The Railroads and the Depression

Report Outline
Position of American Railroads in 1932
Effect of Depression on Rail Rates and Employment
Emergency Fiscal Measures to Aid Railroads
Proposed Long-Range Measures to Aid Railroads
Special Focus

Railroad stocks and bonds were frequent leaders in the rapid market advances which occurred during August, 1932. Both railroad and industrial stocks touched their low point for the year to date on July 8. The New York Times average of 25 representative railroad stocks stood at $10.34 on that day, and the average price of 25 representative industrial stocks at $57.62. By August 25, the railroad average had risen to $29.59, a gain of 186.17 per cent from the low point. On the same day the industrial average was $102.61, representing a gain of 78.08 per cent from the year's low. Increases in domestic railroad bond averages were similarly greater than increases in industrial and utility bond averages. The rail bond average, which touched the year's low on May 31, had risen 47.9 per cent by August 25. The average for industrial and utility bonds, whose lows were recorded on June 1 and May 31, had increased 32.24 and 23.45 per cent, respectively.

While statistics on railway operations are not yet available for this entire period, there has been little to indicate that the market advances in railroad stocks and bonds were based on any substantial increases in the amount of business actually done by the carriers. The decline in prices of railroad stocks from the high attained early in the year to the low touched on July 8 was considerably greater than the decline in prices of industrial stocks. This factor may have contributed to their more rapid rise in the general upward movement of stock prices. Various measures for improvement of the fiscal position of the carriers which railway executives made known in July and August may also have influenced the upturn in prices of railroad securities.

Unsatisfactory Financial Condition of the Railroads

Railroad operations during 1932 have been far below normal, with even greater relative reductions in earnings. Only six roads whose common stocks were traded in on the New York Stock Exchange August 25, 1932, were paying dividends on those stocks. The railroad situation as a whole has become so critical as the depression has continued that numerous carriers have been close to receivership. With their credit at low ebb, assistance has been given by the Reconstruction Finance Corporation to the extent of over $200,000,000. The future of the carriers is nevertheless still uncertain. Failing an early revival of business, it is doubtful whether some of them can remain solvent.