December 31, when our total monetary stock decreased by 233 millions of dollars, the gold reserves of the federal reserve bank decreased by 3I3 millions of dollars, while holdings of the United States Treasury and gold and gold certificates in circulation increased i6 and 65 millions of dollars, respectively. Thus between May i and December 3I the federal reserve banks lost gold through earmarkings for export, actual net exports, and withdrawals for aotual circulation and Treasury holdings.

During the year as a whole, the gold holdings of the Treasury decreased I9 million dollars, the holdings of the federal reserve banks, 66 millions, and circulation, 42 millions. In short, about one- half of the loss of monetary gold (for the year as a whole) was sustained by the federal reserve banks, one-third by general circulation and one- sixth by the Treasury.

Federal reserve banks. The volume of reserve bank credit outstanding, as indicated by total earning assets, after a seasonal decline at the beginning of the year, moved sidewise until July at a level lower than that for any other year since I924 (Chart io). An exceptional expansion in federal reserve bank credit followed in the second half-year primarily as a result of pur-

chases of acceptances and United States securities. On July 6 total earning assets amounted to I082 millions of dollars, on October 5 to 1,230 millions, and on December 28 to I,599 millions, the largest volume on record since October I92I. Up to mid-November the increase in earning assets was caused by an expansion of 464 millions of dollars in open-market holdings, that is, in acceptances bought in the open market and purchases of United States securities. About 30 per cent of the increase was in acceptances and 70 per cent in United States securities. These purchases were designed to offset the effects of the outward movement of gold by releasing funds to the market. During the same interval the other constituent of total earning assets, discounts and rediscounts, moved sidewise. After mid-November, the expansion of open market holdings came to an end, but total earning assets continued to rise as a result of increased discounts and rediscounts by member banks. Such discounts and rediscounts increased from 367 millions on November i6 to 609 millions on December 28. Thus, as gold moved out after the reduction of the New York discount rate to 3Y2 per cent, federal reserve bank credit expanded up to mid-November, through the purchase of acceptances and United States securities, and thereafter the expansion continued by an inclease of discounts and rediscounts by member banks.

Federal reserve notes in circulation were substantially larger during the greater part of the first six months of I927 than in the corresponding period a year ago; but in almost every week in the second half year the volume of notes was smaller than in the year preceding. On Decem- ber 2I, I927, notes in circulation reached I82I million dollars, the peak of the year, compared with I9I4 million dollars on December 22, I926.

Total gold reserves of the federal reserve banks on January 5, I927, were 2,855 millions of dollars; by May I I, after the large imports in the opening months of the year, they had increased to 3,070 millions, the largest amount since I924; and on December 28 they had fallen to 2,739 millions, 76 millions under the figure of December 29, 1926, and the smallest volume since December 30, 1925.

The reserve ratio of the combined banks on January 5, I927, stood at 7I.0 per cent. On

CHART IO.- SELECTED ITEMS FROM THE STATEMENTS OF THE COMBINED FEDERAL RESERVE BANKS: WEEKLY

I923-27

(Unit: $I,ooo,ooo)

100 - -__ _ _

5fJ3- ? ? -' --~ --4t1<i

tOSO _ t i . koal ear6m gai, _ I. | f

> t j i > t df

~Auccepstauce5} ,n)d

DfsconD h and rediscounts

0 - I I L II - J I

193 )ge4 I9Z5 - a -



REVIEW OF THE YEAR I927 I3

May i i the ratio had increased to 8o.o per cent, the largest figure, except in February I927 (8o.i), since September 1924. On December 28, I927, following the gold exports and earmarking operations of the second half year, the ratio had fallen to 66.8 per cent, the smallest figure in two years.

Reporting mtember banks. The year marked a continuation of the steady expansion in member bank earning assets which has been in progress since I922. Total loans and investments of reporting member banks, averaged 2I,724 million dollars in December, an increase of over I770 million dollars, or 9 per cent during the year (see the accompanying table). This large increase in 1927 resulted entirely from an expansion in investments and loans on collateral. Invest- ments increased about 850 million dollars (United States securities, 454 million dollars and

other investments, 397 million dollars) and collateral loans, about 936 million dollars. Of the increase in collateral loans New York City banks contributed 588 million dollars and outside banks 350 million dollars.

On the other hand, "all other loans and discounts," chiefly commercial, reflecting the diminished level of business activity, failed to expand as in the past few years, and at the end of I927 were slightly below the level of Decem- ber I926 (Chart II). Thus in I927 credit to provide for current requirements of trade and industry did not expand, while credit for carry- ing stocks and bonds increased about 936 million dollars and additional funds of the reporting member banks to the amount of 850 million dollars were used to purchase securities. Total

loans to brokers and dealers in New York City by banks and other lenders increased 923 millions of dollars. EARNING ASSETS OF ALL REPORTING MEMBER BANKS

(Million dollars)

Dec. Dec. Dec. Dec. 1924 I925 I926 1927

Investments. . 5,584 5,45I 5,532 6,383 Collateral loans ..... 4,800 5,7I7 5,658 6,594 All other loans 8,I93 8,379 8,763 8,747

Total. . I8,577 1I9,547 I9,953 2I,724

Accompanying the expansion in earning assets in I927 there was an increase in demand and time deposits. Net demand deposits advanced 862 million dollars, or 7 per cent, between December I926 and December I927. The increase in net demand deposits of banks in New York City amounted to 476 million, or 9 per cent, and that for outside banks, to 386 million dollars, or 5 per cent. Time deposits, continuing the steady growth which had been in progress for several years, advanced 708 million dollars, or I2 per cent between December I926 and Decem- ber 1927. To this advance banks in New York City contributed about 30 per cent and outside banks about 70 per cent.

In the past eight years the growth of time deposits has been much more rapid than that of net demand deposits. In the interval between December 26, I9I9 and December 28, I927,

time deposits increased from 2,302 million dollars to 6,5I6 million dollars, or I83 per cent. During the same interval net demand deposits increased from II,I74 million dollars to 13,786 million dollars, or 23 per cent. The more rapid growth of time deposits (requiring a reserve of only 3 per cent) than of net demand deposits (requiring a reserve varying from 7 to I3 per cent) means of course that reserve requirements have increased less rapidly than would be the case if both time and net demand deposits had been increasing at the same rate. It is undoubt- edly true, however, that part of the increase of time deposits represents a diversion of demand deposits and that this is recognized both by bankers and depositors.

Money rates and security issues. Money was unusually easy throughout I927. Actual rates

CHART II. -SELECTED ITEMS FROM THE STATEMENTS OF REPORTING MEMBER BANKS: WEEKLY 1923-27

(Unit: $I,0oo,ooo,ooo)

Commercia loans -l--N _ ,A

aNe denoaOd Ceposit1 -A ~w Iw -o tside NYC ty ._ _ _ _ .

7 of4oei

-

W , tr)ve tnze g etderoand deposils

N4Y _ 15 _007

197-3 192 4 19 -1 26 19 27



I4 THE REVIEW OF ECONOMIC STATISTICS

declined more than the usual seasonal amount between January and March, but moved upward slightly during the second quarter of the year, when, according to pre-war experience, a decline usually takes place. The failure of money rates to show the seasonal decline in the second quarter was due to the increased demand for collateral loans, resulting in part from stock market specu- lation, but to a great extent from a very large volume of security flotations. As a result of federal reserve policy, evidenced by the reduction of rediscount rates and open-market purchases, money rates declined in the third quarter, whereas they usually advance substantially during the interval. In the fourth quarter continued purchase of securities contributed to money ease in the face of an outward movement of gold and a large volume of security issues.

At the end of December, money rates were the lowest for any year-end since I924. The rates on leading classes of short-time paper at the end of the past three years are as follows:

A comparison of the course of our short-time money index (average of the rates on mixed collateral loans and choice commercial paper) with call loan renewal rates is given in Chart I2, and of the short-time money index with the yield on ten railroad bonds in Chart I3.

In I927, security issues reached the unpre- cedented volume of 9,834 million dollars. This figure was 33 per cent greater than that for I926, the previous high record; and in each quarter of I927 the volume was substantially larger than in the corresponding quarter of the preceding year. Almost all the major classes of issues shared in establishing a new high record for the year. In Chart I4, we present the average amount of security issues by months from I923 to I926, and also the actual monthly totals of such issues in I926 and I927. The curves indi-

cate the large volume of credit issues in the first six months of the year, the drop in the third quarter resulting from congestion in the market, and, in the last quarter the advance, supported by easy money, to new high levels.

The year was one of advancing stock and bond prices. In January, industrial stock prices, as shown by the Dow-Jones average, stood at $T55, and at the close of the year had advanced 28-per cent to the record figure of $I98.50. The

Dec. 3I, Dec. 3I, Dec. 30, 1925 I926 1927

Choice commercial paper, 6 months and shorter.. ... 4X4-432 44-42 3Y-4

Mixed collateral loans, 3-4 months .................. 5 4?8-4Y44 -4 /

Bankers' acceptances, go days, prime eligible, bid and asked 3X2-3% 334-33Y 3 4-3

Mixed collateral call loans, average renewal rate ....... 6 512 5 Y

Bankers' acceptances call loans 4'2 412 314

CHART I2. - SHORT-TimE MONEY INDEX AND AVERAGE RATE ON CALL-LOAN RENEWALS: WEEKLY, I923-27

(Unit: per cent)

~oneg 1 ndx- -

3 Cal-loan renewals

2- - L 124 192 1 9 _ 927 19Z3 1924 1925 1926 1927

CHART I3. - WEEKLY SHORT-TIME MoNEY INDEX AND MONTHLY YIELDS ON IO RAILROAD BONDS: I923-27

(Unit: per cent)

C

5M Bone d inex -

1923 1924 1925 1926 1927

CHART I4. -MONTHLY SECURITY FLOTATIONS

(Unit: $I,OOO,OOO) 1100 - __-

1000- - J - - - - -

900 -

700 - 19a-6,o A-

400

400 -. - - _ _ I-A- - __ -

J F M A M J J A S ON D




only month to show a decline in price compared with the month preceding was October. Monthly railroad stock prices were strong at the opening of the year; and by September had advanced to the highest figure on record. Following the October reaction, railroad stock prices finished the year slightly below the September level. Bond prices advanced during the year and in December stood at the highest levels in I3 years; at the same time bond yields declined to a new post-war level.

FOREIGN TRADE Despite a substantial decline in the level of

world prices in I927, compared with the preceding year, our foreign trade exhibited a slight gain of 56 million dollars in exports of merchandise; at the same time, imports fell off 246 million dollars. These changes resulted in a favorable trade balance of 68o million dollars compared with 378 million dollars for 1926. Total exports in I927 were valued at 4,865 million dollars, the second largest figure since the boom year 1920, and i per cent greater than that for 1926. Im- ports amounted to 4,185 million dollars, the smallest figure since 1924 and 6 per cent less than that of 1926.

The increase of 56 million dollars in the value of total exports was the final result of various substantial gains and losses which occurred among the commodity groups. Declines of 68 and 40 million dollars in crude materials and manufactured foodstuffs, respectively, were more than offset by gains of 86, 44, and 24 million dollars in crude foodstuffs, semi-manufactures, and finished manufactures, respectively. The most important changes, increases or decreases, among the individual commodities were in grains, automobiles, cotton, meats and animal oils and fats, coal (including coke), and petroleum. Foreign takings of grains were 88 million dollars more than in 1926, the value of automobiles exported gained 20 per cent over 1926, reaching a total of 388 million dollars, and exports of cotton advanced 12 million dollars. Exports of meats and animal oils and fats, on the other hand, declined 55 million dollars. Owing chiefly to lessened British demand, con- sequent upon the termination of the coal strike in England in 1926, our coal and coke exports this year fell off 94 million dollars. The value of

petroleum exports was also less, by about 70 million dollars, chiefly the result of a decline in price.

As to imports, the greater part of the decline of 246 million dollars was contributed by the decline of I9I million dollars in crude materials, mainly rubber. Crude foodstuffs and semi- manufactures also fell off 35 and 55 million dollars, respectively, while manufactured foodstuffs advanced 33 million dollars, and finished manufactures were just above last year's levels. Rubber accounts for the greater part of the decline in the value of imports, and this decrease reflects entirely a lower price this year, as the actual volume taken was greater. Coffee imports declined substantially also, while sugar imports advanced. The value of raw silk purchases was just about the same as last year, though actual volumes were the largest on record.

Figures for the countries of destination for our exports indicate that European takings this year were about the same as a year ago, but with a change in the countries. The most significant changes were a large increase in exports to Ger- many and a large decline to the United Kingdom. Exports to North America increased 76 million dollars, resulting chiefly from much larger takings of Canada partially offset by a decline for Mexico. Exports to South America, Asia and Africa wete not far from last year's levels while exports to Oceania fell off somewhat.

BRITISH AND FRENCH CONDITIONS British conditions. The volume of production

in Great Britain in I927, as indicated by the London and Cambridge index of production, was larger than in any preceding year since I920. The average for I927 stood at 96.2 (percentage of I913), compared with 67.0 for I926

a year of drastic curtailment accompanying the coal and general strikes, - with 87.2 for I925, 90.9 for I924, and I00.2 for I920. The average level for the first quarter (index, 99.7) was the highest for the year; but variations during the remaining quarters were narrow (indexes, 95.7 to 94.5). Unemployment, as indicated by the numbers of insured workmen unemployed (excluding strikers), declined sharply in the first five or six months of the year and advanced moderately in the second half of the year.

The average amount of unemployment in I927 was much less than in I926, but unemploy-



i6 THE REVIEW OF ECONOMIC STATISTICS

ment in 1926 was very high because of the coal and general strikes. Comparison of I927 with I925 is more significant, as the two years were free from major labor disturbances. Average figures for the two years indicate that general unemployment was about 8 per cent less in I927 than in I925. Unemployment in the iron and steel, engineering, and shipbuilding trades was from 20 to 35 per cent less. On the other hand, idleness among coal miners (other than strikers) increased I2 per cent and was larger than in any recent year; while unemployment in the building and construction trades increased 20 per cent.

Statistics for the main branches of foreign trade indicate in most cases larger values compared with I926 but smaller values compared with other recent years. But when allowance for declining commodity prices is made, the figures for foreign trade in I927 indicate volumes not far from the levels of I924. Exports of manufactures show a decrease of 9 per cent in value in I927 compared with I924, but an increase of 2 per cent in quantity. The value of net imports of raw materials excluding cotton was 3 per cent less in I927 than in I924, but quantities were considerably greater. In I927 the value of imports of cotton were ?6iMn., compared with ?i ioMn. in I924, but the quantity in I927 was only 2 per cent less than in I924.

Wholesale commodity prices in I927, although at the lowest levels in the post-war period, ended the moderate decline which has been in progress since the beginning of I925. Further, prices have been singularly stable throughout the year. The Board of Trade index for the wholesale price of raw materials (excluding food) has not risen above I38 or fallen below I34. Crump's index, based on 77 commodities, has also moved within narrow limits.

The financial situation has shown improve- ment in many respects in I927. The price index of industrial securities rose io per cent during the year and capital issues increased substantially. The advances of the principal banks were much larger than in recent years and bank clear- ings were also gleater. The average price of short money was lower than in I926 but higher than in recent years other than I926. A large net outward movement of gold followed the lowering of the British bank rate on April 2I from 5 to 4Y2 per cent and disturbed British

financial opinion. In the summer and autumn, however, opinion became more optimistic after the reduction of the rediscount rate of the New York Federal Reserve Bank, the rise of sterling exchange in New York above the gold export point, and the movement of gold to London.

French conditions. French business in I927

moved at a slower pace than in I926, the lower level of commodity prices contributing largely to the slackening. After March, the wholesale price index of the Statistique Generale fell almost continuously, chiefly because of considerable reductions in agricultural prices, while throughout the year the prices of raw materials were substantially under the inflated level of I926. So it is not surprising that the number of cars loaded were less than those of the year previous, that the production of pig iron and steel was smaller, the output of coal only slightly larger, and the textile industries duller. Yet employment was good, though with increased short-time work.

The condition of foreign trade improved in 1927. Owing to inflation in I926, the actual values of both imports and exports in the first eleven months of this year were substantially less than those for the corresponding period a year ago, but the net result was an export balance of over 2,500 million francs this year, compared with a slight import balance in I926.

Measured by weight both imports and exports in the period were substantially greater, as was tonnage entered and cleared.

The healthy condition of public finance in I927 reflects the great success of the financial rehabilitation of the past year and a half. Dur- ing the year an abundance of short-term money became available at extraordinarily low rates. The Paris open-market rate opened the year at 5%/ per cent, declined gradually to IS8 per cent on September 3o, and at the close of the year advanced moderately to 3 per cent. Recognition of the easy money situation is shown by the reduction of the discount rate of the Bank of France from 6.5 per cent to 5.5 per cent in February, to 5.0 in April and to 4 per cent at the end of December. In I926 the bank rate stood at 6 per cent in the first seven months, at 7.5 per cent from August to November and at 6.5 in December. For the first eleven months of I927, total tax receipts greatly exceeded those




for the corresponding period in I926, and the budget probably balanced. New capital issues greatly exceeded those of I926. Other indica- tions of the improved financial situation are the substantial reductions in the advances of the Banlk of France to the state, the stoppage of the

steady expansion of bank note circulation, and a great increase in the holding of foreign bills. Exchange was extraordinarily stable compared with that of I926, the number of francs to the dollar ranging from 25.3 to 25.6 compared with a fluctuation between 25.3 and 4I.O a year ag,o.



review of the year 1927

Documents