1 ilf ;h'i:i;. ii ■ i ^l 'l 1' ■ r If J jj II ;;BH li ||||||!||!|| i iililL |iil|iiipi| iiiii 'iim lilKli: lIlL Ilii^lJi^fiMMllii^ mm fork i'tate (Edllegc of AgrtcuUutc 3^t (flnrnEll MniucrsttH Jltljata. N. ^. ffitbtacy Hc loe.jer"'""'""'"'"""'"'^ Business forecasting 3 1924 013 881 424 ilB^ I Cornell University § Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013881424 BUSINESS FORECASTING BY DAVID F. JORDAN, B.C.S. ASSISTANT PROFESSOR OF FINANCE NEW YORK UNIVERSITY Author of "Jordan on Investments" New York PRENTICE-HALL, Inc. 1921 Copyright, 1921, by Prentice-Hall, Inc. TO THE MEMORY OF LIEUTENANT ORLANDO BURNUM COLLINS, JR. COMPANY L, 3O9TH INFANTRY, U. S. A. KILLED IN ACTION ST. JUVIN, ARGONNE FOREST OCTOBER 16, 191 8 INTRODUCTION "The end' and aim of all science," stated Professor Jacques Loeb, "is the prediction and control of phenomena." The un- certainty which attends the outcome of business transactions offers a wide field for scientific research. It is indeed surprising to note how little science has done toward reducing the element lof risk in commerce in comparison with achievements in the search for the unknown in geography, astronomy, medicine, and other fields. The age-old belief that business affairs were unworthy of study has too long blocked commercial progress. The future will always contain a large degree of uncertainty but the major changes in business conditions can be foreseen if basic economic laws are known. The most harmful effects of changing conditions are due to ignorance of these laws. "The forces that primarily cause the alternation of boom and depres- sion," stated Professor M. T. Copeland recently, "can be regu- lated once they are understood. The severity of these ups and downs is due in large measure to the lack of adequate foresight, lack of general appreciation of the factors that influence the course of business prosperity, and failure to adopt corrective policies in season." Scientific research into the underlying causes of changes in business conditions has only just begun. "Stabilization of business and the avoidance of recurring depressions and crises," declared the Economic Advisory Com- mittee of the National Conference on Unemployment held recently at Washington, "are in no small measure dependent upon a more complete knowledge of the factors affecting the business situation." To the business man, the importance of being at all times acquainted with current conditions, outside as well as within his particular field, can scarcely be overestimated. Future poli- cies cannot be wisely decided unless future economic probabili- ties are carefully analyzed, and such analysis is impossible without adequate statistics of existing conditions. To the theoretical economist, the importance of knowing beforehand the relative strength of demand and supply has long been recognized. Indeed the economists have pointed out that the maladjustment between demand and supply has been VI INTRODUCTION one of the chief sources of business profits. And since profits flowing from this source have usually been accidental they have been given the name of "conjunctural profits" to dis- tinguish them from the so-called "pure profits," which arise from differences in efficiency among competitors. Recent commercial history has served to emphasize the in- fluence of conjunctural profits. From statistics of American industrial earnings during the years 1916 to 1919 compiled by Professor David Friday, the following table has been obtained. '9'9 1918 1917 I9I6 Type 1 S 12 \ 1 I 1 I >5 1 1 3. ^ Textiles $45 265 $32 188 $25 147 $17 100 Rubber 9 79 203 66 169 55 141 39 100 Iron and steel 18 197 45 553 125 711 161 442 100 Copper 26 42 15 130 45 210 73 286 100 All Indus- trials 259 $1,371 83 $1,819 110 $2,052 124 $1,652 100 The surprising lack of uniformity in the trend of industrial earnings during the specified years emphasizes the fact that under our present organization external conditions exert a more potent influence over company profits than do internal condi- tions. For 259 companies, net earnings in 1919 were 83 per cent of net earnings in 1916. But profits of textile and rubber companies were respectively 165 and 103 per cent greater in 1919 than in 1916, whereas earnings of iron and copper com- panies were respectively 55 and 85 per cent less. The wide variance is due not to differences in technical or managerial skill In the several Industries, but to changes in the relative demand and supply of the products manufactured. If the man in business is to realize the larger rewards which commerce offers. It is imperative that he have a broad knowl- edge of current economic developments. The gains which come from ability to foresee the trend of general conditions — conjunctural profits — far exceed the margin of pure profits which competition holds within narrow limits. To enable the business man, as well as the student of commercial affairs, to secure a working knowledge of the fundamental factors which influence changing business conditions, and to utilize this knowledge to foresee future developments — to the end that INTRODUCTION vli profits may be enhanced and losses avoided — Is the purpose of this book. 'P ^ *!* T* T* T* In the compilation of the present volume, many sources of information were utilized, and in each instance an endeavor has been made to show proper credit. The author acknowledges his indebtedness for this assistance without which the work would be indeed incomplete. Special acknowledgment is due Mr. Arthur Hunter, F.F.A., F.A.S., Ex-President of the Actuarial Society of America, for life insurance statistics; Mr. James H. Scarr, meteorologist in charge of the United States Weather Bureau office in New York City, for weather reporting sta- tistics; Mr. Nat C. Murray, Chief of the Bureau of Crop Estimates, for crop reporting statistics; the Committee on Economic Research of Harvard University for the use of the charts which show the trend of pig iron production corrected for secular trend and seasonal variation; Mr. Raymond E. Bagley and Mr. Arthur M. Shackleton for the preparation of the charts in the present volume ; and Miss Lillian Doris for assistance in indexing and proofreading. To Professor Charles W. Gerstenberg of New York University, at whose sugges- tion the present volume was written and who has rendered immeasurable assistance in its preparation, is especially due the sincere appreciation of the author. David F. Jordan. New York University October, 1921 CONTENTS PART I THE RELATION OF FORECASTING TO BUSINESS CHAPTER I Practical Forecasting PAGE Foresight in business. — Possibility of accurate forecasting. — Mathematics of probabilities. — Life insurance forecasting. — Weather forecasts. — Census forecasting. — National budget estimates. — Crop forecasting. — Summary 3 CHAPTER II The Business Cycle The integral aspect of business. — The stages of business. — Characteristics of a period of depression. — Production during a period of depression. — Marketing during a period of depression. — Conditions of corporate pros- perity during a period of depression. — Labor conditions during a period of depression. — Conditions of finance during a period of depression. — The recovery of business activity. — Production during a period of recov- ery. — Marketing during a period of recovery. — Labor conditions during a period of recovery. — Conditions of corporate prosperity during a period of recovery. — Conditions of finance during a period of recovery - 20 CHAPTER III The Business Cycle {Continued) The development of the period of prosperity. — Production during a period of prosperity. — Marketing during a period of prosperity. — Labor condi- tions during a period of prosperity. — Conditions of corporate prosperity during a period of prosperity. — Conditions of finance during a period of prosperity. — The beginning of retrogression. — Panics and crises. — Production during a period of retrogression. — Marketing during a period of retrogression. — Labor conditions during a period of retrogression. — Conditions of corporate prosperity during a period of retrogression. — Conditions of finance during a period of retrogression. — The complete cycle 33 CHAPTER IV The Influence of a Money Economy The effect of a money economy. — Subordination of production. — An an- alysis of price. — Effect of cost of production. — Factors in price deter- mination. — Estimating the demand. — Effect of purchasing position. — Regulating the supply. — ^Limitations upon supply. — Prospective cost of production. — Effect upon price. — Why prices rise. — Relationship of credit. — Effect of changes in demand. — Why depression ensues. — Sum- mary • ^^ CONTENTS PART II THE BAROMETERS OF BUSINESS CHAPTER V Barometers of Agriculture PAGE The barometers of production. — Agricultural production. — Government crop reports. — Dates of issuance. — Agricultural production : Corn. — Acreage, condition, yield. — Wheat. — Acreage, condition, yield. — Cot- ton. — Acreage, condition, yield. — Relation of acreage to production. — Analysis of Federal estimates. — Agricultural production as a business barometer .... . 59 CHAPTER VI. Barometers of Industrial Production Industrial production. — Iron and steel. — Coal. — Raw material imports. — Sources of information. — Secular trend and seasonal variation. — Indus- trial production as a business barometer. — Structural production. — A general index of industrial production 83 CHAPTER VII Barometers of Marketing The second major function of business. — Commodity prices. — American index numbers. — Bradstreet's index. — Department of Labor index. — Price fluctuations. — The price decline in 1920-1921. — Relationship of farm product prices to general prices. — Commodity prices as a business ba- rometer. — Commodity shipments. — Transportation of merchandise. — Car loadings. — Idle cars. — Commodity shipments as a business barometer. — Foreign trade. — Nevr conditions in foreign trade. — Foreign trade of the United States. — Merchandise exports. — Effect upon domestic industry. — Merchandise imports. — Balance of trade. — Foreign trade a business ba- rometer. — ^Retail sales. — Index of current purchasing power. — Volume of sales. — The Federal Reserve statement of retail sales. — ^Retail sales as a business barometer 99 CHAPTER VIII Barometers of Labor Conditions Employment. — The problem of employment. — Effect of changing business conditions. — Employment conditions as a business barometer. — Wages. — The trend of wages. — Peculiarities of the trend in wages. — The trend of wages and prices. — Wages as a barometer of business. — Industrial con- troversies. — Periodicity of controversies. — Strike compilations. — Indus- trial controversies as a business barometer. — Migration. — Immigration and emigration. — Effect upon industrial conditions. — Immigration as a business barometer. — Restrictive Act of 1921 . . . 137 CHAPTER IX Barometers of Business Profits Barometers of prosperity. — Corporate earnings. — Information available. — Railroad earnings. — Public utility earnings. — Industrial earnings. — Divi- CONTENTS xi dend payments. — Corporate earnings as a business barometer. — Business failures. — Causes of business failures. — The trend of commercial fail- ures. — ^Relationship between the number of failures and the amount of liabilities. — Relationship between the number of failures and the number of firms in business. — Commercial failures as a business barometer. — New security issues. — Financial policy of corporations. — Nature of is- sues. — Reflection of general prosperity. — New security issues as a busi- ness barometer 151 CHAPTER X Barometers of the Exchanges Function of the exchanges. — Relation of the individual opinion to the majority opinion. — The stock exchanges. — Volume of transactions. — Stock exchange prices. — Industrial stock prices are most significant. — ^The stock exchange as a business barometer. — The commodity exchanges. — Nature of transactions. — Commodity exchanges as business barometers. — Foreign exchanges. — Function of foreign exchange. — Effect upon domes- tic conditions. — Causes of fluctuations in foreign exchanges. — Foreign exchange as a business barometer . . . 164 CHAPTER XI Barometers of Finance Bank clearings. — Meaning of the term. — Significance of New York City clearings. — ^Barometric limitations. — The Federal Reserve clearing sys- tem. — Bank clearings as a business barometer. — Bank statements. — Classification. — Relative importance. — The weekly Federal Reserve statement. — Cash reserves. — ^Bills discounted. — Member bank's reserve account. — Federal Reserve notes in circulation. — ^Reserve ratio. — Sig- nificance of changes in reserve ratio. — District reserve ratios. — Panics and the Federal Reserve system. — ^Reporting member bank statements. — National bank statements. — Bank statements as a business barometer. — Interest rates. — The difference in rates. — The Federal Reserve discount rate. — The market rate. — Call money rates. — Interest rates as a business barometer. — Gold movements. — The normal flow of gold. — Gold movements since 1914. — New gold production. — Gold movements as a business barometer. — Federal fiscal operations. — The relation of Gov- ernment to business. — The possibility of tax reduction. — Federal maturi- ties. — Fiscal operations as a business barometer 188 CHAPTER XII Barometric Summary Business barometers in general. — Interrelationship of business forces. — The fallibility of commercial barometers. — Business barometers as causes and effects. — Summary of the barometers of production. — Sum- mary of the barometers of marketing. — Summary of the barometers of labor conditions. — Summary of the barometers of business profits. — Summary of the barometers of the exchanges. — Summary of the ba- rometers of finance. — Barometric ranking. — Composite barometers. — The Harvard index of general business conditions. — The "Annalist" ba- rometer and business index line. — New barometers, actual and prospec- tive. — Future barometric progress ... 225 xii CONTENTS PART III BUSINESS CRISES IN THE UNITED STATES CHAPTER XIII The Principal American Crises PAGE Frequency of American business crises. — Changes in the nature of crises. — The earlier crises. — The crisis of 1837. — The crisis of 1857. — The crisis of 1873.— The crisis of 1884.— The crisis of 1893.— The crisis of 1907.— The crisis of 1920 ... 245 APPENDIX Sources of barometric information ... 258 CONTENTS xlii TABLES NO. PAGE 1. American Experience Table of Mortality 8 2. Verification of American Experience Table of Mortality, 1900-1916 . 9 3. Verification of A.M. 36-liour Weather and Temperature Forecasts, 1915-1919 11 4. Rate of Growth of Population of the United States, 1800-1920 ... 13 5. Population of the United States, Actual and Prospective, 1790-2080 . 14 6. Verification of Budget Estimates of the United Kingdom, 1911-1921 . 15 7. Verification of the Preliminary Estimates of the Secretary of the Trea- sury of the United States, 1917-1920 16 8. Verification of the Winter Wheat Forecasts of the Department of Agri- culture, 1910-1920 .... 18 9. Condition of U. S. Corn Crop by Months, 1900-1920 64 10. Extent and Causes of Yearly Corn Crop Loss in U. S. . ... 66 11. Percentage of Corn Crop Harvested Monthly in U. S 66 12. Acreage, Production, and Value of U. S. Corn Crop, 1900-1920 . 67 13. Production and Exportation of Wheat, 1909-1913 69 14. Condition of U. S. Winter and Spring Wheat Crop, 1900-1920 . 70 15. Extent and Causes of Yearly Wheat Crop Loss in U. S. . . . 71 16. Percentage of Wheat Crop Harvested Monthly in U. S. . ... 71 17. Relative Production of Spring and Winter Wheat in U. S., 1910-1920 71 18. Acreage, Production, and Value of U. S. Wheat Crop, 1900-1920 72 19. Production and Exportation of Cotton, 1909-1913 ... . 73 20. Condition of U. S. Cotton Crop by Months, 1899-1920 ... 75 21. Extent and Causes of Yearly Cotton Crop Loss in U. S 75 22. Percentage of Cotton Crop Harvested Monthly in U. S. . . . 76 23. Acreage, Production, and Value of U. S. Cotton Crop, 1899-1920 . 78 24. Value of U. S. Farm Crops According to States, 1920 . . .79 25. Pig Iron Production in U. S., 1901-1920 84 26. Monthly Pig Iron Production in U. S., 1911-1920 85 27. Unfilled Orders of U. S. Steel Corporation, 1911-1920 . . . 86 28. Bituminous Coal Production in U. S., 1913-1920 88 29. Imports of Principal Raw Materials Used in Manufacture in U. S., 1901-1920 89 30. New Building Permits, 1911-1920 95 31. Indices of Current Production and Trade, 1919-1920 98 32. Wholesale Prices in the U. S., 1890-1920 102 33. Bradstreet's Wholesale Price Index Monthly, 1911-1920 103 34. U. S. Department of Labor Wholesale Price Index by Commodity Groups, 1890-1920 104 35. The Decline in Wholesale Prices, 1920-1921 114 36. Relative Changes in Prices of Farm Products and Other Commod- ities, 1890-1920 . . 116 37. Idle Car Figures Monthly, 1913-1920 117 38. Weekly Car Loadings of U. S. Railroads, 1919-1920 120 39. Foreign Trade of the U. S., 1867-1920 123 40. Monthly Merchandise Exports of the U. S., 1911-1920 125 41. Foreign Trade of the U. S. by Grand Divisions, 1913 and 1920 ... 126 42. Leading Exports of the U. S., Values and Ranking, 1918-1920 ... 127 43. Exports of Manufactured Products of the U. S., 1910-1920 ... 128 44. Monthly Merchandise Imports of the U. S., 1911-1920 129 45. Leading Imports of the U. S., Values and Ranking, 1918-1920 ... 130 46. Monthly Balance of Trade of the U. S., 1911-1920 ..... 132 47. Condition of Retail Trade in the U. S., 1920-1921 136 xiv CONTENTS NO. PAGE 48. Comparison of Employment Conditions in February 1921, January 1921, and February 1920 139 49. Index Number of Wages Per Hour in U. S., 1840-1920 . . . . 141 50. Comparison of Wholesale Prices and Wages, 1890-1920 . . 143 51. Immigration into the U. S., 1851-1920 149 52. Net Earnings of Principal U. S. Railroads, 1910-1920 . . ... 153 53. Net Earnings of U. S. Steel Corp. Quarterly, 1906-1920 154 54. Dividend Record of Pennsylvania R. R. Co., 1856-1921 ... 155 55. Dividend Record of U. S. Steel Corp., 1902-1920 156 56. Commercial Failures in the U. S., 1891-1920 . . . .159 57. Nevf Security Issues in the U. S., 1907-1920 162 58. Transactions on New York Stock Exchange Monthly, 1911-1920 . . 166 59. Number and Average Price of Shares Sold, New York Stock Exchange, 1897-1920 167 60. Average Price of 25 Industrial Stocks, New York Stock Exchange, 1911-1920 170 61. Spot and Future Cotton Quotations, June 10, 1921 . . . . 172 62. Wholesale Price of Wheat Monthly, 1911-1920 176 63. Wholesale Price of Corn Monthly, 1911-1920 177 64. Wholesale Price of Cotton Monthly, 1911-1920 178 65. Wholesale Price of Wool Monthly, 1911-1920 180 66. Wholesale Price of Coffee Monthly, 1911-1920 181 67. Wholesale Price of Sugar Monthly, 1911-1920 182 68. Wholesale Price of Rubber Monthly, 1911-1920 184 69. Wholesale Price of Pig Iron Monthly, 1911-1920 . . . . 185 70. Wholesale Price of Copper Monthly, 1911-1920 ... ... 186 71. Bank Clearings Outside New York City, 1911-1920 . 192 72. Operations of the Federal Reserve Clearing System, 1919-1921 . 193 73. Banking Progress, 1914-1920 . . . 195 74. Statement of the Condition of the Combined Federal Reserve Banks, June 15, 1921 . .197 75. Gold Holdings of Federal Reserve Banks, 1914-1920 .... 200 76. Money in Circulation in U. S., June 1, 1921 ... 201 77. Federal Reserve Notes in Circulation, 1919-1921 ... . 202 78. Federal Reserve Ratios, 1914-1920 . . . . . . .204 79. Statement of Reporting Member Banks of Federal Reserve System, June 8, 1921 206 80. Condition of National Banks at Comptroller's Calls, 1912-1920 . 208 81. Discount Rates, Federal Reserve Bank of New York and Bank of England, 1911-1920 211 82. Market Interest Rates on Commercial Paper, New York City, 1911- 19?0 • . . .212 83. Call Loan Rates, New York City, 1911-1920 . ... .214 84. Balance of Gold Movements to and from United States, 1890-1920 . . 216 85. Gold Holdings of Leading Nations, 1919 . . ... 217 86. Rand Gold Production, 1911-1920 . . . ... 220 87. Public Debt of U. S., June 1, 1921 222 88. Daily Statement of U. S. Treasury Department, June 15, 1921 ... 223 89. Condition of U. S. Banks, 1811, 1816, 1817 . . . . 247 90. Bank Expansion in U. S., 1829-1845 . 248 91. Banking Conditions in U. S., 1846-1860 .... .... 249 92. New Railroad Mileage Construction in U. S., 1840-1900 250 93. Ratio of Gold to Silver According to Market Values, 1840-1895 ... 253 CONTENTS XV CHARTS NO. PAGE I. The Business Cycle 21 II. Annual Production and December 1 Price of Corn: 1890-1920 . 65 III. Annual Production and December 1 Price of Wheat: 1890-1920 . 68 IV. Annual Production and December 1 Price of Cotton: 1890-1920 . 74 V. Effect of Prevailing Price Upon Acreage Planted to Winter Wheat: 1893-1915 77 VI. Comparison of Agricultural Production With Average Whole- sale Prices: 1890-1920 81 VII. U. S. Pig-iron Production, Corrected for Secular Trend and Seasonal Variation: 1903-1917 91 VIII. Bradstreet's Index of Wholesale Prices: 1892-1920 .... 101 IX. Relative Wholesale Prices, Farm Products and Wholesale Prices: 1890-1920 105 X. Relative Wholesale Prices, Foodstuffs, 1890-1920 106 XI. Relative Wholesale Prices, Clothing, 1890-1920 107 XII. Relative Wholesale Prices, Fuel, 1890-1920 108 XIII. Relative Wholesale Prices, Metals, 1890-1920 109 XIV. Relative Wholesale Prices, Building Materials, 1890-1920 . . 110 XV. Relative Wholesale Prices, Chemicals, 1890-1920 . ... Ill XVI. Relative Wholesale Prices, House Furnishings, 1890-1920 . . 112 XVII. Trend in Volume of Idle Freight Cars: 1913-1920 . . . 119 XVIII. Foreign Trade of the United States: 1890-1920 124 XIX. Comparison of Wholesale Prices and Wages: 1890-1920 ... 144 XX. Immigration into the United States: 1890-1920 147 XXI. Commercial Failures in the United States: 1890-1920 ... 160 • XXII. Trend of Industrial Stocks on New York Stock Exchange : 1896- 1920 169 XXIII. Trend of Wheat Prices: 1910-1920 179 XXIV. Trend of Corn Prices: 1910-1920 179 XXV. Trend of Cotton Prices: 1910-1920 179 XXVI. Trend of Wool Prices: 1910-1920 183 XXVII. Trend of Coffee Prices: 1910-1920 183 XXVIII. Trend of Sugar Prices: 1910-1920 183 XXIX. Trend of Rubber Prices: 1910-1920 187 XXX. Trend of Pig-iron Prices: 1910-1920 187 XXXI. Trend of Copper Prices: 1910-1920 187 XXXII. Bank Clearings in the United States: 1890-1920 . . . 189 XXXIII. Federal Reserve Notes in Circulation: 1919-1921 199 XXXIV. Commercial Paper Interest Rates: 1831-1920 213 XXXV. Balance of Gold Movements of the U. S.: 1890-1920 ... 218 XXXVI. Railroad Construction in the U. S.: 1868-1899 251 XXXVII. Relative Gold and Silver Prices: 1867-1899 254 Part I THE RELATION OF FORECASTING TO BUSINESS Chapter I PRACTICAL FORECASTING Foresight in business. — Business prosperity depends pri- marily upon the ability of individuals to anticipate the future. An accurate appreciation of the developments which are likely to transpire in the ensuing months places a business man in a strategic position in the determination of the current policy of his establishment. If the probable course of prices is up- ward, he will purchase freely at the moment, to cover not alone his current requirements, but future needs as well, and will profit accordingly if his judgment has been correct. If the converse is true, and prices seem destined to lower, he will largely restrict his purchases in the existing market to take advantage of the probable decline later.' Men who have been able to foresee developments most clearly have long been the leaders in world affairs. Napo- leon's ability to anticipate the plans of his opponents was the chief factor to which his military achievements may be attri- buted. James J. Hill, the "Empire Builder," lived to see his prophecies fulfilled in the development of our Western States, as did Cecil Rhodes in South Africa. The success which Charles M. Schwab has had in the progress of the Bethlehem Steel Corporation is founded upon the same basis of intelli- gent foresight that gives John Brown more than a competence in conducting a general store at Latham's Corners. While he is at work, the business man lives in the future. It must always be so. To-day's commerce is in anticipation of to-morrow's requirements. The wheat which is planted 'One of the leading cotton-goods houses of New York City was carrying a large stock of a certain make in January of 1920. The current price was about 22 cents a yard. The house said "24 or 18" meaning that it would hold out for 24 cents, appreciating that such policy involved a risk of loss should the price decline meanwhile, but placing the limitation to which the price might drop at 18 cents. The price dropped so rapidly immediately thereafter that the firm experienced considerable difBculty in finding purchasers at 8 cents a yard. The loss to the house amounted to many thousands of dollars. 3 4 BUSINESS FORECASTING in the fall anticipates hunger that is twelve months distant. Locomotives and freight cars are manufactured for traffic which may prove quite different from the estimated volume. That the Tuesday Afternoon Sewing Circle might close with tea, a thousand business men, half the world around, have been obliged to live in the future. The tea must be planted, cared for, and picked; then dried and packed in storehouses; transported over land and sea ; ere it can reach the cup of the gentlewoman, ultimately, perhaps to form the basis of a man- ner of prophesy quite without the domain of this volume. Men, therefore, succeed in business in direct proportion to their ability to forecast the future. The law of gravitation is not more certain. And this is submitted without the qualifi- cation of "other things being equal" as the inequality of en- vironing circumstances will quickly disappear with the advent of very few false judgments. Possibility of accurate forecasting. — General agreement ex- ists that the man in business who is able to foresee develop- ments has a decided advantage over less fortunate rivals. But a wide variance of opinion exists as to the limit to which the future may be predetermined. The world at large is dis- posed to consider the future as an Impenetrable mystery, quite beyond the power of ordinary humans to foretell. Yet even the most superficial examination of the achievements of men in science and in commerce is suflicient to indicate that com- ing events may be predicted with accuracy. The discovery of the planet Neptune was predicted by Le- verrier in France and Adams in England as a result of pure mathematical calculations — one of the greatest accomplish- ments of the human Intellect; in fact, so certain was the pre- diction that astronomers date the discovery from the time of the forecast. Halley predicted that the comet which bears his name would return In 1758, and although he knew he could not live to observe the verification of his foresight, he stated that he was content that Impartial posterity would deal with him fairly. The amazing accuracy with which eclipses are foretold, and tide effects are predetermined, bear witness to the possibility of successful forecasting. But the reader may register objection. Astronomy is such an exact science, and economics so Inexact, that the analogy may not be well taken. But there are other fields in which fore- casting must constantly be employed, such as life insurance, PRACTICAL FORECASTING 5 weather reporting, crop reporting, census work, and the prep- aration of Governmental budgets. The purpose of the re- mainder of this chapter will be to examine the methods em- ployed and to verify the accomplishments, in order to ascertain the degree of accuracy with which the future has been fore- told in each of these fields. Mathematics of probabilities. — ^A consideration of the mathematical theory of probabilities is of interest at this point. The theory of probabilities has its foundation in the law of causality which may be stated broadly as follows: Everything that happens, and everything that exists, necessarily happens or exists as the con- sequence of a previous state of things.^ ^ "This law cannot be proven. It must be taken, a priori, as an axiom ; but once accepted as a truth it does away with the belief of a capricious ruling power, and even if the strongest disbeliever of the law may deny its truth in theory he invari- ably applies it in practice during his daily occupation in life.'" The law of causality is the basis of all intelligent forecasting. The practical business man, unlike Macbeth, has as little faith in seers who gaze into crystal globes as he has in the ouija board. What has happened to-day is the result of the events of yesterday and the days before ; what will happen to-morrow will be the effect of causes presently operating. The problem of successful forecasting resolves itself therefore into the ap- parently less difficult task of properly appraising existing forces.* The mathematics of probabilities offers but limited assis- tance to the predetermination of economic developments, how- ever. Its domain includes only those cases where all possible happenings are known in advance, and where no particular happening will occur in preference to any other. It is a study of pure chance, and originated with the problems of gambling. ' "The Mathematical Theory of Probabilities," Arne Fisher, p. 2. ' Idem. * "Consider how all events are interconnected. When we see the lightning, we listen for the thunder; when we hear the wind, we look for the waves on the sea; in the chill autumn, the leaves fall. Everywhere order reigns, so that when some circumstances have been noted we can foresee that others will also be present,"— "An Introduction to Mathematics," A. N, Whitehead, p. II, 6 BUSINESS FORECASTING In economics, Its most Important function Is Its service In the field of Insurance. In other branches of Industry, the applica- tion of the theory is attendant with considerable risk.' In business, conditions are not opportune for a general ap- plication of the theory of mathematical probability. Human in- tellect has not thus far developed the capacity simultaneously to comprehend and properly to coordinate all the possible happenings in the economic activity of the world, even were those events "equally likely" to occur, a hypothesis contrary to established belief. Astronomical predictions. — So great is public confidence that the predictions of the astronomers (as sharply distinguish- ed from the astrologers)' will be verified that they are accept- ed with the same assurance that one feels toward sunrise on the morrow. The startling accuracy with which the astron- omers predict eclipses, comets, and tides, is based upon the mathematical application of Newton's law of gravitation, which is a specific Illustration of the law of causality. The astronomers measure the causes, and their accuracy In predict- ing the effect reflects the completeness with which they have taken into consideration existing forces. But even the astron- omers err at times. Halley's Comet reached perihelion on April 20, 1910, differing by 2.7 days from the predictions. The percentage of error was less than 1-100 of 1 per cent., which was ascribed to the existence of forces which are not pure gravitation, and which, therefore, could not be measured. The prediction of tidal movements Is fully as remarkable as that of eclipses and comets. The movement is fairly uni- form In some parts of the world, but In other regions the ir- regularity Is marked even from day to day. The method cm- ployed In predetermining the Indian tides Is of especial Inter- est: Along the coasts of the British Isles the tides are somewhat ex- ceptional, in that the two tides each day are approximately of the same height. In consequence the tides are not very difficult to predict with fair accuracy by the use of. rather rough and ready ""The theory has been applied freely, and in many cases, rashly, too little attention having been paid to the fact that its applications really lie in the domain of those events whose occurrences may properly be compared to the drawings of balls from a bag." — "The Americana," vol. 22, p. 624. 'Astronomy is a study of the celestial bodies, independent of occurrences on the earth; astrology endeavors to associate occurrences on the earth with the position of the stars. Astrology is a delusion, not a science, PRACTICAL FORECASTING methods. In other parts of the world — India, for example — the two successive tides are very unequal, and they vary apparently very irregularly. Far more scientific procedure is then required, to predict the tides with the accuracy demanded by navigators in the Eastern seas. First, the tides, for a series of years, must be observed at various ports. Then the observed tidal curve must be analysed into its separate components by the method known as harmonic analysis. When that is done, the tides for future years can be predicted by the beautiful machine, the property of the Government of India, which used to stand in the Museum at South Kensington, and is now in the National Physical Laboratory at Bushby House. Every year a series of pulley wheels in this machine are set to execute the oscillations prescribed for them by the results of the analysis. A cord passes over the entire series and carries a pen at the end. The machine is set in motion, and the pen, actuated by the combined motion of all the pulleys, draws in a few hours the predicted curves for the year, one after the other, for the principal Indian ports.' That forecasting has developed into a science in certain fields whereby it is actually accomplished by machinery, will prove a revelation to business men who believe the future is "with the gods alone." Life insurance forecasting. — The ability of life insurance companies to predetermine from year to year the amounts which they will be called upon to pay in death claims has long been a subject for favorable comment in commercial circles. The solvency of the institutions, as well as the determination of the amount of the premium charge, depends upon an accu- rate estimate of the obligations which arise from month to month. The fact that the amount of these obligations depends directly upon the apparently uncertain life tenure of the policy- holders, would seem to make the problem of the insurance companies infinitely more difficult than that of the ordinary commercial enterprises whose obligations appear to have a greater element of definitiveness. An inquiry into the method employed by the life insurance companies in anticipating their obligations, and the extent to which they have been successful, should prove of interest. Practically all of the United States life insurance companies estimate their anticipated death claims from the American Ex- perience Table of Mortality which is shown in somewhat abridged form in Table 1. This table was compiled about ' From "Astronomy," by Arthur R. Hinks, p. S9. BUSINESS FORECASTING TABLE 1.— AMERICAN EXPERIENCE TABLE OF MORTALITY* Yearly prob- Yearly prob- Number Number ability of Number Number ability of Age Living Dying dying Per cent Age Living Dying dying Per cent 10 100,000 749 00.75 53 66,797 1,091 1.63 11 99,251 746 00.75 54 65,706 1,143 1.73 12 98,505 743 00.75 55 64,563 1,199 1.85 13 97,762 740 00.76 56 63,364 1,260 1.98 14 97,022 737 00.76 57 62,104 1.325 2.13 IS 96,285 735 00.76 58 60,779 1,394 2.29 16 95,550 732 00.77 59 59,385 1,468 2.47 17 94,818 729 00.77 60 57,917 1,546 2.66 18 94,089 727 00.77 61 56,371 1,628 2.88 19 93,362 725 00.78 62 54,743 1,713 3.12 20 92,637 723 00.78 63 53,030 1,800 3.39 21 91,914 722 00.79 64 51,230 1,889 3.68 22 91,192 721 00.79 65 49,341 1,980 4.01 23 90,471 720 00.80 66 47,361 2,070 4.37 24 89,751 719 00.80 67 45,291 2,158 4.76 25 89,032 718 00.81 68 43,133 2,243 5.20 26 88,314 718 00.82 69 40,890 2,321 5.67 27 87,596 718 00.83 70 38,569 2,391 6.19 28 86,878 718 00.83 71 36,178 2,448 6.76 29 86,160 719 00.84 72 33,730 2,487 7.37 30 85,441 720 00.85 73 31,243 2,505 8.01 31 84,721 721 00.86 74 28,738 2,501 8.70 32 84,000 723 00.87 75 26,237 2,476 9.43 33 83,277 726 00.88 76 23,761 2,431 10.23 34 82,551 729 00.88 77 21,330 2,369 11.10 35 81,822 732 00.89 78 18,961 2,291 12.08 36 81,090 737 00.90 79 16,670 2,196 13.17 37 80,353 742 00.92 80 14,474 2,091 14.44 38 79,611 749 00.94 81 12,383 1,964 15.86 39 78,862 756 00.95 82 10,419 1,816 17.42 40 78,106 765 00.97 83 8,603 1,648 19.15 41 77,341 774 01.00 84 6,955 1,470 21.13 42 76,567 785 01.02 85 5,485 1,292 23.55 43 75,782 797 01.05 86 4,193 1,114 26.76 44 74,985 812 01.08 87 3,079 933 30.30 45 74,173 828 01.11 88 2,146 744 34.66 46 73,345 848 01.15 89 1,402 555 39.58 47 72,497 870 01.20 90 847 385 45.45 48 71,627 896 01.25 91 462 246 53.24 49 70,731 927 01.31 92 216 137 63.42 50 69,804 962 01.37 93 79 58 73.41 51 68,842 1,001 01.45 94 21 18 85.71 52 67,841 1,044 01.53 95 3 3 100.00 * Compiled from "Practical Lessons in Actuardal Science, ," vol. II , r,. 7. PRACTICAL FORECASTING 9 1870 and is supposed to represent the actual experience of one of the larger American companies during preceding years.* An investigation conducted by The Actuarial Society of America in 1918 reviewed the actual experience of the prin- cipal American life insurance companies during the years 1900 to 1915 inclusive, based on policies issued from 1843 to 1914 inclusive. The result is shown In Table 2. TABLE 2.— VERIFICATION OF THE AMERICAN EXPERIENCE TABLE OF MORTALITY BY THE PRINCIPAL UNITED STATES LIFE INSURANCE COMPANIES, 1900-1915* Ratio of actual deaths Attained to expected deaths age Per cent 20 51 25 53 30 51 35 55 40 59 45 69 SO 86 55 95 60 99 65 103 70 100 75 96 80 92 Average 78 * After eliminating policies in force five years or less. — From "American- Canadian Mortality Investigation, 1918." The result is somewhat surprising inasmuch as the Insurance companies apparently do not gain the degree of accuracy with which they are usually credited. The experience of the com- panies during the nineteenth century should have enabled them to prepare estimates for the first fifteen years of the twentieth century which should be closer than 78 per cent accurate. ^ In fairness to the companies, it must be stated that they appreciate that the American Experience Table Is an overestimate, and that they actually anticipate only between 80 to 85 per cent of the expected deaths will occur. For obvious reasons, they are 'The table was compiled in 1868 by Sheppard Homans of the Mutual Life of New York. CF. Transactions of the Actuarial Society of America, Vol. I, pp. 32-34. 10 BUSINESS FORECASTING willing to continue to use the American Experience Table' al- though an "ultimate table" prepared by the actuaries gains an accuracy of between 98.7 and 100.1 per cent." The methods employed by the life insurance companies arc purely empirical. Apparently no attempt is made to establish trends from year to year or from generation to generation in the average duration of life. The conditions which accom- plished a certain result in the decade from 1880 to 1890 are accepted as holding true in the period from 1920 to 1930. That this will prove correct is by no means certain; changing living standards, better housing conditions, improved hygiene, and medical advancement ought to bring some measurable in- crease in the average length of human life. Weather forecasts. — "The wind blowcth where it listeth," runs the old adage. Yet few Americans appreciate that the winds in the United States blow where they "listeth" only 3 per cent of the time, while the other 97 per cent of the time they blow in the direction previously foretold by the Weather Bureau. Table 3 shows in detail the verification of the weather forecasts for the years 1915 to 1919 inclusive. The com- bined average of weather and temperature predictions for all the districts is 88.4 per cent accurate. This covers "affirma- tive" predictions" only and is actually equivalent to 97 per cent accuracy on all predictions made during the period. As in life insurance, weather forecasting is still in the em- pirical stage. The observations of the past are used solely in predetermining the future. The Weather Bureau is only begin- ning to ascertain if there is a law of changing weather to deter- mine if weather passes through cycles of definite periods and amplitudes. Present predictions arc based upon current infor- " Premium rates are based upon the American Experience Table. The over- charge is returned to the policyholders as "dividends" — an obvious misnomer. " "As additional proof, it may be mentioned that the ratio of actual to ex- pected deaths from the eleventh to the fifteenth insurance years inclusive for ages of entry 15 to 34 inclusive was 98.7 per cent, while from the sixth to the tenth insurance years it was 100.1 per cent — the expected deaths being calculated by the ultimate table." — "American-Canadian Mortality Investigation, 1918." " An "affirmative" prediction is a prediction of a change in the weather. Since during the year the weather does not change on successive days 70 per cent of the time, an individual making a daily prediction that the weather for the ensuing day would be unchanged from the current day would gain an average of about 70.0 per cent for the year. The average of 88.4 per cent gained by the Bureau really represents 88.4 per cent of the normal margin of 30 per cent which com- prises the domain of "affirmative" predictions. A "negative" prediction is a forecast of unchanged weather. PRACTICAL FORECASTING 11 "2 rt ON OO N OV * «: 00 NO ON ON ON 00 o o oo OO oo 00 oo oo a OJ g C3 'to CJ ■ o ON K ON oo 0\ oo ON ON b T-l On td 1^ s * ON w NO to O 1 ^ NO NO 00 oo NO oo OO 00 oo oo oo ro oo *ri to !>: q ON \6 o ON O ON * ON oo hH oo oo ON 00 On oo H OS ON H »^ «o l> o6 to OS rh Q to u^ oo oo I>I w^ 0\ 1-1 oo oo oo oo oo oo < D «< g *n to !>; xrt CNJ to gg T-i t>^ o o^ »-H O t^ E-i OS oo ON oo 0\ ON HC3 ON ^ ^ a iH B NO T-^ q o o vo Pi *o oo o ^ o t^ w oo oo 0^ On On oo o ^ g \r, c^ oo q N > tu ^ 1-^ o ON ^ o K hn ON oo ON oo On on 3 x: o Q o\ r^ CTs o NO o O Z o I— < < Pi 1 NO "J^ On C^ i-j q CNJ r^ 1-3 On CN) i-H 0\ oo On oo 0\ On « O* to 1-1 w^ oo to .S boO bO (L) Q CO a s ^o z Q CO <; 12 BUSINESS FORECASTING matlon with no attempt to correlate the forecasts with the in- fluence of any existing trend/^ But at least one independent investigation" indicates a distinct probability that cycles of rainfall exist." The empirical nature of the Weather Bureau forecasts is further illustrated by the inability of the Bureau to predict with accuracy more than two or three days in advance. Census forecasting. — Although the Federal Census of the United States is taken on a decennial basis, the Department of Commerce estimates each year the population not only for the entire country but for the various subdivisions as well. The method employed is to take the average annual increase as in- dicated by the ten year period between the two preceding enu- merations on a percentage basis. For instance, the Federal Census of 1900 showed a gain of 20.7 per cent over the 1890 enumeration; it was therefore assumed that the 1910 census would show an increase of the same percentage over that of 1900. This assumption proved surprisingly accurate as the actual increase was exactly 21.0 per cent. If the same reason- ing were applied in predetermining the 1920 census, the margin of error would have been considerable as the increase in 1920 was but 14.9 per cent. The discrepancy, however, is entirely attributable to the World War. This method of estimating population increases is open to many objections. As is indicated by Table 4, the procedure would have yielded satisfactory results in the decades preced- ing the Civil War. Since 1860, however, there has been con- siderable irregularity in the increases on a percentage basis. The average decennial increase for the hundred years termin- ating in 1890 was 32.05 per cent; for the hundred years end- ing in 1900, 30.69 per cent; ending In 1910, 29.15 per cent; "The method employed in forecasting weather and temperature is a further illustration of the law of causality. Air rushing from cool regions to warmer adjacent regions causes the wind. As the cool air meets the warm atmosphere, the latter loses its capacity to hold vapor, and the condensation, i.e., rainfall, results. ""Economic Cycles: Their Law and Cause," by Henry Ludwell Moore, chap. II. "Those who have been inclined to have but little faith in the value of the weather forecasts have doubtless been surprised to learn of the accuracy indi- cated in Table 3. "Forecasts cannot be made with mathematical accuracy for they are practically all empirical deductions but they do have such a high degree of verification that no one whose life or property is affected by the com- ing of severe storms would to-day consider for a moment doing without the benefit to be derived from them." — "The Americana," vol. 29, p. 131. PRACTICAL FORECASTING 13 ending in 1920, 27.33 per cent. This clearly reflects a down- ward trend in the rate of increase, an important factor which should be taken into consideration in estimating future in- creases. TABLE 4.— RATE OF GROWTH OF POPULATION OF THE UNITED STATES, 1800-1920 Percentage of increase year over previous census 1920 14 9 1910 21.0 1900 20.7 1890 25.5 1880 22.6 1870 30.1 I860 35.6 1850 35.9 1840 32.7 1830 33.5 1820 33.1' 1810 36.4 180C 35.1 The population of the United States in 1920 was 105,708,- 771 according to the revised figures. If the trend on the basis of the periods of one hundred years each which ended in 1890, 1900, 1910, and 1920 respectively, should continue, the percentages of increase at the next three Federal censuses should be approximately as follows: 1930, 18.1 per cent; 1940, 17.3 per cent; and 1950, 16.9 per cent. If this were to hold good the population in 1930 would be about 125,000,- 000; in 1940 about 145,000,000; and in 1950 about 170, 000,000. Experience, however, has shown that it is extremely unlikely that the actual increase will be so great. In countries such as France and Belgium where the natural resources have been utilized to a maximum extent, the population shows a high de- gree of stability in contrast to the continual increases in the newer lands of America. If the European experience — and for that matter, the Oriental as well — is to be repeated in this country, the rate of increase will decline sharply before the end of the present century. A recent forecast of the prospective population of the United States on the basis of the European and Oriental experience estimated the population in 1930 would be about 120,000,000; in 1940 about 135,000,000; in 14 BUSINESS FORECASTING TABLE 5— POPULATION OF THE UNITED STATES, ACTUAL AND PROSPECTIVE* 1790 3,929,214 1800 5,308,483 1810 7,239,881 1820 9,638,453 1830 12,866,020 1840 17,069,453 1850 23,191,876 1860 31,443,321 1870 38,558,371 1880 50,155,783 1890 62,947,714 1900 75,994,575 1910 91,972,266 1920 105,708,771 1930 120,000,000 1940 135,UOO,000 1950 148,000,000 1960 159,000,000 2000 183,000,000 2080 198,000,000 •Figures 1790-1910, "Statistical Abstract of the United States,'' p. 31, 1920. 1920, Commercial and Financial Chronicle, vol. 112, No. 2900, p. 331. 1930- 1950, Harper's Magazine, vol. CXLII, No. 852, p. 705. 1950 about 148,000,000; in 2000 about 183,000,000; and a maximum population of 198,000,000 would be reached 2080." National budget estimates. — In the preparation of national budgets, it is necessary to forecast both revenues and expendi- tures for the period in question. The predetermination of jCfi^enues can be accomplished far more scientifically than that of expenditures, owing to the uncertainty of legislative appro- priations after the compilation of the budget. None of the large nations following the budgetary system has achieved a greater degree of accuracy in this respect than has' England. For the fiscal year which ended March 31,1921 the estimated revenues were £1,418,300,000 and the actual receipts were £1,426,000,000, or less than 6-lOths of 1 per cent from the anticipated figure. As is shown in Table 6 the average accu- racy for the ten year period from 1911 to 1921 was 93.76 per cent, despite the fact that this period included the entire war ""Forecasting the Growth of Nations,'' Raymond Pearl and F. C. Kelly, in Barter's Maaazine, vol. CXLII, No. 852, p. 704. PRACTICAL FORECASTING IS duration when revenues were constantly increasing. The av- erage accuracy for the pre-war years 1911-12, 1912-13, 1913- 14, and for the first post-war year 1920-21, was 98.8 per cent. Although the United States was not operating on the bud- get system during the years 1917 to 1920 inclusive, the Secre- tary of the Treasury in his annual report for each year esti- mated the anticipated revenues during the succeeding fiscal year. Inasmuch as it is the custom for Congress to have the Treasury Department estimate the revenue from proposed tax. laws before voting upon the measures, it is interesting to note the degree of accuracy gained by the Department in its predic- tions. The verification of the preliminary estimates of the Secretary of the Treasury for the fiscal years 1917-18, 1918- 19, and 1919-20 is shown in Table 7. The average accuracy for the three fiscal years on customs revenues was 87.3 per cent; on Income taxes, 76.5 per cent; on miscellaneous taxes, 86.7 per cent; and on total taxes 82.1; on miscellaneous rev- enues 87.9 per cent; and on total revenues, 83.6 per cent. TABLE 6.— VERIFICATION OF THE ESTIMATES OF REVENUES UNDER THE NATIONAL BUDGET OF THE UNITED KINGDOM, 1911-1921* (000 omitted) Percentage of Year Estimated Actual accuracy 1920-1921 £1,418,300 £1,426,000 99.4 1919-1920 1,201,100 1,339,571 88.5 1918-1919 842,050 889,020 94.6 1917-1918 638,600 707,234 89.2 1916-1917 509,000 573,429 87.4 1915-1916 305,000 336,766 89.8 1914-1915 211,296 226,694 92.9 1913-1914 195,825 198,242 98.5 1912-1913 187,189 188,802 99.5 1911-1912 181,621 185,090 97.8 * Compiled from The Economist, London. Three methods are employed in predetermining revenues under National budget systems :" 1. The automatic (averaging) system. Under this method, the results of the year before the last year, the "penultimate" as it Is called, are arbitrarily assumed to obtain for the coming year. 2. The system of (estimating) Increases (and decreases). 3. The system of direct valuation (estimating de novo each year). " From The Budget, Rene Stourm, p. 172. 16 BUSINESS FORECASTING b O ui to < w K (I. o < H w 1^ o w CO w H» o o -;< CO r-( w 2 CO U W CO >< Q 5S 13 w « E « H a, w H o Z o I— ( J« i-H o w to en O CTs t^ VO VI OO CO u-i On C\ 1-1 OO^ OO vO^ CM O t^ to o t^ ! to tC 0\ U^ QO vo oo CO o 0\ O tJ- oo o to ^ esi i-< vo CM OO "O *^ cm" ^-T to ^ •=> ^ *^ vT i-T ^o" to m c^ th ui CM Th CO CM to oo 0\ oo 0\ oo ? 3 to !>. CM ON to f;i a CM w, ^ CTs t^ »0 O c> O *0 ** t-^ w-j ^ On CO rZi CM t^ CM On OO "^ ^ to" ^- TjT O 2 13 O 2 S X o t' ^ rt m 2 § "3 « "■ CO H m *j tn -2 i PRACTICAL FORECASTING 17 The British method is really a combination of all three," whereas the method employed by the Secretary of the Treas- ury in the United States is a system of direct valuation. Crop forecasting. — The monthly reports of the Department of Agriculture may be regarded as incomplete forecasts. They state that the current condition of a certain crop indicates a def- inite yield per acre, provided normal conditions obtain until the final harvest. The department does not attempt to pre- determine abnormal occurrences which may develop in the in- terim, such as unusual weather, abandoned acreage, insect ravage, and similar factors. For this reason, the crop reports^* are not issued as definite forecasts of the ensuing harvest. The degree of accuracy has accordingly varied with the influence of the factors not taken into consideration. As the quantitative interpretation of the condition reports of the principal crops, except cotton, was not begun until 1911, the Department has exercised natural hesitancy, in view of its limited experience, in attempting a complete forecast whij:h would take into consid- eration the effect of the factors not presently included. There is little doubt but that eventually the Department will offer complete forecasts. The removal of the obvious major ob- stacle, that of foretelling weather conditions, depends upon the Weather Bureau which thus far, as has been previously stated, has been unable to predict accurately more than a few days in advance. The verification of the winter wheat forecasts for the years 1910 and 1920 inclusive is shown in Table 8. The first estimate is given in December of the preceding year, after the fall planting, and about eight months before the harvest. " "In England, for example, the submitting of the budget to the House of Commons on the eve, and even more frequently on the morrow of the opening of the fiscal year, renders the automatic fiction quite useless. As the taxes have yielded a certain sum last year — which ended only eight days ago — they cer- tainly will be able to yield either an equal sum or a smaller or a greater sum, according to the conditions which affect them at the given moment, or which may affect them within a short time. The probabilities are so real or so close that they are equivalent almost to accomplished facts. The Chancellor of the Exchequer sees rather than anticipates, and no one would think, therefore, about tying down his estimates by mechanical rules based on antiquated statistics." — The Budget, Rene Stourm, p. 183. " "The forecasts are such figures that, based upon average conditions In the past years, there is an even chance or probability that the final yield will be either above or below the figure forecast." — "Government Crop Reports, Their Value, Scope and Preparation," U. S. Dept. of Agriculture, Bureau of Crop Estimates, Circular 17, Revised. 18 BUSINESS FORECASTING The second estimate is given in April, after the winter season, and about four months before harvest. The final estimate of condition is given in July, one month before production is esti- mated. The July estimate is usually very close to the actual result. For incomplete forecasts, the December estimates have had considerable accuracy. Naturally, the April esti- mates make a better showing. TABLE 8.— VERIFICATION OF THE WINTER WHEAT FORECASTS OF THE DEPARTMENT OF AGRICULTURE December April July Year condition condition condition 1920 85.2 75.6 79.7 1919 98.5 99.8 89.0 1918 79.3 78.6 79.5 1917 85.7 63.4 75.9 1916 87.7 78.3 75.7 1915 88.3 88.8 84.4 1914 97.2 95.6 94.1 1913 93.2 91.6 81.6 1912 86.6 80.6 73.3 1911 ;.. 82.5 83.3 76.8 1910 95.8 80.8 81.5 Summary. — Men in business are constantly obliged to con- sider the future.^' In fact, their prosperity is dependent chiefly upon their ability successfully to foresee economic develop- ments. The practical business man may profess but little faith in the capacity of the human intellect to foretell the future, but consciously or not he is continually obliged to form his own estimates of what is likely to happen.^" The future is by no means indeterminable. By careful analysis of concurrent events, and with due regard to the experience of former years, economic forecasting is now being successfully accomplished in many lines. This is evidenced by the verification of the predic- *° "People will endeavor to forecast the future and to make agreements accord- ing to their prophecy. Speculation of this kind by competent men is the self- adjustment of society to the probable. Its value is well known as a means of avoiding or mitigating catastrophies, equalizing prices and providing for periods of want." — Justice O. W. Holmes, U. S. Supreme Court, quoted by J. C. F. Merril in "The Annals," vol. 38, No. 2, p. 75 "Lord Beaconsfield has defined a practical man as "one who practices the errors of his forefathers." The modern business man must be more than solely practical if he is to achieve definite success. "The Romans were a great race but they were cursed with the sterility which waits upon practicality. They did not improve upon the knowledge of their forefathers. . . They were not dreamers enough to arrive at new points of view, which could give a more fundamental control over the forces of nature." — "Introduction to Mathematics " A. N. Whitehead, p. 41. PRACTICAL FORECASTING 19 tions of the life insurance companies, of the Weather Bureau, of the Crop Reporting Bureau, of the compilers of the na- tional budgets, and in census work. That there is room for even greater accuracy in these fields is indicated by the fact that practically no attempt has been made to develop the forecasting beyond the empirical stage." The law of causality forms the basis of all intelligent fore- casting. Since everything that happens necessarily occurs as the consequence of a previous state of things, the predetermina- tion of economic developments is predicted upon adequate knowledge of existing conditions.^^ With the law of causality as a foundation, the present volume endeavors to analyze eco- nomic happenings and conditions from an a priori standpoint, in the belief that only in this manner business conditions may be intelligently and successfully predetermined.^' " "Risk and uncertainty and the possibility of shining success against great odds are to be found at our doorsteps. Our city marts have become our treas- ure islands, and captains of industry are as picturesquely daring as pirates of old. Business is today the vast unknown, the great battleground in which courage and leadership and imagination, the qualities which in the past sought their outlet in the struggle with nature, can measure their strength. We have but begun to exploit its possibilities and still but guess at its bounds. It has seas as uncharted as the oceans of fiction and affords opportunities as ready to yield fruit to ingenuity and decision as the island of a Crusoe. And it has the advantage of offering a multiplicity of surprises and a whirligig of for- tunes that enable the romancer to indulge his fancy without running afoul of the sense of the multitude. Science and exploration have as yet set up no rules here, and chance takes a hand in the game. Thus practical men whose zest in adventure rejects the tale which fact has thrown out of joint with fancy can still read the romance of business in the belief that the dreams of literature may become the actualities of experience. Their sense of the plausible is satisfied at the same time that their love of excitement finds gratification. The thrill of the unknown has passed to the world of finance and industry and engineering." — Amy Loveman in New York Evening Post, July 2, 1921. ""For, since business cycles result from process of cumulative change, the main factors in shaping to-morrow are the factors at work yesterday and to- day"— "Business Cycles," W. C. Mitchell, p. 588. "Forecasting is not the true field of the economist; at least the entire burden of predetermination should not be his. The economist inherently reasons a pos- teriori, from effect to cause ; the effects being known, his is the task of deter- mining the cause. Empirically, he has become capable of reasoning a priori, from cause to effect. If the economist apprehends all the possible causes that may arise in the future, he can foretell the effect, but it should not be solely his task to acquire the necessary comprehension of existing forces as well as to determine their effect. That a greater degree of cooperation from the business world in the rendition of adequate information on current conditions is of prime importance in the development of economic forecasting, will become apparent in the succeeding chapters. Chapter II THE BUSINESS CYCLE The integral aspect of business. — Numerous forces are con- stantly operating in the world of business. While the pur- pose of the present volume is to analyze these forces in order that intelligent opinion may be formulated as to their effect, before any attempt is made to consider them separately, the manner in which they function collectively must receive atten- tion. Production statistics, for instance, are better interpreted when the part that productivity plays in changing business con-r ditions is understood. As production changes, other forces change simultaneously. As a later section of the book illus- trates the sequence of changes in each factor separately from the other factors, the present and succeeding chapter purpose to show the manner in which they operate collectively. The economic forces which receive attention are arbitrarily divided into five groups : ( 1 ) conditions relating to produc- tion; (2) conditions relating to marketing; (3) conditions relating to labor; (4) conditions relating to corporate prosper- ity; and (5) conditions relating to finance. The first group includes agriculture, industry, and new construction. The sec- ond comprises prices, transportation, foreign trade and retail sales. The third includes employment, wages, controversies, and migration. The fourth comprises earnings, failures, new security issues, and exchange transactions. The fifth includes bank clearings, bank statements, interest rates, gold move- ments, and Government finance. To gain uniform presentation, the characteristics of each stage of business are considered with relation to each group In the order named. This sequence Is likewise maintained in Part II, which is largely a statistical amplification of the pres- ent and succeeding chapter and to which these two chapters serve as an introduction. The fluctuations of business. — Busmess conditions are never ' static. Constantly the trend of commercial activity Is undergo- ing change. At one time, the industrial enterprises of the 20 THE BUSINESS CYCLE 21 CHART I.— THE BUSINESS CYCLE Period of ProBper lty Period of ReooTei y l.Prleea rising. 2flndustrlal activ- ity incraaalng. 3>Buildlng opera- tions large* A.Sxporte falling: inporte gaining. 5. Wages rising. 6>StTilcaa rare. 7. Industrial etockQ rising. B.Business failures declining. 9.Bank clearings In- creasing. lO.fianlE statements show credit -ex- pansion* 11. Interest ratea rialns* l.Prloes hi^. 2. Industrial activ- ity at maximum. 3. Building opera- tions decline. 4. Exports low; in- porta high. S.Vages hlfifh. 6*Strikee frequent. T. Industrial atocks high but declining. e.BuBineas failures at miniiDUO' -g.Bank'deiirlnea large. lO.Bank statements unv aatlafactory. 11. Interest rates high. 1 Period of Dejjreseion Prices low. 7. Industrial stocks ?. Industrial activ- low but Improving. ity at miniiDUm* a.Bualneas failures ^ Building fairly ntmeroiia. g.Bank clearings Ion. 4 Sports high; im- lO.Bank statanente favorable. 5 Wagea low. 11. Interest rates 6 • Strilces rare. low- Period of Llqmrtnt.^ c- t^ NO ''i^ On CO NO NO On VO Q* OO •— t c*-i o^ CO '<*' CO r^ .-1 1- CM •— 1 1-H tM ^H CM ^ Imports during fiscal year beginning July 1. On oo On po CO iJ NO f^ <— t CO Tt* "S ^-. ^- ^- ^- "^- i-«; >j^ 00 O NO Lo r^ oo cs Lo CM ^ ^ NO •-H^CO CO O o" o' o" oo" i-H T-H CS LO 53,425 903,062 12,367,369 9,897,939 5.208,497 2,267.299 3,196.420 3,311.211 10,229.249 ■is exports, including com meal, fiscal year begin- ning July 1. Bushels. 181,405,473 28,028,688 76,639,261 58,222,061 90,293,483 119,893,833 86.368,228 55,063.860 37,665,040 38.12S.498 65,614,522 41,797,291 50.780,143 10,725,819 50,668,303 OO TfH CO CM t-^ CM On NO CM Th On CM CM OO '^t^^ NO CO CO odi^ On to r^ »-i O CO l>^0 O t^ oC NO On ro"Ncf CO ^ '^ CM T-H 2 1 l-l "-K <**N K\ ■3 OO Tfl NO O '^ O "^ NO Tfi uo NO O NO C^ NO c- lO lO CO b- NC to r^ O c^ NO lO CO NO t^ lO X oo -tH O lo t^ r-- t^ t^ oo 1^ r-t r-t ^ CM 1^ .■^ CN On 'TtH 1-^ oo O ^ lO -* -* ^ t^ ON t^ CM NC Tt^ -^ NO I-^ wr XXX X CN NO Lo !*- O to ^^ to NO lo X On r^ O O 0\ NO vo lO NO OO 1 c4 t-K f-K "^ trK .< O i^ r^ CO ON O '^ NO LO '*' -* O NO i-H tN NO to "^ NO NO NO XX O O -^ CO oo to t^ to t^ NO to NO O lO O NO 1^ On On w-1 NO OO 4 >. u-i Cv* CO 1— 1 ro O CO NO -* ^ -* XXX XXX CMOt^NOr-l uooot^'>*^c^ TtH'^WOlONO -(J^NO^NONO X X ON oo O «-o r-l O NO CO NO ro -<** t^ Farm value Dec.l {000 omitted). . . O NO r--. On ^H i-j «NI LO .— 1 NO NO b <» Lo O CO Tt* S u-l Cvl I— « LO CO P t^ ON p, ON O t^ NO ^H "-0 rv) On rvi o "^ cs NO NO On *— 1 r- NO NO NO no" 1^ 1— • NO CO »-H 1^ '"l '"1 '^^ ^ "^ I^ OO rh ri r^^ 'tin 'tin CM NO 1^ CM CM l>^ t^ CM O O NO ^ON CM OO CN rH to OO l>^ CM ON -(JH CO '-1 >-H CM CO CO CO CM age farm price per bushel Dec. 1. ^ r~^ lO ro lO 1— 1 fN ON NO NO ON o 00 r^ 1-H T^ to ON ON lo r^ r^ S ^^ O O r^i -^ Qj ro NO '^ '^ ^ -H On ^ O 1^ ■rf CO U-) NO ^^ OO ^ GO ON 't*' '^ NO '^t NO NO r^ CO t^ NO 'f r-- to CO CM CO CO NO Produc- tion {000 omitted). . CO O CO I^ 1— ( _yi O CS -^ 1^ CO ^ ^ ^ ^ ^^ "* "S '-o' (-^1 ro" -^ r^ ^ O CN fN '^ NO ^ CvT i-^ cs c^ oT 'TfH NO o ^ o On 1— < oj Lo ON On "^ CO NO »— i^i-C rs od (N O CN On NO LT) t^ On to NO vr c^ c-^ r4" cn" CN O CO NO OO '^H NO CO ■* OO O CS ->^ 1>;^ ON OO NO ^'" -rH NO fN CO CO r4 -^ 1^ OO to i-H >*( NO r-J" CN CO CM (M CO t^ ro to On t^ On CM CO NO O NO 1^ On CM NO lo CO "^ NO lO CM OO CM On NO NO O >J^ CO On^ Lo o "^ oo CN r^ c^ CO cm" rj co" Aver- age yield per acre. <; CO t^ oo lo oo oo CO On c^ On t^ On CM 1— 1 CO CM "* CO O NO On 5J U-, \0 NO lo NO Cq CN .— 1 CN CN CN 00 O iJ^ NO to C^ CO CNl CM ) CO -^ ON On On ON On to NO t>-. CO ON On ON On On On o o^ .-H CM CO ■*+< On ON On ON lo NO t^ 00 On o r-i ,— ( »— < i-H 1— ( CM On ON ON ON On ON ,— 1 t-H T-H 1— 1 r-l T— 1 < J3 68 BUSINESS FORECASTING BAROMETERS OF AGRICULTURE 69 volume of exports, for the pre-war period 1909-1913 were as follows : TABLE No. 13.— PRODUCTION AND EXPORTATION OF WHEAT, 1909-1913* Average Average Country production exports United States 686,691,000 100,310,000 Russia proper 522,794,000 161,766,000 British India 350,736,000 51,510,000 France 317,254,000 Canada 197,119,000 90,871,000 Italy 183,260,000 Argentina 157,347,000 95,243,000 Hungary proper 156,523,000 Germany 152,119,000 21,149,000 Spain 130,446,000 Australia 84,943,000 49,732,000 * Compiled from "Yearbook of the Department of Agriculture,'' 1920, Sep- arate No. 861, pp. 16-32. Government reports on wheat. — Government reports on wheat production are issued in the following months and contain the information stated: Month Winter ttiheat Spring 'wheat April Condition May Condition Acreage abandoned June Condition Acreage planted Condition July Condition Condition August Production Condition Quality September Condition October Production (Old crop) Quality December Final estimate: Final estimate: acreage acreage production production value value (New crop) Acreage planted Condition The wheat harvest in the countries of the northern hemi- sphere occurs between May and September while in the 70 BUSINESS FORECASTING southern hemisphere — notably Argentina and Australia — the harvest months are from January to March. The British India crop is harvested in March. Yet wheat production is so widespread that the crop is being harvested in each of the twelve months In some part of the world. In the United States, the harvest begins in May in southern Texas and then advances north until it finally closes In the Dakotas in October. The condition of the wheat crop on the first of the months named in the period 1900-1920 was reported by the Depart- ment of Agriculture as shown In Table No. 14. TABLE No. 14.— WINTER AND SPRING WHEAT: CONDITION OF CROP, UNITED STATES, ON FIRST OF MONTHS NAMED, 1900-1920* Year. Winter Wheat. De- cember of pre- vious year. April. May. June. When har- vested. Spring Wheat. June. July. Aug. When har- vested. 1900. 1901, 1902. 1903. 1904. 1905. 1906. 1907. -1908. 1909. 1910. 1911. 1912. 1913. 1914. 191S. 1916. 1917. 1918. 1919. 1920. 1921. P.ct. 97.1 97.1 86.7 99.7 86.6 82.9 94.1 94.1 91.1 85.3 95.8 82.5 86.6 93.2 97.2 88.3 87.7 85.7 79.3 98.6 85.2 87.9 P.ct. 82.1 91.7 78.7 97.3 76.5 91.6 89.1 89.9 91.3 82.2 80.8 83.3 80.6 91.6 95.6 78.3 63.4 78.6 99.8 75.6 91.0 P.ct. 88,9 94,1 76.4 92.6 76.5 92.5 90.9 82.9 89.0 83.5 82.1 86.1 79.7 91.9 95.9 92.9 82.4 73.2 86.4 100.5 79.1 P.ct. 82.7 87.8 76.1 82.2 77.7 85.5 82.7 77.4 86.0 80.7 80.0 80.4 74.3 83.5 92.7 85.8 73.2 70.9 83.8 94.9 78.2 77.9 P.ct. 80.8 88.3 77.0 78.8 78.7 82.7 85.6 78.3 80.6 82.4 81.5 76.8 73.3 81.6 94.1 84.4 75.7 75.9 79.5 89.0 n.i P.ct. 87.3 92.0 95.4 95.9 93.4 93.7 93.4 88.7 95.0 95.2 92.8 94.6 95.8 93.5 95.5 94.9 88.2 91.6 95.2 91.2 89.1 93.4 P.ct. 91.0 91.4 87.2 89.4 92.7 61.6 73.8 89.3 73.8 92.1 93.3 89.0 83.6 86.1 80.9 88.0 80.8 P. ct. 56.4 80.3 89.7 77.1 87.5 89.2 86.9 79.4 80.7 91.6 61.0 59.8 90.4 74.1 75.5 93.4 63.4 68.7 79.6 53.9 73.4 66.6 P.rt. 56.1 78.4 87.2 78.1 66.2 87.3 83.4 77.1 77.6 88.6 63.1 56.7 90.8 75.3 68.0 94.6 48.6 71.2 82.1 48.5 64.1 62.5 * "Yearbook of the Department of Agriculture," 1920, Separate No. 861, p. 25, BAROMETERS OF AGRICULTURE 71 For the eleven-year period, 1909-1919, the extent and causes of the yearly wheat crop losses averaged as follows : TABLE No. IS.— EXTENT AND CAUSES OF YEARLY WHEAT CROP LOSS DURING THE PERIOD FROM 1909 TO 1919* Per cent Per cent Deficient moisture 12.4 Plant diseases 2.7 Excessive moisture 2.0 Insect pests 2.1 floods 0.3 Animal pests 0.2 Frost or freeze 4.5 Defective seed 0.2 Hail 1.1 Hot vfinds 2.0 Grand total 27.8 Storms 0.3 Total climatic 22.6 •From "Yearbook of the Department of Agriculture," 1920, Separate No. 861, p. 26. The wheat crop of the United States is harvested between May and October. More than 90 per cent is harvested dur- ing the months of June, July and August as is shown in Table No. 16. TABLE No. 16.— PERCENTAGE OF THE WHEAT CROP OF THE UNITED STATES HARVESTED MONTHLY* p^^ ^^^^ May 0.5 June 22.0 July 42.3 August 28.4 September 6.5 October 0.3 Total 100.0 • "Yearbook of the Department of Agriculture," 1919, p. 727. The production of winter wheat averages about twice that of spring wheat. Incidentally the quality of winter wheat is superior. Table No. 17 shows the relative production during the period from 1910 to 1920: TABLE No. 17.— RELATIVE PRODUCTION OF SPRING AND WINTER WHEAT, 1910-1920* Year Winter inheat Spring •wheat 1920 577,763,000 209,365,000 1919 729,503,000 204,762,000 1918 565,099,000 356,339,000 1917 412,901,000 223,754,000 1916 480,553,000 155,765,000 1915 673,947,000 351,854,000 1914 684,990,000 206,027,000 1913 I 523,561,000 239,819,000 1912 399,919,000 330,348,000 1911 430,656,000 190,682,000 191'^ 434,142,000 200,979,000 * "Yearbook of the Department of Agriculture," 1920, Separate No. 861, p. 21. 72 BUSINESS FORECASTING ^\-^ti X^ ^ -^ -^ t«^ 0\ o _ ,-, ,-H o c» oo f\ ^* v*> v% ^ »^ O t^ cs oo On OO vo »— t to O C^ ON On t^ r** O OO Csl ir^ S R § ^2S "5 ^« "^ ^ ^ ^ -« c*^' cT o^ t^ "so" •^ O «N OO 1-1 OO 5t -O 1-1 O C^ CS *-H O On "sD u-^ VO ON .-H LO .-• \0 u-i NO O t'l «*^ no" r*^ rT r^ lo" "<*< 1— I oo oo <— I 1-H r^ cN c^^ t-* O lO f<1 1— t NO U-, oo 1-H On 1— I VO On cs to to ^-^ -^lo oo in CO cs i-H oo On *— I ON CS fS Tt< c to 3 **N &>? Q *» R i ^^ m \0 OO to O , bs. »-H On I— t .— 1 ^ O *n to NO On r-* to On 00 OO 8(N vo NO 1-1 ^T^ NO Tt^ to oCo tooo t*r O O ■* 'O NO NO t^ O CM ro tC NO en" Tt*" t*r ON ""f 'O »-H OO O Th« NO On to NO O ON '■in !>. t^ -^ to^co On 1-^" oT oT O ■^ «— I oo t^ On NO to NO oo to ^+1 •O QO ro OS 00 C4 CM to t^ On O On ^ to to b-^to oo i-ri—r ^H t^ ts^ Q ^ i-*^Lo to ■^ oo to'to'r^" t^ oC "^ O to oo 1— * CN r^ I— ( CN CN ■^ • c " i5> ft. .^* "R 'II oT f^S, ^<\ »o\ i-i\ mN >i to vo O »— ' to Cj tN. t>. 00 O 1-" 1^ NO 00 o 53 o (s '^ r- ON O 1^ r^ »^ oo oo ::^ ^5^ %2 mSrHxeoS ,5 <*! ON t-^ i^ r^ VJ r^ t^ t^ 00 cv» ,** ON «o 1— I r*- to ;j v£) i^ t^ t^ »-* :f^ ^ VO O O O m CN ^ ro oo "^ 1— f CO cs) CNi CO ^ :s NO OO O to to ,— ( to CN rfi C\ »-H CN CN CN C^ WSN. C^ ON CO o o O to r- C^l On CM rs tN CO •— I •-< CS CS CO 1— ( ^ :s :s \0 to O O O -^ O to CN» rj 00 NO 1— I 1— I cs (N IN ^ <=1 t2§ si s e3 *o r^ cs to o Q r^ Np CM -^ »-« 12 to -^ ^ -^ to CO to N- NO O t^ CO CO CM OO CO to Tt* OO vO OO Q'^'O OO ^H On to I— I NO to -^ to NO ND I— I to o r>) o to NO OO CM OO O O CM .-H NO ?— I CO to O OO NO ■<*< to i-H t^ to to to \D OO CO OO CM NO tN. NO O "O 1— I CM O O CO On 1— t OO -^ OO CN On OO 1-H On to '^ ^ (^ OO O CO On O CM OO o •-< i2 ON Tj* o to '^ S ^^ fNj CO On r*) ^ NO VO VO VO ON 00 I^ '^ 00 NO CO •<*< O ON NO On CO OO r^ ^H CO ^ O O -* to T^ On NO O O i-H '^t* 1— I CM CM es 1— I ^11 •<3 CO NO NO CM Q ^ CM Tf^ O OO ^ *-» CM OO OI^C* a CM '^ r^ CO to CO to t^ NO NO to On »-t t^ r^ On i^ NO OO o r^ On CN O "O CO c^f to "^ tH CO On CO CO NO OO NO t^ ^ ^ "O »-i 00 b- o r^ CN CO NO OO <— I •-H CO CN CO o to 1—1 O to 1—1 CO CM CO NO On NO NO t^ ^- OO »— I OO to OO to 00 O 1—* to CO NO CM OO CO NO -^ CS r-t to NO NO i-T -^ tC CM CO CO CN CO OO O NO NO On ON r^ 1^ CO O *o On to a (N to -^i^ CM C-) lo to O O "tH Tf to -^ rh to On to On CM NO CO CM to to NO O r^ »— I NO On OO r-. CM Tt^ to CM CO |i|l1f t,; to NO CM to to 'B 0\ On O vO t^ *^ -^t* OO CS Tt< O tH '^ i-< t^ r^ to O i—* to NO OO CO CM to CM id-vT lo b-T ^ <— t CO rjH "tH 1-t OO '^ 1— < OO Th NO to OO i-H lO On NO On 1—1 OO CM NO 1-H OO CO O ON Tf" CO O I— I CO .— » i*-HCMtoTH lONor^oooN Oi— 'c^tOTh" toNor^oooNCi ,oooo ooooo ^^1-.^^ ^ ;;:; ^ s iQ (^ iOnOnOnOn OnOnOnOnOn OnOnOnOnON OnOnOnONONOn BAROMETERS OF AGRICULTURE 23 The production, acreage, and value of the wheat crop of the United States for the period from 1900 to 1920 in- clusive is stated in Table No. 18. The per capita consumption of wheat in the United States averages from 5.5 to 6 bushels annually which makes a total of about 575,000,000 bushels required yearly for domestic food purposes. To this must be added about 75,000,000 bushels for seeding. This gives the total domestic consump- tion of about 650,000,000 bushels yearly. The surplus yield over and above this quantity is the amount which is available for export. Agricultural production: Cotton. — The United States produces about 60 per cent of the world production of cotton. The average pre-war production from 1909 to 1913 inclu- sive was 21,143,482 bales of which this country contributed 13,033,137 bales. The important cotton-growing countries of the world, based upon production and volume of exports, for the pre-war period 1909-1913 were as follows: TABLE No. 19.— PRODUCTION AND EXPORTATION OF COTTON, 1909-1913* (in bales of 47S pounds net ) Average Average annual annual Country production exports United States 13,033,137 9,008,000 British India 3,511,684 1,966,000 Egypt 1,451,621 1,442,000 *"Yearboolc of the Department of Agriculture," 1920, Separate No. 862, p. 28-34. Government reports on cotton. — Government reports on cotton production are issued in the following months and contain the information stated: June — Condition. July — ^Acreage planted and condition. August — Condition. September — Condition. October — Condition. December — ^Acreage, production, and value. The condition of the cotton crop as of the twenty-fifth of the month was reported by the Department of Agriculture in the period 1899-1920 as shown in Table No. 20, 74 BUSINESS FORECASTING BAROMETERS OF AGRICULTURE -75 TABLE No. 20.— COTTON: CONDITION OF CROP, UNITED STATES, MONTHLY, 1899-1920* ^*<"' May 2$ June 2$ July 2$ Aug. 25 Sept. 2$ 1899 85.7 87.8 84.0 68.S 62.4 1900 82.5 75.8 76.0 68.2 67.0 1901 81.5 81.1 77.2 71.4 61.4 1902 95.1 84.7 81.9 64.0 58.3 1903 74.1 77.1 79.7 81.2 65.1 1904 83.0 88.0 91.6 84.1 75.8 1905 77.2 77.0 74.9 72.1 71.2 1906 84.6 83.3 82.9 77.3 71.6 1907 70.5 72.0 75.0 72.7 67.7 1908 79.7 81.2 83.0 76.1 69.7 1909 81.1 74.6 71.9 63.7 58.5 1910 82.0 80.7 75.5 72.1 65.9 1911 87.8 88.2 89.1 73.2 71.1 1912 78.9 80.4 76.5 74.8 69.6 1913 79.1 81.8 79.6 68.2 64.1 1914 74.3 79.6 76.4 78.0 73.5 1915 80.0 80.2 75.4 69.2 60.8 1916 77.5 81.1 72.3 61.2 56.3 1917 69.5 70.3 70.3 67.8 60.4 1918 82.3 85.8 73.6 55.7 54.4 1919 75.6 70.0 67.1 61.4 54.4 1920 62.4 70.7 74.1 67.5 59.1 1921 66.0 69.2 64.7 49.3 42.2 •"Yearbook of the Department of Agriculture," 1920, Separate No. 862, p. 31. For the eleven-year period, 1909-1919, the extent and causes of the yearly cotton crop losses averaged as follows : TABLE No. 21.— EXTENT AND CAUSES OF YEARLY COTTON CROP LOSS DURING THE PERIOD FROM 1909 TO 1919* Per cent Per cent Deficient moisture 12.3 Plant disease 2.0 Excessive moisture 4.3 Insect pests 9.7 Floods 1.0 Animal pests 0.0 Frost or freeze 1.4 Defective seed 0.2 Hail 0.5 Hot winds 1.6 Grand total 33.7 Storms 0.7 Total climatic 21.8 * From "Yearbook of the Department of Agriculture," 1920, Separate No. 862, p. 31. The cotton crop of the United States is picked principally during the months of September and October as is shown in Table No. 22. 76 BUSINESS FORECASTING TABLE No. 22— PERCENTAGE OF THE COTTON CROP OF THE UNITED STATES HARVESTED MONTHLY*- Per cent July 1.4 August 11.5 September 31.6 October 34.4 November 16.0 December 4.7 January-April 0.4 Total 100.0 * "Yearbook of the Department of Agriculture," 1919, p. 728. The production, acreage, and value of the cotton crop of the United States for the period from 1900 to 1920 inclusive is stated in Table No. 23. Agricultural production according to States. — The value of all farm crops of the United States according to States is shown in Table No. 24. Although the ranking varies some- what from year to year, the table indicates fairly well the rela- tive importance of the crops in influencing business conditions in the respective States. Relation of acreage to agricultural production. — The acre- age planted to the various crops does not change materially from year to year, except for a gradual increase of about 3 per cent annually to keep pace with the growth of the country. The acreage planted does not determine the size of the crop as climatic conditions during the growing season are the gov- erning factor. This was illustrated in 1916 and 1917. In 1916, a crop of 480,553,000 bushels of winter wheat was secured from an original acreage of 39,203,000; whereas in 1917, an original acreage of 40,534,000 yielded but 412,- 901,000 bushels. In 1912, 33,215,000 acres originally planted yielded 399,919,000 bushels of winter wheat; and In the following year, 1913, practically the same acreage, 33,618,000, yielded 523,561,000 bushels. The relative stability of agricultural production irrespec- tive of business conditions may likewise be illustrated. On December 1, 1898, the average market price of wheat was 85.1 cents per bushel and at that time 27,642,000 acres were planted to winter wheat for the following year. One year later, the market price had dropped to 62.2 cents, yet 29,954,000 acres were planted. The acreage planted in 1903, 1904, 1905, 1906, and 1907, remained stationary at BAROMETERS OF AGRICULTURE 77 o X > < o o •I) w o o w e, o > > O w z w a H O 2 78 BUSINESS FORECASTING J2 «^ ^ c^ ^^ ^^ ^ ^O en -^ OO •— 1 r5fi ^ "* ^^ ^ o !2 ro r-"-' oC r^' T-T ^ OS On ^ ON r>i t^ ^ NO ^O in cN oo Th en r^ On u^ ^ 0_ O i-T oC C^T en" (N ■* o ^ i-^ r^ T-i r^ ^ ^ r-l en NO O ON O in in t^ NO "H^ r^ ON rn" NO O rs) .— 1 -+i rf r^ oj CN CN rg en r^ en It '^ oo • O r-J m OO cs • NO -H NO ^VO • NO On O O ON ; Tt< C^l CM CM NO . 11 . i^ 0\ '*! ri o O O i-^in CO CO ^ on" ON 00 O CM en -^ r^ -<*^ NO CM ON CO . F^*-H O OO --^ ■ OO NO t-H irT t^ ■ NO r^ '^ CM OO . ^^NO in O . NO '^ -^in i>r • ll if 1 1 t5 tj~, ^ m O On in oo O m O O O O ^ ON ^ in -* m O O O O • en ^ ^ O O • D oo On r^ CO oo CN (N 1— • 1— 1 vo NO ^H . CM O •— • en O NO ^H CM en en Tf i-H 4 t^- \^ N^;^ On OO in in O O in NO -* t^ f-H NO Q O in O in 35 r-» t^ m CM m o m o O O On CM oo in o in O ON oo 00 r-t ^ «-! O ^^ On tH Tt< ON CM CN t^ »— 1 1— 1 1— 1 i-H NO On r^ oo 'Tt' T-H 1— 1 CM (M m T-H " ^ O oo 00 (T^ oo S2 ^ oo r-< vo m ^ ro o t--^ r^^ ■'^^ tS to -^ «*"> vO CO CS V£) to O ^-1 O (^ Tj* en -^ u-j ^ ^ "*< NO i o ^O i^ O 00 NO Tt* t^ On i-( oo ON CM oo en NO t^ NO NO O § On t^ t^ d 0\ O On O CO en .— 1 .-H f— < MH oo ^ CM NO T— t On t^ t^ in "* •— 1 I— ( CM CM en 1— 1 1 ■III -i2 «*^ o ^^ 1-H oo w r^ T-i en »^ m -^ rH m NO oo rlH 3 OCAOoCen in rt^ r^ C>4 in l^ tt o ^ O in r^ T-^ (N O O en i-H en' O .— 1 r- 1 1— 1 .-H 1— 1 On en en NO m O On O m en NO^ NO^ ts.^ ^^ ^^ ,-H in en" "tH no" T— < f— 1 .-H f-H i-H CM O r^ »-<'-< t-^ On in O -^ CM oo ■"i. "^ ^ R. '^ ^ K-H »-i .— 1 CM »-h" CM 1 IM ^ '«t< O en en 0\ NO in •— t On en t^ t^ Ov o r>) en NO t^ NO in 00 5 -^ d r-^ -^' m pq ^ ,_ ^ ,-t (s) NO r^ On -^ '- 1— 1 T-l ^H 1— 1 .— t »-l III C3 . en -^ »j^ r^ in J;? tn r^ r-. m 1— 1 J2 ON l>-^ ^ O M ■^ r^ (N cs (N en ^^ ^- ^- "*- ^^ tCr-ToN C^O C4 en c-J m en en in en On r^ O -^ oo OO en '^ O CM O oo (N no" ■* I^" NO en en en en en CM in »-i oo NO en ^ oo -* o NO oo '<4^ On^ oo O in en i-H -* en NO en NO m en en en en m O ^ cs en '^t* On On On On On r-H i-H 1— 1 *-H 1— 1 m NO t^ oo On O O O O O On On On On OS O ^H r-J en -^ I-H .— 1 T-H f— t .-H On On On On On i-H 1-H .— 1 rH .— * in NO t^ 00 ON O t— 1 ^H 1— 1 1— 1 ^-1 CM On ON On On On On < O C u B h ti M-i to u-i \o r>- (u I— I ^H 1— I .— t »-l J* BAROMETERS OF AGRICULTURE 79 TABLE No. 24.— VALUE OF THE UNITED STATES FARM CROPS ACCORDING TO STATES FOR 1920* Rank States Value Rank States Value 1.... Texas $727,400,000 25. .. .North Dakota ... $196,171,000 2 Iowa 459,191,000 26.... South Dakota ... 191,401,000 3. ...Illinois 459,179,000 27. .. .Louisiana 176,706,000 4.... California 457,750,000 28. .. .Washington 150,579,000 5 New York 456,507,000 29 Colorado 149,687,000 6 North Carolina . . 412,374,000 30. . . .West Virginia .. . 112,485,000 7 Pennsylvania.... 397,617,000 31. ...Oregon 110,115,000 8. ...Kansas 378,436,000 32. .. .Maryland 107,847,000 9 Ohio 369,869,000 33. .. .New Jersey 97,990,000 10 Wisconsin 360,270,000 34. ...Idaho 92,275,000 11 Missouri 343,012,000 35. .. .Florida 86,503,000 12. ...Georgia 323,290,000 36. ...Maine 84,688,000 13 Nebraska 306,469,000 37 Montana 78,042,000 14 Michigan 303,410,000 38 Massachusetts... 71,088,000 IS Indiana 299,751,000 39. . . .Vermpnt 59,210,000 16 Oklahoma 294,715,000 40 .... New Mexico 53,626,000 17 Minnesota 288,270,000 41 Connecticut 53,590,000 18 South Carolina . . 282,613,000 42 Wyoming 51,584,000 19 Kentucky 268,857,000 43. .. .Arizona 45,353,000 20 Arkansas 248,275,000 44 Utah 43,129,000 21 Tennessee 243,048,000 45. .. .New Hampshire.. 30,098,000 22 Alabama 240,001,000 46 Delaware 20,630,000 23 .... Virginia 239,792,000 47.... Nevada 13,244,000 24 Mississippi 226,182,000 48 Rhode Island ... 6,336,000 * From Journal of Commerce, New York, January 17, 1921. 31,000,000 although the market price on December 1 in the respective years was 71.6 cents, 97.8 cents, 78.2 cents, 68.3 cents, and 88.2 cents. This tendency does not always hold good however. A market price of 98.6 cents on December 1, 1914, encouraged the planting of 42,881,000 acres; and the following year disappointment in the prevailing price of 94.7 cents caused the acreage planted to drop to 39,203,000. Although the preceding illustrations have been confined to winter wheat, the same tendencies hold good for the other crops generally. Agricultural production is not wholly in- dependent of business conditions, but in the main is conducted without any large degree of influence from the commercial world." Analysis of Federal crop reports. — A study of the monthly crop estimates as shown in the preceding tables indicates that August is usually the critical month during the growing season. This is not invariably so, however, as was illustrated in 1901 " The figures used in the illustrations given are taken from the "Yearbook of the Department of Agriculture," 1920, Separate No. 861, p. 21. 80 BUSINESS FORECASiING when the condition of the corn crop declined from 81.3 to 54.0 per cent during July. Rarely docs the crop improve from the first estimate; the amount of deterioration varies with the different crops. Average figures are of academic interest only in connection with crop estimates as they repre- sent a hypothetical condition which is never realized — this is why the "normal" is not figured on an average basis. Federal estimates of the corn crop cannot be safely accepted as indicative of the actual yield until the September report is issued. The winter wheat crop — and therefore the total wheat crop — depends chiefly upon the manner in which the crop comes through the winter. The Api-il report often differs widely from that of the preceding Decemiber, but foretells with great accuracy the coming harvest. The first report on spring wheat — in June — is unusually deceptive as the actual harvest is- invariably much less. The early fore- casts on cotton are seldom reliable unless generous allowance is made for deterioration which is certain to come. August is the critical month. Climatic conditions comprise the principal cause for the yearly crop losses. Deficient moisture is responsible for 50 per cent of the corn loss, for 40 per cent of the wheat loss, and for 30 per cent of the cotton loss. Excessive moisture seldom affects the crops. Frost is of principal danger to the wheat crop and has proven as detrimental to that grain as plant disease and insect pests combined. Cotton is subject to particular ravage from Insects which accounts for more than 25 per cent of the loss annually. Plant disease causes 10 per cent of the annnal loss in the wheat crop, but only 6 per cent in the case of cotton, and scarcely affects corn. Agricultural production as a business barometer. — ^Agri- cultural productivity is the most important single factor which has influence over the trend of business conditions. Agri- culture supplies more than 50 per cent (on a value basis) of the raw materials used in manufacturing, gives employ- ment to more workers than any other single industry, and exerts marked Influence upon railroad earnings. The Inadapt- ability of agricultural production to regulation In accordance with changing business conditions, and the Impossibility of predetermining the harvests because of the uncertain weather which prevails during the growing season, make agriculture the chief influencing factor upon the business cycle. Large BAROMETERS OF AGRICULTURE 81 o > o o > I— ( a> O z o > n a f a 3 o a a o I— I o z > < > K O w > r w O w en 82 BUSINESS FORECASTING harvests make for general prosperity, and poor crops have the opposing tendency. The magnitude of the harvests is not predicated upon the acreage planted; climatic conditions are of even greater im- portance. With the exception of wheat, the prospective crops cannot be estimated with any large degree of accuracy before the end of August. The wheat crop can be estimated in April. Chapter VI BAROMETERS OF INDUSTRIAL PRODUCTION Industrial production. — Unlike agriculture, manufacturing may be readily regulated in accordance with the trend in business conditions. For this reason, industrial activity serves better as a thermometer of business than as a barom- eter. A decline in orders causes manufacturers immediately to curtail operations. Overhead expenses continue, but they comprise a comparatively small part of total operating costs, and the factories find it economically possible to reduce the output quickly when changing conditions warrant such a policy. The number of workers directly engaged in manufacturing, according to the Census of Manufactures taken in 1919, was 9,103,200.^ As each of these persons may be regarded as the principal wage-earner in a family of four, the total number of persons directly affected by industrial activity in the United States is approximately 36,000,000.^ Prevailing conditions in industry therefore exert a powerful influence upon commerce. A dullness in manufacturing directly reduces the purchasing power of one-third of the American families, and indirectly affects adversely the other two-thirds. Industrial production: Iron and Steel. — Iron is known as the basic industry. This is because iron is used in practically every line of commercial endeavor. Iron is essential in con- struction work of every description, — buildings, machinery, tools, rails, locomotives, cars, and ships. An increase in industrial activity necessitates a corresponding increase in the production of iron; and a decline in manufacturing influences a substantial decrease in the output of iron. " The New York Times, Oct. 5, 1921. "The average number of persons to a family in the United States was 4.7 in 190&, 4.5 in 1910, and 4.3 in 1920.— "Statistical Abstract of the United States," 1920, p. 70. 83 84 BUSINESS FORECASTING TABLE No. 25.— PIG IRON PRODUCTION IN THE UNITED STATES, ANNUALLY, 1901-1920* Year Tons Year Tons 1901 15,878,354 1911 33,649,547 1902 17,821,307 1912 29,726,937 1903 18,009,252 1913 30,966,301 1904 16,497,033 1914 23,332,244 1905 22,992,380 1915 29,916,213 1906 25,307,191 1916 39,434,797 1907 25,781,361 1917 38,612,546 1908 15,936,018 1918 38,230,440 1909 25,795,471 1919 30,582,878 1910 27,303,567 1920 36,414,114 * "The Mines Handbook," 1920, p. 49. The annual production of pig iron in the United States during the period from 1901 to 1920 is shown in Table No. 25. A detailed statement of the production by months from 1911 to 1920 is shown in Table No. 26. Production gained steadily from 1901 to 1907. The depression of 1908 and the recovery in 1909 is clearly reflected. The inactivity of 1914 is also displayed and indicates that the advent of the European war played an important part in checking a prolonged depression. The decline in production during 1919 was due entirely to labor and transportation dilHculties. The 1920 output did not, however, foretell the industrial depres- sion which started during the latter part of the year and con- tinued into 1921. The curtailment of production during the early months of 1921 was most rapid, as is indicated in the following comparison between corresponding months in 1920 and 1921: Mont/) 11)20 1921 tons tons January 3,015,181 2,416,292 February 2,978,879 1,937,257 March 3,375,907 1,595,522 April 2,739,797 1,193,041 May 2,985,682 1,221,221 June 3,043,540 1,064,833 July 3,067,043 864,555 An analysis of the statistics on pig iron production indicates that it serves acceptably as a business thermometer but not as a barometer. A gain in output signifies that improvement in business has already set in, and a loss in production reflects depression. But both of these indications serve chiefly to confirm opinions which have previously become current. INDUSTRIAL BAROMETERS 85 Q »A ON VO A O 0\ «n ?s? t^ o\^ o l>^ Csf esf e^ oo* tN ^N. CTs vo rh N o ^ ^ On to I CJ ON I oo oo ^/^ b^ o '-H ■**• W ,-H N n" ri ^H Os to oo so" cT csf n" 'sh csi to VO On e*^ oo to ^ OQ CM CT\ ro 5» ^- ^^ ^-. N cf ^f ro" OO NO ^ oo Td- (M W -^ CO CM o\ T-l (M »o to Th eo ^^ O^ co^ ^^ tn CO tn cT CO co" co" CO < CO Q H z K 1-1 *A 1-1 r^ *o r^ o (M CM oo -^ ^ to NO CO »o •* »^ -. to CM 00_^ to^oT c«f oT to" CO to o to" to" to" oT to" to" (M ^ oo oo CO N to CO CO CO oo 1-1 C^l W CM NO .-» NO CM to CM OT co" CO CO .-( u^ t1- CM O CM O O °°. *^ ^ ^ On" to CO to ,-i 0\ CM <^ to o i-« r-- NO U-> CO i-< Z o o g H -- <-> .S & -=- Q O z o NO NO O NO to ^ 1-1 NO oo i-<^eM c^ cvf cnT cm" W l>. oo 1-1 i-( O CM^ cm" CM* cnT I oo" to" co" col =C M ex m ON oo (M O CO OO oo oo Ti- CM l^ ON 00 oo to 1-1 CM O On ^ i-T CM no" CnT M '^ OO ^'^ CO \r\ 0\ oo CTi Cn oo 00 OO no t^ l-< l-( t^ u-t to to ^ *^ tn CO CM ON ON oo no Tl- »0 CM CM t^ NO i:^ !>. oo ^ (nT Csf CM oo CM CNf (N 1-1 NO NO CM NO CO tI- ^ -^ o i-< t1- CO oo to lO NO ^ to to On CM CM CM tC CM CM '-' oo 1—* to Tl- »ri CO ,_( On rt CM ■^ l>* o ,_, to 'l- H- ^ a 2! £s o o NO t- 3: CM NO OO On CO oo O oo ^ o ^ CM CM cm" to NO to to to •4- cm" NO CM CnT to NO NO CM CM 1-1 oo" to < K h >2 3 s - «:= £ S (^ o OO r^ a CM fo !>. r^ to C o* 3 2 l> I— 1< CO T-4 Ov O cm" rt m" ^ i E 2 I* " o o u OZQ J CM i-t g CO NO CO CM 1" u ■o < # 86 BUSINESS FORECASTING »^ CM N cr\ oo O On "^ C-1 »^ oo *o 0\ OS On 0\ oooNOs ooM^w^vo r-i-Hooc^ so^C^i^ »-HOr^NO r'lCvlTl-O COC^O^t^ ^HOO^o^^ 000»— (O OOOO f-HOOO On Ox OO Ov OnOsui^h rnoQu-xoo \r\ NO no" «^ no" t^ oo" r^ z o "5 oo oo NO rj- CM OO On NO ^ OS oo r-^ CO »o Os CM t^ oo m t^ ■^ CO NO oo ." tC < « O a< a o ^ t^ CM t^ CO t^ ro r*. *1- b- to 1-1 o 1^ CM NO u !>. t^ oo oo oo OO 1-1 ■^f o CO so ON oo OS **-_ vn t^ NO oo CO oo oo ■* oo CO o oo CO O ^ •n •-<" i-f '-• 1-H CM 1-* '-< '-' o o" OS o oT oo OS OS '"* '"' ^ *"* '"' '"' '"* ^ ■^ ^ u H CO CO ^ o to ON T-t 1^ o oo O CM ■* o CO CM Wl OS r^ I-- u (M NO CO o CO CO ^ o On NO CM On NO -* t-- < On^ m en NO oo C3S so oo m NO >j^ Ml o o u-i OO •n i>r oo O^ oo" oT on" oT ON On oC On On CD o" »-r H CO ^^ Q a U o H On u-l NO ro CM u-1 OO oo e^ oo OO ir\ OS so CO o o ■^ Ti- yn oo so so t^ NO CM o M-l so oo o NO CM tn CM CM CM NO CO OS OS CO o^ oo o Z o >N^ ^" ■^ J °1 o CM r--_^ o ■^ CO oo_ NO s, ^" vX" ^' ^'' -i-' co" ^* -* ^ **-" co" •*" co" CO co" CO CO « M Q (Xl O t^ o. ON 1-1 ON ^ r^ o OS CO rh oo H- so CM r^ (M u-i NO »n t^ CM o t^ OS Csj o O OS oo OS Q OO NO ^ so Ov CO oo CO CO CM o CM «-» CO CM CO s tC tC tC i>r \o vo \ri NO m v^ »/s^ to" ^" ^ '*'■ ^" h-l hH fe z & O ^ li-1 OS »n y-i ». i-t »^ CO CM * ^ CO CM CO 1 oo l/^ o !>. \o yn O ■* \n so w^ CM OS *o CO ON 1 fn Ti^ m CO so !>._ OO^ r-^ °\. \n ^ v\ oo On t-s^ f^ "N *n" "tT u^ u^ in" ut" vC xr^ *j-r \o "S SO t^ !< t-T !>.*" M 6 Z u PQ S N t^ On ON CO 1-^ Ti- SO o * . w cL cd C •"■ "§ S CO C u ■ sue 3 = lU I— .< CO -2 -O m K S S O S > S ^ y O 4) ^*^ OZQ « nt INDUSTRIAL BAROMETERS 87 The unfilled orders of the United States Steel Corporation, as shown in Table No. 27, are also used as an index in the same manner as pig iron production. The statement of un- filled orders is not so trustworthy, however, because (1) a narrower field is covered, and (2) the percentage of the total output of steel products which the United States Steel Corporation supplies varies at different periods, and is always less than 50 per cent. Industrial production: Coal. — Fuel consumption is a fac- tor of prime importance in the measurement of industrial activity. The chief fuel used in manufacturing is bituminous coal, although oil is gaining rapidly and promises eventually to displace coal.^ The production of bituminous coal in the United States from 1913 to 1920 is shown in Table No. 28. As coal is consumed almost as rapidly as it is produced* the output reflects industrial activity to no small extent. Trans- portation difficulties and labor controversies, however, as was illustrated in the spring of 1920, often cause a reduction in output when industry is active. Industrial production: Imports. — The volume — as dis^ tinguished from value — of the imports of the important raw materials used in manufacturing affords another method of measuring industrial activity. Table No. 29 shows the im- ports by volume of the six most important raw materials used in manufacturing imported annually during the period from 1901 to 1920. The 1920 exhibit is notable. Silk, hides, and wool declined enormously from the volumes attained in 1919. Rubber imports increased despite a precipitous decline in the market price. Tin imports exceeded those of 1919, but were materially less than in the three preceding years. The great difficulty in interpreting statistics such as ap- pear in Table No. 29 is to allow for the normal growth of the country, and for industrial development in certain lines. Silk imports, for illustration, should show a definite increase 'The fuel used in manufacturing in 1914 was as follows: anthracite coal, 14,724,265 tons; bituminous coal, 166,699,827 tons; oil, 48,689,232 barrels; gas, 285,609,876 thousand feet. — "Statistical Abstract of the United States," 1920, p. 189. * The mines have neither the facilities nor the finances necessary to store coal at the mouth of the mines and produce only when cars are available for imme- diate loading. Consumers rarely carry a surplus stock beyond the requirements of the near future. BUSINESS FORECASTING 8> 0\ tn ^ tn 0\ 1-1 0\ Os y-t OS o rj O w t^ o 0\ ^-t OS ^ "^ CJ O l-H ^ ^^ tn rf i-T c^ t^ VO OS ■ H- w-» CO en (M en «o OO W m en OO VA 1-4 t^ SO -rt- u-i ^0 On OO O OO H- OO ^ ■* so tJ- «^ t^ r^ 1-1 vn o I^ NO OO ■«*- On W so so m o ^h" ^^ en vo" of h-T tC vo" rf cf i>r Csf SO OO so OO ^ en en o en en en O H- -. rN. OO O CM OS OO On O O T-l 1-1 OS CM O ^H en OO OO OO b- so en m so t-» so t^ >^ en Cn| o sn OS lo >J^ NO o o 1-H CM -^ Th" i>r tC tn tn fn t^ so NO \r\ r-l O^ vs" oo" O m en Th tn ^<\ vn OO O ^ W^ OS (NJ OO v^ t1- oo" ^ i-T S 3:$": *n o^ CM oo OS so so en OO CM ^ en OS l>. so en i-H OO i-H csi vri ^H w-i "^ 2 ? ^ > bO ^ 'o so so en Os^ -^ O o u J O u ) Z Q a, E INDUSTRIAL BAROMETERS 89 from year to year to keep pace with the growth of the nation. Such an increase does not represent greater industrial activity. The development of the automobile business has caused a TABLE No. 29.— IMPORTS OF PRINCIPAL RAW MATERIALS USED IN MANUFACTURES IN THE UNITED STATES, 1901-1920* (according to quantities) Year Silk (pounds) Hides (pounds) Rubber (pounds) 1920 30,058,374 509,983,176 566,546,136 1919 44,816,918 744,836,035 535,940,421 1918 32,865,453 361,890,899 325,959,308 1917 36,502,831 631,083,653 405,638,278 1916 32,454,740 726,310,405 270,090,205 1915 30,978,645 646,271,307 221,481,921 1914 25,650,383 556,194,541 143,065,161 1913 27,978,805 497,879,316 115,880,641 1912 24,766,835 615,105,439 118,058,284 1911 20,904,703 424,876,956 82,851,725 1910 21,563,782 460,607,078 100,806,186 1909 22,227,185 572,776,503 93,967,414 1908 18,723,119 328,446,882 76,289,474 1907 15,691,444 355,547,950 68,653,291 1906 16,844,035 398,526,863 67,907,251 1905 15,514,718 381,140,412 64,147,741 1904 16,578,005 300,825,242 61,889,758 1903 11,655,333 288,987,843 55,744,120 1902 13,762,254 325,184,528 50,851,257 1901 12,277,991 310,193,987 55,142,810 Year Wool (pounds) Fibers (tons) Tin (pounds) 1920 259,617,641 405,801 126,038,389 1919 445,892,834 327,279 89,698,391 1918 453,727,372 382,629 142,507,393 1917 420,994,547 399,811 143,687,037 1916 449,189,924 492,714 138,073,293 1915 412,721,292 393,232 115,636,332 1914 260,192,891 395,517 95,049,612 1913 151,813,703 391,118 104,282,230 1912 238,118,350 403,896 116,003,385 1911 155,922,510 283,517 106,936,«72 1910 180,134,981 273,260 105,137,740 1909 312,131,171 366,574 95,350,020 1908 142,559,384 306,944 82,503,190 1907 188,305,955 315,590 82,548,838 1906 196,844,298 301,927 101,027,188 1905 246,821,389 324,202 89,227,698 1904 186,572,683 298,137 83,168,657 1903 173,593,891 289,061 83,133,847 1902 176,292,639 324,600 85,043,353 1901 124,964,377 256,771 74,560,487 ♦"Monthly Summary of Foreign Commerce of the United States" for the period 1901-1920. 90 BUSINESS FORECASTING tremendous increase in rubber imports and prevented the 1920 imports from following the trend shown in the imports of other raw materials used in industries which have attained a more stable basis. Sotirces of information on industrial production. — Statis- tics of pig iron production are compiled monthly by The Iron Age, a weekly publication which is issued on Thursdays. The pig iron production of each month appears usually in the issue of the first Thursday of the following month. The unfilled orders of the United States Steel Corporation are compiled as of the last day of each month and are made pub- lic about the tenth of the following month. Bituminous coal production is estimated weekly by the United States Geologi- cal Survey of the Department of the Interior, and usually appears in the newspapers on Monday of the second follow- ing week. Foreign trade figures are compiled monthly by the Department of Commerce, and are published in the "Monthly Summary of Foreign Commerce of the United States" during the latter part of the succeeding month.^ Secular trend and seasonal variation. — Secular trend and seasonal variation must be taken into consideration in the barometric study of production. A gradual increase in pro- duction is a normal development when population continually gains. During the past thirty years the average annual in- crease in production has been around 3^ to 4 per cent.* A "All information referred to in this paragraph does not appear in the daily papers. The Journal of Commerce (New York), the financial section of the New York Evening Post on Saturdays, and The Commercial and Financial Chronicle (New York, weekly) are worthy of mention, among others, as periodicals which satisfactorily cover this field. "For convenience in determining the cumulative effect of an advancing secular trend at the rate of 4 per cent per annum, a table is appended : Year Per cent. Year Per cent. Year Per cent. 1 104.00 11 153.94 21 227.88 2 108.16 12 160.10 22 236.99 3 112.48 13 166.50 23 246.47 4 116.98 14 173.16 24 256.33 5 121.66 IS 180.01 25 266.58 6 126.53 16 187.30 26 277.25 7 131.59 17 194.79 27 288.34 8 136.85 18 202.58 28 299.87 9 142.33 19 210.68 29 311.86 10 148.02 20 219.11 30 324.34 To illustrate, production in 1900 should have been 148.02 per cent of the 1890 output, in 1910, 219.11 per cent of 1890, and in 1920, 324.34 per cent of 1890. Likewise, production in 1910 should have been 148.02 per cent of that in 1900, and in 1920, 219.11 per cent of 1900. INDUSTRIAL BAROMETERS 91 CHART VII.— PIG-IRON PRODUCTION IN THE UNITED STATES, CORRECTED FOR SECULAR TREND AND SEASONAL VARIATION: 1903-1917* r M.A yf :!•« } 'oai/cTi' W7 i' / A J r\ 1 ^ M / r 1 i r^ T A f f\ / f 7 t / ■^ _ ■•^ J J Of7£ rt 1 A A r 1 ' \ / L =Y n / /? 70i^ 91771 \\ / h r03 1904 1905 1906 r907 1908 1909 1910 1911 1912 I9t3 1914. 1915 19)6 •Pig-Iron Production: Actual Figures, (Unit 1,000 gross tons.) Pra&ucfion correcfee/ for /t»ig-r/mf moyeme^f on^ «'l I I I I [I 1903 1904 I90S 1906 1907 1900 1909 I9r0 1911 19(2 1913 1914- f9IS 1916 Pig-Iron Production: Figures Corrected for Long-Time Movement. (Percentages.) 440 ~~^ Pre duc f/o 7'CC rre af or b 0//7 /or A Vnre h 1 /77C i^erf r" tfrr da iast 1 >/w/ rrrc tnejf »»/ V 'A / r / \J 1 N \ A r^ / J si> \ I 1 1 1 \J i \ (\ 1 -4C (J r- r^ / S L I90i 190« 1903 1906 1907 1908 1909 1910 1911 1912 I9IJ 1914 I9ld 191 Pig-Iron Production: Corrected Figures. (Persentages.) * From "The Index of General Business Conditions," page S, published by the Committee on Economic Research of Harvard University. 92 BUSINESS FORECASTING gain of this nature is known as the secular trend and unless allowance is made for its influence, production statistics are liable to false interpretation/ Likewise seasonal variation must be considered. Bitumin- ous coal production is not constant throughout the year. The output always increases during the winter months and de- creases during the summer months. A weekly production of 9,000,000 tons in June reflects greater activity than 10,000,000 tons in November. Iron and steel production have large sea- sonal variations.* Industrial production as a business barometer. — ^The facil- ity with which industrial productivity can be regulated with changing business conditions makes this factor one of uncom- mon value in the measurement of current business activity. But the fact that industry is regulated with changing condi- tions indicates that the major cause of the change is external rather than internal so far as industry is concerned. While this is true in the larger sense, since agricultural production is the major determinant, industry contributes itself to the forces which govern industrial activity. That facility which enables industrial production readily to be augmented or diminished permits stages of overproduction at one time and underproduction at another. Stability in business conditions ' "The fact which stands out, of course, in all these investigations, is the amazingly even character of this production growth, and how very slight is the variation in the flow of goods from year to year throughout periods of wide prosperity or deep depression ; how slightly it was aflfected by the war, and how little relationship it often bore to the prevailing spirit or traditional idea of a given time." — Carl Snyder, in The American Economic Revieiu, vol. XI, No. 1, p. 71. 'The influence of secular trend and seasonal variation has been exceptionally well illustrated in an article entitled "The Index of General Business Condi- tions" written by Prof. W. M. Persons and issued by the Harvard University Committee on Economic Research. The production of pig iron in the United States in March, 1904, was 1,447,000 tons; in February, 1908, 1,077,000 tons; and in December, 1918, 3,434,000 tons. The problem is to determine which figures represent the greatest relative activity. On the basis of the secular trend, the normal output in February, 1908, should have been 1,901,000 tons, and in December, 1918, 2,932,000 tons. On this basis, the ratios of actual pro- duction to normal output were 95 per cent, 57 per cent, and 117 per cent, respec- tively. Further correction must be made to allow for seasonal variation, as three diflFerent months are involved. The ratios of average output for March, February, and December are respectively 106, 94, and 100. Through subtract- ing the seasonal relatives of 106, 94 and 100 from the relatives 95, 57, and 117, comparable differences of — 11, — 37, and +17 a^e found. "The deviations reveal the depression in March, 1904, the deep depression of February, 1908, and the great activity of December, 1918." INDUSTRIAL BAROMETERS 93 depends upon uniformity of production in all lines. The fact that agricultural production Is not subject to this control is the chief factor which causes the fluctuations in commercial activity. And, although industrial production can be regu- lated to insure uniformity with conditions throughout com- merce, the enhanced profits which arise during periods of activity cause industrial production to be Increased far beyond conservative warrant, and subsequent reaction Is inevitable. The most successful men In business are those whose per- ception is not blinded nor distorted through profits. Diffi- cult Indeed Is the assumption of a conservative attitude toward production — founded though It may be upon the appreciation that a lack of balance is rapidly developing — when earnings are abnormally large. And in this manner, the facility with which Industrial activity can be regulated becomes a disad- vantage rather than an advantage. The Inability of industrial producers to get and utilize a true perspective of the entire business situation In order that a parallelism may be main- tained between conditions of supply and demand contributes materially to the alternate development of periods of extreme prosperity and depression. From a barometric viewpoint, Industrial production is too great or too small, not by comparison with productivity at a preceding time, but In relationship to existing conditions throughout the commercial world. Industry should keep pace with agriculture, with conditions abroad, and with the money market. Irrespective of current earnings, increased industrial activity is ill-founded if agricultural production, foreign conditions, and the money market are not equally favorable. The relative balance between industrial produc- tion and these external factors should be the subject of con- stant scrutiny, especially In times of activity, as herein develop earliest the Indications of ensuing changes in the business cycle. Structural production. — As has been shown In the discus- sion of the business cycle^ new construction Is noticeably af- fected by changing business conditions. An era of rising prices acts as a deterrent to building, and for this reason, the height of a period of prosperity customarily finds con- struction substantially curtailed. When prices are falling, "Part I, Chapters II and III. 94 BUSINESS FORECASTING building operations are encouraged, although a natural ten- dency exists to wait until the bottom has been reached. Accurate and comprehensive figures which would state the volume of building operations in progress would be most helpful in measuring productive activity. Unfortunately no such figures are available. The best that has been done thus far has been to compile aggregate totals of the building per- mits issued in leading cities, as is shown in Table No. 30. Such compilations are subject to two important qualifications: (1) permits are often granted for projects which are sub- sequently abandoned; and (2) permits are stated on a value basis which makes comparison between periods invidious be- cause of changes in price levels and wage scales. Table No. 30 shows that total permits in 1918 were valued at $385,122,612 in comparison with $826,100,319 in 1913. As the level of prices in 1918 was more than double that of 1913, actual operations in 1913 were more than four times those in 1918. That a drop in prices does not im- mediately cause a revival in building operations is shown in the permits granted during the last six months of 1920 when prices were falling more rapidly than at any previous time in our commercial history. Permits issued during the third quarter of 1920 amounted to $321,212,555 in com- parison with $417,579,051 In 1919; for the last quarter in 1920, $226,097,448 compared with $418,711,778 in 1919. Structural production as a business barometer. — The trend of structural production is well-defined throughout the busi- ness cycle and is of particular barometric interest because it differs radically from either agricultural or industrial pro- duction. Agriculture is conducted largely irrespective of business conditions; industry is at a maximum during periods of prosperity and at a minimum during periods of depression. Construction is at its maximum during a period of activity but significantly begins to decline well before the general trend of conditions reaches Its highest point. Moreover, in periods of depression, building activity is resumed well before the general trend moves upward. A practical difficulty of large importance, however, limits the use of this factor as a barometer. Statistics available are grossly inadequate as they mainly comprise the value of per- mits granted in certain cities. Construction statistics, to be of maximum service, should represent the entire country and INDUSTRIAL BAROMETERS 95 tN. Tj- Xi^ VO t-. !>. a\ ri- Q ^ '^ ^. 'I. *>» tC *n" Th" t-^ 0» C»» oo O »-< S MT_ ^^ T-J_ tH oo" vo" oC «i^ 1-1 O tn »o 1-1 th i-H tn vo O oo ^ b^ oo 1-H ^^ to in t^ O On t-T CO Ti* ON l>* ON 'O •-* ^-.'^ ^-. tC oT oC no" VO (M w i-i *-< 1-H 1-H ^ t>, VH t^ VI to ^ W^ lO OS ON VO U^ no" iX" oT Cvf U-, CO rH 1^ O C^ ON^ C^^ oo On. to ^ TH O ON (N| 1^ 1-« CO On O On M ^ CM b* ^ O ON^ -^^ ^ cnT co" r-T rC On ON 1— t ON »n »0 OS O cnT »o i>r SO* On NO NO CNJ CN» to On T^ NO ■* to On O Th" cC SO oT lO b- 'ti- b- ^ 1-H OS lO m O i-H t^ to »0 CO tH *H 1-1 1-H ^ to t^ oo oo O O NO t>. b^ 00_ N l> oo" so" so" ^ •d- oo t^ w CO CO Os t** no" OO" to" 00* w ^ 1-< ^ oo ^ NO OS OO M OS t^ ON '^-'^ ^"^ lo" so" \o" so* 0» NO NO so ON •n CO no »o ^ O !>r no" t4-" O Cs) CO oo ^ t1- (M O O CNJ H- l^ O t^ N'l CN| o to" CO r>» ca NO b* *o »0 OO OO CNJ VO NO (M ■<*• so oo oo to O C^ (NI^NO^ tC no" lo" oo* CO CO oo *o b-^ CNJ^ NO NO^ cnT ocT Csf to" ^ CO to T^ rj- N * O 1-H ON O i-« to ON^ NO OS^ in" no" tC On" fs. so NO O O CM to b> i-T wT t-T so* CNJ ^ ^ »0 NO NO NO t^ On to NO On ON^ OS^ ^^ O^ ^o" On" On" "o" OO O *H »-l O t>- NO ■4' CO i-< OO Csj Th NO On O lO On CNl OO tC no" Os" CnJ 1-H OO t^ OO CNJ I-< CO b-. ON Csj ^-1 Ol lO NO so t>i b-. NO t^ iM rf no" oT t-T H- ^ to CO »o OO o ^ co" Ov i-T ^ \o -fd- vo »o ^ ^ CNJ l>. NO so OO o l>.^ CO O^ CN|_^ »o" .th" "^ i-T NO CM 1-H OS Wt ^ OO Tj- Q t—t 2; o S Os t3 3 OO 1-1 CO CNJ t-» so On CO CN| O *0 ON i-T co" no" cT NO t^ CNj NO b^ t^ NO 1-H Th CO OO NO NO Tl- i-< O^ Os OO NO to i-T OO*" to" H-* i-< O t^ ON o ■* o •* On OO i-f OO O CTs t^ t^ ON T-( l>^ oo^ T^" NO on" o" lO NO NO oo CNJ OO^ C«T^ ^ Os" i-T ut" no" ^ to t>. !>. CO NO t^ NO NO t^ O -^ »«^ CNJ^ ON^ t^ cT w" no" t^ Th 1:^ 1^ NO to T-^ to oo O NO Csj 00 ^ t~». lO CNJ ^ to t^ *o^ T-T C^ no" Os NO NO NO NO ■d- tJ- - - O 1— • o ^^ to oo oo O oo On 1-H ^ NO *o (M Ti- tv CO On rh 1 CNJ oo !>• t^ NO NO to NO OS_ ON CNJ^ T-<^ ^H oo" ^H CNJ to" NO i>. On CNJ NO Os^ NO O^ t>^ so rj" o" no" oo" iC oo t-^ ^O i-H t~. CNJ a\ oo ■« t^ CO CO to 1-1 t-s CV| tH NO r-^ CNJ^ NO oo" rf o i-T NO t*. On Csj CNJ NO OS 00 lO oo CD CO t- oo Os NO CNJ NO NO ^ to" O On CO oo tJ- NO oo ON On CNJ r-< Th to ■»-( 00 to so Tt- »^ to OS r»» csj co" On" no" oo O O Csj CO OS 00 o o^ ^ NO rh fT OS oo b* NO 1^ ^ oo o CO oo ^ NO to On ^ OS NO* t^ ^ ^ to O oo ^ ^ OS oo CN| ^ O OS CO ON CM CSJ ^ tO_^ CNJ^ to ON^ o" oo" oo J>- OO NO NO O y-t ^ ir^ ^ t^ CO 1-1 CO Vo" On" cm" 00* t^ r-< b- NC O ^ CNJ OS CO CNJ NO O OO en 0) B Th NO - oo^ Os" o" i-<" ^ Tj- ^ •* CO b^ Os NO 1-1 CO CM CO O CO j^ Os O CM oT cm"*X O T-i i-( CO ^ NO oo t^ to" so" oo" O NO ^ NO oo i •=! t 1-1 oo O ON t^ CO ■»*■ ^ oo CNJ^ CM^ co^ I-T tC ©©"bC" ■(-I o oo o ^ so NO NO r-T ■^J^ ofT ^ ^ NO t^ t^ oo t>> to oo CM H- ^ ^ to ON NO ON^ *-r to" b-T ^ NO o o t^ lO T-( t^ to oC to ^ t^ ON Os OS oo CM rH rh Th OS ON to CM ^ On 0\ O On o cT ^ (sT CM O CM t!- t*. On 0\ NO to" i-T t>r lo" oo oo NO to CM O (>- CM ON oo CO CM to NO OO to oo no" to" o" I-*" t^ CO !>. OO CSJ^ ON^ co_ to^ cnT oT co" no" t^ so t- i-< CM NO to 1!l- to •o c o to to o« 00 o t^ NO NO ON o* -a tO ON OO 1^ o esq oo o CM Os NO Os o NO oo 0^ cd N SO^^ rH t«^ oc o ^o 00 O ON^ i-" *-<, NO t^ t-< *- l> u »o"cNr o" oo" O^ ' p O. »0 -(^ !>. NO CO NO -^i- ^ O ^ CM O Ti- Th 1-1 1^ Cs ST to OO ^ OO^ c^ c ON CNJ rd- CM_^ CM^ Os^ b-_ o to tH oo CNf o I-T CO o- " bs" OO I-T csf I-T so so Th" i>r CN ■^ Tj- oo t^ oo t^ oo to t-^ OS t^ T(- NO NO NO 00 CM CM 1-r OC •a M ' ti • • 'S. u U u h u a ■s ijj- ; c4 S C4 tl 0) 01 3 8 nuar ibrua arch X c > ^i ^ LlgUSt iptem 3dqi B (J i > < • ^bS < S s »^ .< CO o;3Q 96 BUSINESS FORECASTING cover the broad field — bridges, railroads, and tunnels for example — instead of simply building permits or contracts awarded. A general index of industrial production. — In view of the accepted doctrine that alternate periods of prosperity and depression arise out of maladjustments in conditions of sup- ply and demand, i.e., In the lack of balance in production generally, it is surprising that earlier attempts have not been made to construct production Indexes which would permit ready comparison of the relative current activity in the major lines of industry. An attempt to devise such an Index is now being worked out by the Federal Reserve Bank of New York. "But If the problem of measurement of the national pro- duct has now been disposed of, there remains yet another, . and that is the measurement of the current product; and for practical affairs this Is of far greater importance. The varia- tions in the business cycle, as Professor Mitchell has so clearly set forth, lie perhaps as much as anything in a dislocation between the even pace in the different lines of Industry — too rapid expansion in one direction, too little In another, so as to disturb the normal equilibrium. The whole of the national product does not greatly vary, but that of the several indus- tries may vary quite widely. Now, In very large part, goods are exchanged for goods and services for services ; and If there be overexpanslon in this line or that, there comes inevitably overproduction in special lines, a period of crisis for these Industries, unemployment, failures, and all the traditional phenomena of lack of balance."^" As Is shown in Table No. 31, some twenty-five oT the lead- ing industries are included. Eventually it Is expected that a dozen more will be added, and In this manner compre- hensive indices will be possible. "By reducing each of the industries to a common denominator we shall know by means of Index figures exactly whether we are producing very much more pig iron or copper or sugar, or importing more rubber or silk or wool than the normal need. It was very striking, when we first obtained these Indices, to note how clear wa* the overproduction in certain lines and the very large cer- tainty that there would be inevitably a collapse in these special Industries. In fact, from the relative height of the " The American Economic Review, vol. XI, No. 1, p. 72. INDUSTRIAL BAROMETERS 97 TABLE No. 31.— INDICES OF CURRENT PRODUCTION AND TRADE* Base: Average of the 12 months of 1917 = 100 Seasonal variation eliminated S"^ «t; S'"' S'v: S"^ Qt.4 sSs Q^ ^S sS>« »^** w« >^>: wS i^*^ *itt ^a ^k ^)3 ^« 6>a &&I &« s* ea "^ "t! *^ S "^ ..b .a . *» . S .-is ^-^ Ovo ^,b O^ 0.<; Ov 0> Ov Ov 0< N •<< s s s Items 1. Pig iron 82.2 71.5 98.5 90.5 100.2 2. Steel ingots 83.4 73.9 98.5 90.0 96.9 3. Bituminous coal 91.6 75.8 99.2 96.4 96.0 4. Anthracite coal 92.6 94.3 89.4 85.1 77.7 5. Copper 67.2 71.0 76.1 73.5 70.1 6. Tin deliveries 64.3 114.1 98.4 92.3 97.7 7. Cement 92.9 97.8 121.7 94.6 97.9 8. Petroleum 123.3 119.1 125.5 134.3 140.8 9. Gas and fuel oil 127.7 129.0 120.5 129.8 154.1 10. Cotton consumption 90.7 91.7 97.1 96.1 88.7 11. Wool consumption 110.1 119.1 125.7 105.5 68.5 12. Silk imports 165.1 120.2 144.7 91.7 78.5 13. Wheat flour 119.3 109.2 113.1 95.1 97.0 14. Cattle slaughtered 105.1 104.0 107.0 97.9 92.5 15. Swine slaughtered US.O 108.3 115.0 120.7 115.5 16. Sheep slaughtered 145.2 148.1 118.7 108.2 128.2 17. Sugar refined 121.7 94.1 124.9 121.0 108.8 18. Tobacco, cigars, etc 93.4 106.7 113.8 106.4 93.2 19. Rubber imports 114.7 157.7 222.0 130.1 130.5 20. Wood pulp 93.6 111.5 106.2 124.7 108.2 21. Paper 113.5 118.7 125.5 131.0 132.2 22. Railway cars 181.6 103.2 52.7 37.7 40.5 23. Locomotives 59.8 30.5 26.2 43.2 52.9 24. Building activity 73.3 73.4 56.9 36.1 33.9 25. Imports 122.5 124.2 132.7 131.9 140.1 Average of 25 comparable items 106.0 102.7 108.4 98.6 97.6 Bank clearings outside N. Y. City 121.5 Railway tonnage 103.0 Employment, N. Y 95.5 Bank clearings, N. Y 117.5 Shares sold, N. Y. S. E 179.0 Per cent firms failing 37 Exports 106.5 Foreign trade tonnage 105.8 * The American Economic Revieio, vol. XI, No. 1, p. 74. 117.1 112.8 108.2 118.2 97.1 108.8 104.8 117.6 98.6 102.7 101.9 98.8 113.0 98.8 92.2 95.9 199.1 152.4 117.3 89.6 .36 .32 .41 .50 78.9 96.7 99.9 95.5 107.6 121.8 121.0 139.5 98 BUSINESS FORECASTING indices you could pretty well pick them off in the order in which the decline would and did come."" Up to the time the present volume is being written, regular publication of the indices of production and trade as shown in Table No. 3 1 had not started because of the desire of the compilers to have the tabulation as comprehensive as possible from the beginning. It is planned to compile these statistics monthly and undoubtedly publication will begin in the near future — ^probably by the time this book has left the press. The report will prove of invaluable assistance in barometric work. " The American Economic Review, vol. XI, No. 1, p. 72. -vx-^ Chapter VII BAROMETERS OF MARKETING The second major function of business. — Distribution, or marketing, as it is more popularly known, constitutes with production the two main functions of business. In the broad sense, marketing is a phase of production as it comprehends the supplying of place and time utility to the commodities of every-day need. Statistics of marketing, therefore, serve to supplement those of production. The element of price, and incidentally of profit, enters into marketing records in contrast to production statistics which are almost entirely on a basis of volume. Marketing statistics may be divided into four classes under an arbitrary arrangement predicated upon the nature of the information available. The four classes are : ( 1 ) commodity prices; (2) commodity shipments; (3) foreign trade; and (4) retail sales. Commodity prices and retail sales are natur- ally considered on a basis of value, and commodity shipments on a basis of volume. Foreign trade records give both value and volume. COMMODITY PRICES Commodity prices. — As has been shown in an earlier chap- ter, price has become the most important term in commerce. Men engage in business to gain profit, and profit is determined by the relationship between prices. Prices are never constant. At one time, a period of high prices exists, and, at another, low prices prevail. All commodities are not affected similarly, moreover, as there is a considerable lack of uniformity in the manner in which prices change. The measurement of average prices, i.e., the establishment of a price level, is a problem of extreme difficulty. The ideal solution would be to have a single number which would re- flect the current price on all commodities and which would take into consideration the relative importance of each commodity. 99 . 100 BUSINESS FORECASTING The construction of such an index number, however, would be impracticable, as is readily appreciable. The index numbers in current use are therefore considered to be approximate and to have an allowable margin of error up to 10 per cent.' American index numbers. — No attempt has thus far been made to secure an index of general retail prices in this country. Retail quotations vary so widely even in a single community that the magnitude of the work Involved in securing a com- prehensive number of prices precludes its accomplishment.^ Wholesale prices do not vary so widely as retail, and repre- sentative quotations are readily obtainable. The difficulty lies in the choice of commodities and the relative weight to be as- cribed to each. Although entirely different methods are em- ployed In the construction of the two leading American index numbers, Bradstreet's and the Department of Labor, the re- sults have proved quite uniform, as may be seen in Table No. 32. Bradstreet's index. — The Bradstreet index is a number which represents the aggregate wholesale prices per pound of 96 staple commodities divided into 13 general groups. An index Is constructed for each of the groups, and the sum of the separate indexes is the Index for all. As the index is not on a percentage basis, no base period is necessary. The index number Is published about the tenth of each month and rep- resents the prices for the first day of the current month. A yearly index number Is secured by averaging the index num- bers for the twelve months. The Index number as reported monthly for the ten-year period 1911-1920 In shown in Table No. 33. Department of Labor index. — The Bureau of Labor Statis- tics of the Department of Labor compiles monthly an index number of wholesale prices. Unlike the Bradstreet index num- ber, that of the Department of Labor is on a percentage basis. Originally the average prices during the period of 10 years ' "Today few, if any, competent judges doubt the validity of index numbers or the substantial accuracy of the results they show when properly constructed from carefully collected data. Indeed the danger at present is rather that the figures as published will be taken too absolutely as a complete representation of the facts about price fluctuations." — "Index Numbers of Wholesale Prices in the United States and Foreign Countries," W. C. Mitchell, U. S. Dept. of Labor Bui. No. 173, p. 10. ' The United States Department of Labor compiles an index of retail food prices which appears in its Monthly Labor Review; also a cost of living index which includes prices for services as well as for commodities. BAROMETERS OF MARKETING 101 »o| PROSPER I TV 189C 1691 189i? = BAJOR CRISIS Aaaa / 1 1FI94 / H DEPRESSION 189S / 1 1896 / 1 S^ R200VERY 1 1897 1898 \ j£afi \ PROSPERITY 1900 \ 1901 / 1902 \ 1903 1 — i g- 0. 1904 M 1 l-t - 1906 • "3 1906 \ g MAJOR CRISIS 1907 \ 1 DEPRESSION 1908 / ^ RECOVERY 19P9 \ i PROSPERITY 1910 \ _1211 1912 \ I9in J91< 1 1916 \ 1916 \ 1917 ~'"^-- 1»1« "-^^ in\ gKAJOR CRISIS _. o > u CO W W H a w o o t-l w C/) > w o w CO 102 BUSINESS FORECASTING TABLE No. 32.— WHOLESALE PRICES IN THE UNITED STATES, 1890-1920 United States Year Uradstreet's Department of Labor 1890 $ 81 1891 82 1892 7.7769 76 1893 7.5324 77 1894 6.6846 69 1895 6.4346 70 1896 5.9124 66 1897 6.1159 67 1898 6.5713 69 1899 7.2100 74 1900 7.8839 80 1901 7.5746 ■ 79 1902 7.8759 85 1903 7.9364 85 1904 7.9187 86 1905 8.0987 85 1906 8.4176 88 1907 8.9045 94 1908 8.0094 91 1909 8.5153 97 1910 8.9881 99 1911 8.7129 95 1912 9.1867 101 1913 9.2115 100 1914 8.9985 100 1915 9.8530 101 1916 11.8236 124 1917 15.6385 176 1918 18.7117 196 1919 18.6642 212 1920 18.8096 243 from 1890 to 1899 was taken as a base. The present method takes the year 1913 as the base period, and previous index numbers have been revised in accordance. Average monthly prices are taken rather than the price as of the first day. Over 300 commodities are included, in comparison with 96 used in the Bradstreet index.^ The Department of Labor index is obviously more scientifically constructed than the Bradstreet. But the promptness with which the Bradstreet index is published, coupled with the uniformity with which it agrees with the Department index, makes the Bradstreet in- dex of much more popular interest. The annual index number of the Department of Labor, by groups of commodities during the period from 1890 to 1920 is shown in Table No. 34. 'The December, 1920, index represented 326 commodities. Monthly Labor Review, February, 1921, p. 42. BAROMETERS OF MARKETING 103 O vn &i y^ \rt CvI^viO **• OOOO OOONO enooosl>. onvo^-^ 00 T*" H- ON Ok ^ ^ tJ- t^ »N en en Ol CTs CX v> vo C^ t^ ^ oo t-^ C^ t-^ in '^ o t^ On t^ O vn t^ en On «n CQ CVJ O ^ !> t^ oo r^ ONOt--v% NOt-*vO vo 000^. 'd- 00 ON t>s od od od od rht^Oo CNj*j-two\ t^ rjen'OH- H-oo*om i-i voonCMon onoo»-ino *-t T-IOO^ ONOOOOs t*» OnONOnon OOOOOnOO OO D z l-H o M en o u CO Q 1 o z u n r*. !>. o M^ N C>J ^ en en On r*. on »-h on "^ en en ^ en On en O ^H vo O oo en ^^ CNj NO u^ *n w T^ O <^ »0 u^ v4 oooo^^ enONocn oo voONTj-t>. 1-II--.ONON en Oenvoen ONO»Or-« NO tn *n o NO \0 T-i vo ^ rj- ON yt :t oovNtN.en ^Tj-cnr^ ONOOoorj ONi-iOen *n^ooen N-d-oooo ON M oo o vo ■ ON On CN| ^ en en On NO CO r^ O t^ vo oo OO CN» ri en C^i i-i Vi VH *-4 FVi O en CNJ ON »r» Th vo T-i !>. On *^ no no Th ''^ ON ON ON ON t^ ON O OS >n tH (M On OO NO en VN oo OO oo oo od od od od in CNJ CN) NO en On *n CNJ On tn o NO ^. ** ■*. "=*: 0\ On On on en oo On en «) On t^ T-i vo S ^ u-> O en Ok On On On On '^ od od od 00 enooooo ooen^»n »nt-^CNjC>l ONi-nen^H t^ONTi-i> NocvjOcn t^t^t^I>» oooooooo ^ 00 en oo t^ vo t-* en t^ t^ Tt- en On en vo en On On 0\ On OnOnONOn OnOOO CNIrhOON VOt^CNjOO NOCnICnJno vooot^o NOCNJCNINO »no*nr^ rs.NovoNo Not^t^o NO O tJ- en 1-< CN] Ut vo rh NO en ^^ CN| oo o o oooooooo OOOOOnOn OnOOOnOn No^wr^ cniuinotj- r^ONCjON CNJi-toi-t ONeni-^NO mi-HOCNJ ON On On ^ OO ON On ^ OO vo t-^ ^ t-^ ON »-< NO On NO O »n O CNJ l-H ^ On On On ON On »n t^ en i-< On »n C*l ^H m T-i NO 1-4 T-4 CNJ T-l On On On ^ VO Cvl O en CNJ Ml ON CNJ u-1 CN^ Cn| O w N > c > u > % : iC • C4 u a* q» X »? nuary bruar arch. O m O ■M 1^ s c B en > 3 B m s > a en < § t— t t^ CO 0:2; Q 104 BUSINESS FORECASTING TABLE No. 34.— UNITED STATES DEPARTMENT OF LABOR Index Numbers of Wholesale Prices, 1890 to 1920, by Groups of Commodities* •« Year g .^^ ■£ ^^| aSS^g S 2 h,i«,Oi*,;§ aqua; !?'»: 1890 68 89 94 69 114 72 90 72 92 81 1891 73 89 91 68 102 70 92 72 92 82 1892 66 80 91 66 93 67 91 71 88 76 1893 67 87 88 66 85 68 90 68 91 77 1894 59 77 78 61 72 66 83 67 86 69 1895 60 74 78 67 77 64 88 62 82 70 1896 54 67 75 69 80 63 91 58 80 66 1897 58 71 75 62 71 62 89 56 80 67 1898 61 76 79 61 71 65 93 61 79 69 1899 62 75- 82 71 108 71 96 62 82 74 1900 69 79 88 80 106 76 97 69 91 80 1901 73 80 82 78 98 73 98 69 90 79 1902 81 85 84 92 97 77 97 73 92 85 1903 75 82 88 105 96 80 96 74 94 85 1904 80 87 89 91 88 80 97 73 94 86 1905 77 86 91 87 98 85 96 71 95 85 1906 78 84 97 90 113 94 94 74 97 88 1907 85 89 104 93 120 97 96 80 101 94 1908 85 94 94 91 94 92 100 78 97 91 1909 97 99 98 88 92 97 101 77 109 97 1910 103 100 99 84 93 101 102 80 116 99 1911 93 99 96 82 89 101 103 85 104 95 1912 101 108 98 89 99 100 101 91 101 101 1913 100 100 100 100 100 100 100 100 100 100 1914 103 103 98 96 87 97 101 99 99 100 1915 105 104 100 93 97 94 114 99 99 101 1916 122 126 128 119 148 101 159 115 120 124 1917 189 176 181 175 208 124 198 144 155 176 1918 220 189 239 163 181 151 221 196 193 196 1919 234 210 261 173 161 192 179 236 217 212 1920 218 236 302 238 186 308 210 366 236 243 * Monthly Labor Review, vol. XII, No. 2, p. 45. Price fluctuations. — Rising prices signify a period of in- creasing business activity and lowering prices indicate a period of dullness. Although the manner in which prices change, and the cause of the changes have been previously discussed, BAROMETERS OF MARKETING 105 ■■■ g g i 8 i i 1 9 • PBOSPEBIIX lfl?0 1891 \ 18?S / 1 ^ TflSfl i 1 1 Tfl94 /s / 1 SBFBSSSiaU 1S95 »fl 1 1 > 1 [^ 1 3 — ^ RBOOVEEY A 1057 1 D H 189? I 1899 I \ \ \ S H 2 PHOaPSRITY 1900 , s 1901 1 X»oz 1903 / 19M \ o 1 to - S s 1?0S 1906 [ i MA JOB CRISIS 1907 \ \ \ 1 1 1 1 i REOOTEHt 1909 V-, r [ E PBOaPBBIIY 1910 ^ \ n d iwa /f / 1911! \ s 191S 1914 1915 1915 1917 ""^'^'^^ ^t:::^ 3918 V -^^ 1919 s 1 MAjm) ORTsrs 19i!0 H ^^_ /^ 1 8 o » e o! g 5 1 106 BUSINESS FORECASTING BAROMETERS OF MARKETING 107 1 S S! S S S S S to PBOapBKII? _iaK oaai i 1892 1 jiaaa / 1 ""'"'"" 1894 // ■ H SEFBBSSIOE 1896 1896 ,/ 1 ^ BBCOTEKI 1 1897 1 1898 \ 1 a 18»9 S saosEsaiiT l?oo 1 1901 1 1 s 190S \% WHOl 1993 l| s xva H CD s 1906 1 M ■ OS 1 I-* Q — D3 1906 i § \ 3 MnjnR CBTan 1907 TiflTH 1 m-RES^lo? 1908 / i ^ ■ \ ^ SKCOTRRT 1909 \ \ I — "3 fBOSFBBIIT 1910 ; 1911 f 1 1912 \ '3 191Z \ 1914 19-15 1916 '^-. 1917 C^ ~ ~~^^ 1918 ^^-^ ^v 1919 X ^^ 1920 "^ ■^=^-. o Oi O OI o CT 1 > > < o f M > m HH O w 108 BUSINESS FORECASTING BAROMETERS OF MARKETING 109 s d § s s i i 71 PBOSEEBIin IRKI 1891 1 / 1B9P 1 / = lUJOB CRISI. 1393 1 / 1 1894 / / ■ 1 SRPBBSSIOH J89E 1"\ 1 3,896 / \ 1 BICOTEET J897 1/ / .zBia 1 1 1 § ii ■ ^ i § _ Co o o e 1899 \ ^-^ --, PBOaPBBITY i9nn V 1 1901 1 i > / 190IS \ / \ 1 ^ 190!) -U ; JlOl 190f i;\ 19?< \, 1 UiJOTl RBTRia 1901 \ \ 1 LEPiTRSaiori 1908 1 ^ 1 JSQ! \ FB0SFRBIT7 191 Q ' - 1911 /(' 1912 \ 1913 1914 / 191E \ 1916 ""^ -^ 1?!' ~""-"-. -^r:: ^^^ 191( r 191; /" y \ \ \ jaa \ \ ""■- *-^ t^ y* i^ >^ ta g S 8 S S S 8 s n > us M > I— ( w (« n w > no BUSINESS FORECASTING BAROMETERS OF MARKETING 111 112 BUSINESS FORECASTING 1 p p p p o> -a o pj C3I -^ o CJI o ui o en 225 PB0SPSB1I7 lS9t 1891 I' \ \ 189 S — 1 llAJOfi CRI3I3 1633 / I 1 \et-i 1 / H sEpssasioB lasB / 1 / 1 1896 / / ^ 1P97 / i ^ 1 EdC0VSB7 1898 \ 1 'd J£2a 1 \ 1 FBOa?SHIIT 1900 \ § 1991 1 i 1902 \ K^ e 1903 iii| 3 190A / g 1 3 >-• m a CO 1906 / S I H 1 1906 \g \ i UAJOR CRI3I3 1907 \ \ TIRPBRSSIOH 1908 t i 1 1909 \ \ - r. PEOSPERIIY ,1910 1911 1 T9-\P. 1 1913 " 3 1914 3 1916 1916 1917 <;- ~-,,^ 1918 ^-x^ 1919 >-\ _Mli!9fi.OifI5.H 19?P ""- H H (-• M t S S S K g S ^ I 8 1 n > X > < ^ o r w CO > t-l W ►0 I— I o w (» K o a w •I) a z I—* en Z o BAROMETERS OF MARKETING 113 a third important aspect of the price situation is found in the total lack of uniformity in the fluctuations. This is clearly indicated in Table No. 34. During the period from 1896 to 1913, a gradually rising price movement was in progress throughout the United States. The index number rose from 66 in the former to 100 in the latter year. But this appreciation was not uniform as to time or to commodities. In four of the years — 1901, 1905, 1908, and 1911 — a decline occurred. During this period, chemicals advanced in price but 10 per cent, in comparison with a 25 per cent gain in metal prices, a 50 per cent increase in food prices, and almost a 100 per cent gain in the prices of farm products. The widest range in fluctuations is shown in farm products (54-100), house furnishing goods (56-100), fuel (61-100), and food (67-100). The narrowest range is found in chemicals (83-100), cloths (75-100), and metals (72-100). During the war period from 1914 to 1920, prices advanced with unprecedented rapidity. The Department of Labor in- dex for 1920 showed an advance of 143 per cent over that of 1913. House furnishing goods made the greatest gain, 266 per cent. Building material prices went up 208 per cent; clothing, 202 per cent; fuel, 138 per cent; food, 136 per cent; farm products, 134 per cent; chemicals, 121 per cent, and metals, 108 per cent. The price decline in 1920-1921. — The index number of the Department of Labor reached its maximum in May 1920 — 272, or an advance of 172 per cent over the level of prices in 1913. Of the nine groups of commodities which are consid- ered in the construction of the index, but two reached their high- est point in this month. As is shown in Table No. 35, clothing prices were highest in March, farm products and metals in April, while in May, when the aggregate was greatest, food and building materials reached their peak. It is significant to note that at this time, farm products and metals prices had already started downward. The usual sequence of price changes in a falling market was well illustrated. Raw materials, notably silk, wool, hides, cotton, and copper, declined rapidly during the spring and early summer months of 1920; wholesale prices were reduced during the late summer and autumn months; retail prices, as laggard as usual, did not fall off until late winter , and wages, 114 BUSINESS FORECASTING IIF, oo Ov to tJ- ^ w^ (M . "^ oo t-N. t^ CM C^ CM ^ M O l>* so *« Csj CM CM O 2; CO W U p2 < CO W O X u w Q sSnjp SJVlJ3tVlU Sutp]tng pup !JVt}J^ ffuijt/Sij puv j^nj ffuitffop puv si{toiJ a\ t^ v\ rj lo oo OO (?\ O tH T-( i-t .-I T-H (N» CSI C*» C^ t-^ ^O fvi »-H T-t CS) N CM pg VO t^ OO tH O OO CSI CM ^ OO t^ t^ VO VO VO r ooovo v«ii^i>. eooooo co<^vo sOOCM ^W.CO eoCMi-< i-it^so CMcoeo (v^rv^co cocoeo eoCMCM IfjcnO i-«roCM ^Ol^ OjOsOs 0\OsO\ oot>.*n 0^ 1-f 00 CO CM CM ro CM O O O O Csl CM CM CM CM C^ Tt-t^CM rou-^vo CMOO^ CMOOSO oOOOOs i-ltn^ vo^OOo OO^SCO w^rH C>1CMCM CMCMcM CMCMCM "43 00 OO IT^ CM i-H O CM CM CM OS OS oo 0(0^0 cob^tn (NiOsoo "^lOlrt VSTt-CO l-HO\l^ cocv^cvj eococo coCMC4 ^ h^ *+• O 00 CM SO 1-1 o a to m (M OS CM CM CM c^ 1-H "* "* ? v;? '/Jooj co-^vo Ot>iOs oovsco ^»riCM "^■d-"* t^Oot^ sOcoCM CSOst^ CMCMCv! CMCM^ CMCMCM CM^-nrH th T-* ^H wn rjDupoj^ 1UJVJ ^O tr^ O **. en c*. vttN.O'-'t^ori-'ocNic^Jos 57 P^ P* BO ^ K^ C^ oa ■,-< C^ \0 ^ y^ rtC T-J't^oTo'f^T'oo'oo'o'i-rrC ^ c^ :::::::::::: Ci o S ::::::::::;: t 9 ::::::::::;:«' 1 :::::::::;;; ^ f~ ::::::::::; -a C" . u . . ....... ♦^ 5 :::::::::::: S W "5 >% ^^ . . 1 . J3 >-. ^ J3 *^ 118 BUSINESS FORECASTING COMMODITY SHIPMENTS Transportation of merchandise. — The volume of merchan- dise which is being transported by the steam railroads of the United States affords a serviceable criterion for measuring business activity. Steamships on inland waterways and coast- wise lines carry a substantial volume of freight, but the great bullc of shipments moves by rail. The most satisfactory method by which transportation conditions may be judged is through the relationship between the number of freight cars available and the number in use at any given time, and through the number of freight cars which are being loaded. Idle cars. — The number of idle freight cars indicates the relative volume of commodity shipments. Freight cars are considered to be "used" when they are aictually carrying goods, or in the process of loading or unloading. The cars are "idle" when they are in serviceable condition and are not being used. Cars not in serviceable condition are termed "bad order" cars. The number of Idle cars naturally increases when busi- ness *Is comparatively Inactive and diminishes when conditions improve. In times of activity, the surplus of cars Is occasionally eliminated and an actual shortage develops. A gradual increase In the number of idle cars, as is shown in Table No. 37 in the gain from 17,058 in January, 1913, to 241,802 in June, 1914, from 91,691 in November, 1918,— the armistice month — to 473,080 in the following March, and from a shortage of 124,226 In August, 1920, to a surplus of 30,022 in the following December, clearly reflected a distinct slackening in business. In reverse fashion, a gradual decrease in the number of idle cars, as is shown in the decline from a sur- plus of 327,084 In April, 1915, to a shortage of 138,102 in March, 1918, and from a surplus of 473,080 In March, 1919, to a shortage of 124,226 In August, 1920, indicated increasing activity. Idle car statistics are not conclusive, however, as changes in the number of bad order cars affect the number of idle cars in- dependent of traffic conditions. A reduction in the number of idle cars may be largely attributable to an Increase In the num- ber of bad order cars as was the case in May of 1921 during which month the number of bad order cars increased from 309,971 to 341,337. Moreover, there is a seasonal variation In the volume of idle equipment, the surplus declining from February to October and Increasing from October to February. BAROMETERS OF MARKETING 119 8 i s o 3 H H w 8 8 8 3 « g S o o o g f H til Me ! ;; : •uk -^ H" ;:::::::§ ! : ■ ■ IllllllnllllgPlllllllllllllllllllllilli!^ ttttfr :1SP: ++!+■" 7I0DBBS H ■■ ■ H ™ um 4=u- 3T AVAIMELB. : •g : Q ^ s s ffi II m CO |-j. 'titn ; ; ShS H M> Q fe -3 n* lllllllllll^ H CD J • • 86 337 • t ■ 101 403 57 460 112 468 187 567 27 569 7 510 7 590 163 620 139 737 305 765 251 889 192 833 . 163 767 15 795 108 749 120 688 100 713 49 715 6 691 ...» 727 56 857 34 970 142 938 97 875 99 825 148 824 23 1,005 324 1,099 357 1,255 620 1,275 476 1,477 648 1,465 584 1,360 391 1,484 489 1,451 415 1,626 447 1,798 477 1,923 500 1,752 636 1,728 252 1,866 303 2,092 560 2,399 581 2,484 691 3,113 324 3,554 1,776 5,482 3,091 6,233 3,281 6,149 3,117 7,920 4,016 8,228 2,949 124 BUSINESS FORECASTING BAROMETERS OF MARKETING 125 CO < CO Q H Z D a a H b O CO H o Oh X M Q Z < X I-I K H Z o O pq < O "^ !>. C^ ON N CO ir» l>^ Csl^ G>^ O^ e*r ui v^ in" vO ^ vo vo ■^ '"Is "^ ^ Cvf »X" ctT »o" CNJ rj- T-) oo t^ VO OO T-< CO M OO CO oo 1-1 Th tJ- cvf tC T-T ^ U-l &v t:1- OS u^ o i-H r^ ci" vC to" o" C4 oo o i-« \o u^ vo oo "*0 O OO '^J- O t^ CO tW CO 0^ CJ vn tC ^ o oC Os so o vn !>. CO C^ O Th" i-T csT oC O '-' CM m lo 'd- VN Ti- M \0 CTN t^ OO O On OO vo t1- *0 \0 rf^ oo" irC oo" r«i H- oo lo CO "O CTn 0\ Co" t^ CO Tj^ »-( ^O vrt CO so ^ u-» \o O ^ 'd- oo 1-H t-^ CO t-H ■O co" m" M" CO oo rj* vo cT i-T o cT to O fi ^ CO ^ rh i-H CO On CN| 'sl- ,-H VO U~l 1-H CO oo oo o oC ut' T-T t^ r^ o i-H C7\ oo oo so (M rC oC \o" ■^ ^^ o^ o\ '^ M CNI CsJ 00 CO »o -+ CM O '^ CO oo vo^ w r^ o>^ so" o" oC irT so CM CJ> oo ^ ''V'^ ■^ ^ co" t^ »o O I^ oo vo CM ^ i-< »0 O CM *-' "^ CO ^ T^ oo On OS t^ w-> CM vfT so so CO Ov CM w^ O^ Os^ ■<:h^ -cj^ ^C CO l-C oo" CM 0> oo o CM i-H i-H so CO so CM ^ t^ CM so so CM co^ ■^^^ O ^ Th' i-T csf '^ ^ ^ O ■^ oo_^ 't r^ CsT oo" yy^ so" O OS O O CM »-< CM VO W VI ^ O ON O O O CO CO CM OS co" t«- CO CO oo W^ CO b*> O On os On CM CO t^ CM Os CM »^ l>. CO CM t^ CO On CO so o\ w CM !>. i-H (O vn CO cs| ■^ irT os ON* oo rj- CM w^ so t^ so o CM t«^ to CO u-i CO CM O so rH O^ CM^ CO O t-«. On so" O so t^ Th OO 0\ CHT^ i-H ti^ CO* oo" i>r i-( O CM ^ f-s so Os CM cm" so 1-H 0\ so O ON OS On On t^ eo_ O cm" -^ On" tC T*- CM CTs so ^ Os^ t-^ i-H O O CO *r» ^ V^ oo CO tn tn ^ u^ li-i «d- f^ so t^ CO CO ^ CM so 0\ OO On O i'^ u-i Os O CO CO CM sn t^ u^ m WN u~i so CM t^ ^ tA CO CO w^ PQ VN so ON T-l oo" co" "1 oo" SO O OO W M-1 OO SO O oo" ^"^ ^ oo" Os l>. SO CO CO rj- "^ CO CO CM so 1-t ^^ ^ »-4 (^ CJS^ l-<^ "d^ ^ wT OO* i>r f-T ^ ^ ^ ^ t^ CNI^ W^ VO ■^ ■li^ oo" tC On t^ "^ CO CM CM CM OO O Os H- CO l^ l-t ^ CO w^ so O CM vn 1>. O CO OO C^J so so CO CM ^-< 1^ '^^ -^ Os^ t-.^ co" t^ ^ vrT T-H O O CM OO so ^ OO On ^ CO t-C ON Os so w-i T-( »-i T-i m (M 00 CM CNJ ^ U^ Tj- Tj- CO O O- i-H o" cT co" ^ ^ oo CO ^H CO CO CM On On" »n oo" cm" t^ I^ CO Os tH w ^ ^ O CO t^ O 10 VO CO T^- vn CO !>. so rC cm" so" so" oo to O '^ On ^-< t^ oo tC CO v-T (vf u-t lO ■H- vo oo 1-H On oo t^ On to cs| ^ ^ CN|^ ^ so" p^ so" lo" CO oo OO o T-H^ W SO^ O 1-1 oo" -^ ^ irt r-. o CO so w-Y so oo T-T •o to so s^ 1-H C'J so O »o ^ CM CSJ^ t<" Ti^ •*" so~ oo to '^ w^ so O CM Os oo" so" w-T On" SO t^ CTv C5 to so lO OO OS SO Th Os so T-( ON t^ t>^ ON ON so rC co" to" tC so T-( Os (^ tJ- o CO OO tC rC cT -^*" O CM "^ OO «o to »o to ^ h- r-. oo i-H OS tJ- to ^ to OS On oo" to" rC T-T to to Os T-H f*. so On . oo to T-< CO ^ '^ CO ^ oo tJ- so so CO CO CO ^ ^ ^- *^ ct" r-T tJ-" to" 1-H so CM O I>^ 1-H Os oo I to ^ I tH OS ) \o oo r csf on" > to ^o ■ oo f^ ) ON oo ) On t^ I OS to OS rH to so r1 1:^1 1-1 in so ON^ Ti^ ON^ 1-H O" w" CO* o ^ *0 OS to to 3 ^ ^ ^ to to so O O CM CM *-( CO CM so so CSJ^ 00_ so^ ■tj^ to" so" so" i>- CM r-' r-^ On O so so oo" i-T o" o so so O CO CM CM CO oo I SO CO I oo oo I OO^ OS r "^ oT I so oo I to to o *o o »o O oo oo so <~l 1-H^ CM_^ 'i-^ csf co" ^ oT CO Os so oo CNl^ 1-H OO^ CSJ^ co" oo" co" to" ^ oo On CM to T^ to so so ■* O CM w CM OO CM Os CO t~* O CO r»r CO to" 1-1 so CO »-( OO 1-H CSJ^ CM CM so co" CnT On 1-H M CO ^ to to to O CO CM to O w CJs O ^ '^ ^ ^ OO O so to" 1-H t-^ O OS O so CO On oo" t-T CTs r^" CM CM to rl CO CO CO (3 5 bs. ^ CO H- ^ Os CO r>. On tJ- CO !>. yi oo" t^ csf oo" CO so to to 1— ( CO c> »o Th o so o to 1-H tri C-I ^ l-H T-( Tt- O" On" cT On" ON O ^ CO ON^ ON^ CM iH^ o" t-C oo" t^ so oo 1-H so ^ ^ CM to to 1-1 CM oo to t-N so oo CO oo O CM to" -d^ oo" oo" oo ^ t^ O oo oo so rj- oo" tC Os" so" t1- so ON tH ■»-( tH i-H to so to oo O ON oo On oo so 1-H t-- so iC Th" to tC CM -d- Os so w ^ ^ ,f ^ CO oo i-i " CO in so CO_ U1 O i-i oo" Csf csf i-H t^ CM CO t-- oo so so •d-^ to" lo so" Os O H- '"i- i-< CM CM ^O ^ CM OO I*- so ^ Csj CO ^ O so l-H t-T On" to" so" so CO Os On oo to T-W to ^H to" co" cT t-^ T^ CO to CM CM CM t^ ^ 1-1 t^ CM O Os O Q to i-H OO to co" T^" to c*f CO '^ 1-1 ON SO^CM^ co^ th ■^ oo" o" co" to r^ to oo CM M CM t- so O so CM l-H so CO »H to t-. i-( ^ CO t^ Os O o~ w" rh t>r W O CM CO CM CM CM so C-l .j3 3 >. 13 : 3 13 S -a o" ra 3 cj 4_i 3 >-< IH CO a -o a y-i ■ M • 3 >^ bo « "^ 3 B u I— 1<5 CO . u u a t. -2 .o 3 S > cj " o o « ^ OZQ 126 BUSINESS FORECASTING payment of American credits abroad has proved a potent con- tributing factor to the economic impasse which has followed the termination of the war. The detailed monthly summary of foreign trade for the period from 1911 to 1920 inclusive is shown in Tables No. 40 and No. 44, which give respectively merchandise exports and imports. The gain in trade from 1915 to 1920 was not so great as appears on the surface. The general increase in price levels caused the value of the shipments to advance without a corresponding change in the volume. Export and import figures have not proved an exception- ally good barometer of domestic business conditions. As is shown in Table No. 40, the value of exports for the last six months of 1920 was substantially greater than in the corre- sponding period of 1919 despite the fact that business condi- TABLE No. 41.— FOREIGN TRADE OF THE UNITED STATES BY GRAND DIVISIONS, 1913 AND 1920* EUROPE Exports $1,499,000,000 $4,466,000,000 Imports 864,000,000 1,227,000,000 Excess of exports $635,000,000 $3,239,000,000 NORTH AMERICA Exports $601,000,000 $1,929,000,000 Imports 389,000,000 1,663,000,000 Excess of exports $212,000,000 $266,000,000 SOUTH AMERICA Imports $198,000,000 $761,000,000 Exports 146,000,000 623,000,000 Excess of imports $52,000,000 $138,000,000 ASIA AND OCEANIA Imports $316,000,000 $1,476,000,000 Exports 207,000,000 1,043,000,000 Excess of imports $109,000,000 $433,000,000 AFRICA Exports $28,000,000 $165,000,000 Imports 23,000,000 150,000,000 Excess of exports $5,000,000 $15,000,000 • Compiled from "Monthly Summary of the Foreign Commerce of the United States," December, 1920, p. 7. BAROMETERS OF MARKETING 127 tlons were much better in 1919. Exports did not fall off until February of 1921, almost an entire year after the downward trend had begun. TABLE No. 42.— LEADING EXPORTS OF THE UNITED STATES, VALUES AND RANKING, 1918-1919-1920* (in millions of dollars) 1920 1919 rprS Article Value Rank Value Rank Value Rank Cotton (raw) 1,136 1 1,137 2 674 S Iron and steel (rafrs.) .... 1,112 2 968 3 1,035 1 Breadstuffs 1,079 3 920 4 801 3 Oils 608 4 444 6 373 6 Meat and dairy products... 544 5 1,160 1 941 2 Cotton (manufactured) 402 6 273 8 181 9 Coal 349 7 119 14 107 11 Automobiles 298 8 151 9 96 12 Tobacco 274 9 513 5 795 4 Leather 190 10 303 7 91 13 Wood 186 11 136 10 87 14 Copper 133 12 121 13 200 8 Chemicals 168 13 133 11 165 10 Electrical machinery 101 14 89 17 59 15 Sugar 95 15 114 15 27 21 Paper 89 16 86 18 54 17 Rubber (mfrs.) 85 17 53 19 31 20 Cars (excl. autos) 84 18 110 16 55 16 Fruits and nuts 84 19 126 12 32 18 Explosives 56 20 28 23 243 7 Agricultural implements ... 46 21 41 21 32 19 Wool 44 22 47 20 19 22 Fertilizer 36 23 20 25 4 Naval stores 34 24 31 22 10 . . Furs 32 25 23 24 11 * Compiled from "Monthly Summary of Foreign Commerce of the United States, December, 1920." Merchandise exports. — In studying commodity exports from month to month, allowance must be made for seasonal tendencies. Exports are usually at their peak during the fall months owing to the movement of American crops abroad. As is shown in Table No. 41, Europe is the best customer of American producers as exports to that Grand Division exceed in value the aggregate to all other continents. This indicates clearly the effect of European conditions upon the United States. 128 BUSINESS FORECASTING The relative importance of the commodities which are af- fected by changing conditions in foreign trade is shown in Table No. 42 which gives the value and ranking of the prin- cipal articles of American exportation. Raw cotton, iron and steel manufactures, breadstuffs, oils, and meat and dairy prod- ucts, comprise over SO per cent of the total exports in value. The exports which are of greatest significance from the standpoint of industrial activity are those of manufactured products. Not only is the margin of profit greater on this class, but the production affords employment at high wages to American labor. Table No. 43 shows the relationship be- tween the value of manufactured products exported and total exports for the calendar years 1910 to 1920. The value of manufactured products for the period averaged 67.08 per cent, or slightly more than two-thirds of the total. TABLE No. 43.— EXPORTS OF MANUFACTURED PRODUCTS IN THE UNITED STATES, 1910-1920* Total domestic Percentage of Year exports Manufactures manufactures 1910 $1,829,022,000 $1,083,680,000 59.27 1911 2,058,413,000 1,275,062,000 61.94 1912 2,362,696,000 1,426,556,000 60.38 1913 2,448,284,000 1,501,721,000 61.34 1914 2,071,057,000 1,282,744,000 61.94 1915 3,493,230,000 2,341,366,000 67.03 1916 5,422,642,000 4,185,663,000 77.20 1917 6,169,617,000 4,827,027,000 78.26 1918 6,047,874,000 4,528,331,000 74.88 1919 7,749,815,000 5,448,366,000 70.30 1920 8,080,480,000 5,280,252,000 65.34 * Compiled from "Statistical Abstract of the United States," 1920, p. 474. Effect upon domestic industry. — The relationship of for- eign trade to domestic industry can be established by compar- ing the value of manufactured products exported to the total value of domestic manufactures as reported by the special cen- suses taken in 1899, 1904, 1909, 1914, and 1919. The total value of manufactures in 1899 was $11,406,927,000 and the value of manufactures exported was $685,141,000 or 6.0 per cent. In 1904, the total value was $14,793,903,000 and exports were $832,447,000 or S.6 per cent. In 1909, the total value was $20,672,051,000 and exports were $973,971- 000 or 4.7 per cent. In 1914, the total value was $24,246,- 434,000 and ex-orts were $1,282,744,000 or 5.3 per cent. In BAROMETERS OF MARKETING 129 CO M H CO Q a H Z D « h o CO h O Pk s to hH Q Z < a u a S >^ X H o o i-l PQ < ON o vo XO 1^ -ci- -«*• ON ^ oo rH O OO O OS t^ 1-1 vo *M t<^ C^l t^ Ti- CO ^ O. OO O so t^ OO i-< t^ 1-1 oo «o csi^ ^ to On to O OS -51- CO t^ O O OO OS_ CM_^ 1 CO M eo" oT OO -.ij- to OS OO 1-1 O O to i-T csf o«r OO* (M O . "=*" * "^ "^ •^ ,^ to ^ to VO CO rf- to CO CM On CM th" ^ iS to* T*- -^h ON I^ ^ t^ oo o OS CO CO to O OO t^ to o ^""» CO o t^ ■<*• OS Td- oo b*. t^ tJ- ON to so CM ^ CM NO (sj C^ M On »o to O o o^ t^ oo^ 1-1 SO^CO 1-J^ en ? ? 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I>- Os r»- S N (>) CM ^ ^ O oo OS oo csf oT tC os" Crs O Csl CO CM "O O I>. so en Ov Os Ti- en CM O to Os CO oo tn CM oo so i-H en oo en Os CM so oo t^ to CM to so ■^" CM en oo m oo CD SO oo O to t^ to T*- IV. vo tn CM ■^ en CM i-H oo !-< r^ OS t^ !>. OO en CM . . . u : : : s 4J . . . Ui ' '. ' Si ; i-» §■ CM — tM CO '. *^ u ^ ■s : 4* 5 rt »H ^ JD 3 1 rt 3 o ^ S tH 1-, tn C > « s a o* < 2 >z 1 OZQ :- m 5 _ CI. B BAROMETERS OF MARKETING 133 tures. Moreover, a drop in exports usually comes after a period of depression has started, as was illustrated in 1920 and 1921 when exports did not start to decrease until almost one year after business started to slacken. The volume of imports has the greatest significance as it reflects the domes- tic demand for raw materials for production as well as the extent of economic recovery in the belligerent nations of Eu- rope. Large exports require large imports, and favorable trade balances, i.e., excess of exports, must be followed by unfavor- able balances, i.e., excess of imports, if payment is to be even- tually consummated. The payment of Europe's indebtedness to the United States will require that this country import mer- chandise during the coming years at a greater rate than ex- ports are sent abroad. A favorable balance of $3,329,000,- 000 in 1920 must be converted either through increased im- ports or decreased exports, or both, into an unfavorable bal- ance for a prolonged period.* RETAIL SALES Retail sales represent current purchasing power. — The proportion of the total expenditures of the average American family which is made In the retail stores is approximately 75 ' The "Federal Reserve Bulletin" each month prepares a representative table of exports and imports of the United States comparing prevfar and postwar totals with the price change eliminated. On this basis, the index numbers for 1913, 1919, and 1920 were as follows: Year 1913. 1919. 1920. Year 1913. 1919. 1920. EXPORTS Raiu Producers' Consumers' Grand total materials goods goods exports . 100.0 100.0 100.0 100.0 . 88.9 154.7 188.5 118.6 . 92.2 142.6 ORTS 137.9 107.7 IMF Raiv . Producers' Consumers' Grand total materials goods goods imports . 100.0 100.0 100.0 100.0 . 157.5 193.0 161.4 171.1 135.2 227.3 155.4 171.7 134 BUSINESS FORECASTING per cent." Retail purchases represent the purchasing power of the people which in turn represents their earning power or productivity. Experience has shown that increased produc- tion gives an increased command over the articles of produc- tion which is utilized almost immediately. Saving, unfor- tunately, is a negligible factor when income increases. The volume of retail sales, therefore, affords a criterion for judg- ing the general prosperity of the people. The volume of sales. — The compilation of representa- tive figures which would cover sales in the retail field involves many difficulties. The number of retail stores in the United States runs far into the thousands and the value of sales ranges from a few hundred to many million dollars annually. Until recently, no systematic attempt was made to collect retail sales statistics and accordingly changes in the past have been discus- sed in a general manner. The sales of the large mail order houses, such as Sears, Roebuck and Company, Montgomery, Ward and Co., and the National Cloak and Suit Company, and the sales of the chain stores, such as F. W. Woolworth Company, and of certain department stores, such as The May Department Stores Company, were accepted as the best indicia of retail conditions. The Federal Reserve statement of retail sales. — The Fed- eral Reserve Board began to compile statistics of retail sales in 1919. The larger department stores in each of the twelve districts were requested to submit monthly statements of the volume of sales either in dollars or on a percentage basis In comparison with the corresponding period during the previous '"The average expenditures of an American family are estimated as follows: Per cent Food 38.2 Clothing 16.6 Housing 13.4 Fuel and light 5.3 Furniture and furnishings 5.1 Miscellaneous 21.3 Total 100.0 — From the Monthly Labor Revieiv, vol. XII, No. 2, p. 61. BAROMETERS OF MARKETING 135 TABLE No. 47.— CONDITION OF RETAIL TRADE ACCORDING TO FEDERAL RESERVE DISTRICTS* (Percentage of increase) Dist. and year. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. AToo. Dec. 1. Boston: 1921 1.5 34.8 6.5 18.3 1.5 37.5 —1.9 18.5 —4.5 20.7 —3.1 28.0 —12.3 19.9 10.9 1920.... 15.4 .6 11.4 — A 2. New Y 1921 ork: —5.3 t 1.0 t —4.6 64.8 — .5 15.8 —10.0 35.4 —7.1 28.4 —11.5 24.4 —5.2 15.9 1920.... 3.6 6.2 11.6 —1.6 3. Philade 1921 Iphia: 3.1 22.2 3.8 17 6 1.8 37.5 — .4 12.4 —7.8 50.7 —7.3 34.3 —11.8 23.8 —4.0 22.6 1920.... 15.2 15.8 8.5 6.1 4. Clevela 1921 nd: 3.6 t 6.4 28.6 — .4 45.5 .8 18.4 -5.5 31.3 —14.1 31.5 —21.4 29.9 —21.0 25.7 1920.... 24.6 20.8 26.1 14.7 5. Richmo 1921 nd: 5.4 t 8.6 14.2 2.7 23.1 — .7 .9 —3.0 11.0 1\A —11.7 15.7 —9.8 20.9 1920.... 7.5 12.4 13.1 4.9 6. Atlanta 1921 —9.0 t 1.4 t —5.6 27.4 -19.5 23.4 —16.8 31.0 —17.0 24.3 —21.2 11.6 —21.3 27.6 1920.... 12.6 25.1 14.6 3.0 7. Chicago 1921 —10.5 48.2 —5.4 51.7 —3.2 65.2 —3.1 33.3 —12.5 49.7 —17.3 59.6 —14.7 41.2 —18.8 33.2 1920. . . . 28.6 8.3 17.6 9.6 8. St. Lou 1921.... 1920.... is: —3.8 t —3.1 t — .7 t —2.9 t —1.6 t —7.9 t —16.5 t —11.7 20.8 11.8 10.5 10.8 S.3 9. Minnea 1921 .... 1920.... polis: —12.3 t —7.0 t —11.2 t —5.4 17.0 —14.9 4.3 —16.8 11.8 —21.8 11.6 —11.0 8.8 .3 —2.9 2.9 .5 10. Kansa 1921 .... 1920.... s City: —11.6 t 4.1 t —6.1 24.6 —2.8 19.6 —5.3 10.9 —10.8 12.9 —10.9 14.1 —8.9 9.9 7.8 —1.9 9.2 —5.1 11. Dallas 1921.... 1920. . . . —8.9 t —4.6 t —16.0 t —17.7 t —17.4 t -17.4 t —22.1 25.9 —23.3 25.6 12.4 16.0 12.7 —2.9 12. San F 1921.... 1920.... rancisc —14.3 51.7 o: -2.4 31.1 — .6 37.8 —9.3 13.8 —4.1 31.2 —7.8 27.8 —12.9 21.2 —6.2 21.7 14.5 8.2 11.3 —4.3 United Sta tes:t t t —4.2 —8.6 —10.7 —15.1 —11.9 * Compiled from the "Federal Reserve Bulletin.' t Information not available in certain districts prior to August, 1920. t Not compiled previous to April, 1921. 136 BUSINESS FORECASTING year." As is shown in Table No. 47, the first month for which figures were secured for the entire country was August, 1920. As the Federal Reserve statement is based upon the vol- ume of sales in dollars rather than in units of merchandise, consideration must be given to changes in the level of prices in an analysis of the statement. Retail sales in District No. 2 in December, 1920, were reported as 1.6 per cent less than in December, 1919. Retail prices, however, had declined to a greater extent'^ and the quantity of merchandise sold in the former month really exceeded that in the latter although the money value was less. Retail sales as a business barometer. — The statistics avail- able are too meager to justify a conclusive opinion as to the value of retail sales for barometric purposes. Retail sales in April, 1920, showed a marked falling-off in comparison with the trend of the preceding months and it is significant that it was about this time that business conditions started to become adverse. Yet the recovery in sales during the remainder of the year indicated a condition of affairs which was quite con- trary to that which actually transpired. The volume of re- tail sales during the first four months of 1921 in comparison with that for the same period of 1920 did not reflect the de- gree of unemployment, of lower wage scales, and reduced purchasing power which prevailed in 1921. It would appear from the evidence available that the trend of retail sales fol- lows well after the trend in business conditions. "The number of stores which reported sales for April, 1921, was as follows: Number District of stores 1. Boston 24 2. New York 42 3. Philadelphia 47 4. Cleveland IS 5. Richmond 25 6. Atlanta 19 7. Chicago 20 8. St. Louis 11 9. Minneapolis 17 10. Kansas City 15 11. Dallas 19 12. San Francisco 29 Total 283 " The index number of retail food prices in the United States in December, 1920, was 178 — a decline of 9.6 per cent from the index number of 197 in December, 1919.— Afon/A/> Labor Review, vol. XII, No. 2, p. 21. Chapter VIII BAROMETERS OF LABOR CONDITIONS Labor conditions barometrics. — Closely allied with statis- tics of production and marketing are those which reflect the conditions of labor. Labor in this sense requires a broad in- terpretation as it embraces all who work in the service of others for a fixed compensation. The problem of labor — for labor conditions seem destined always to remain the major problem in economics and to be at the heart of all the great controversies of the world — is one of employment and wages. That man must work is inevitable, and such being the case, the conditions under which he makes his living have a close association with the trend of economic development. Obviously labor conditions can not be satisfactorily meas- ured with statistical standards. The relative degree of con- tentment with which labor performs its allotted tasks, for in- stance, would require a psychological rather than a statistical unit of measurement. Wages are never adequately expressed in dollars. The number of unemployed reflects poorly the amount of unemployment. The total number of strikes and lockouts, however, has a deeper significance than a surface analysis might indicate. Imperfect though the units of meas- urement are, labor conditions afford an opportunity for bar- ometric study which, although not indispensable, has consider- able value. EMPLOYMENT The problem of employment. — The number of persons en- gaged in gainful occupations in the United States In 1910 was 38,167,000 of which number 8,075,772 were female.^ As the employment difficulties in agriculture concern a shortage rather than a surplus of workers, the number engaged directly in that occupation should be deducted from the aggregate. ' "Statistical Abstract of the United States," 1920, p. 283. 137 138 BUSINESS FORECASTING The number directly engaged in agriculture in 1910 was 12,659,203 which would leave a remainder of 25,507,797 engaged in industry.^ Similar figures from the 1920 census have not been issued up to the time of writing, but may be estimated by adding to the number of industrial workers in 1910 a number equivalent to the percentage of gain in the total population during the period from 1910 to 1920.^ This would indicate that the number of industrial workers in the United States in 1920 was between 29,000,000 and 30,000,000. Under the assumption that normal conditions of employ- ment would provide full-time employment for all workers, the effect of a decrease in working opportunity upon conditions of employment is readily discernible.* A decrease of 5 per cent in production is equivalent to unemployment for 1,500,- 000 persons; a decrease of 10 per cent means unemployment for 3,000,000; and a decrease of 15 per cent works out the same as entire unemployment for 4,500,000 workers. In a nation where a change of 1 per cent in the desired pro- ductivity means employment or unemployment for nearly 300,000 workers, the problem of employment Is decidedly serious. Effect of changing business conditions upon employment. — Just as stable business conditions bespeak steady employ- ment, so changing conditions result in fluctuating periods of employment. In view of the serious effect upon labor of slight changes in production, as shown in the preceding para- graph, small wonder may be felt that large changes have such drastic results. Outside of the compilations made at the decennial censuses, no official or scientific attempt is made to compile records of the total number of workers, employed or unemployed, in the United States. Under recent practice, however, the Bureau of Labor Statistics of the Department of Labor is compiling a monthly list of the number of workers at various plants in ' "Statistical Abstract of the United States," 1920, p. 798. 'The percentage of population gain during the decade from 1910 to 1920 was 14.9. The application of this percentage to the number of industrial workers in 1910 — 25,507,797 — would give an approximate gain of 3,800,661. 'It is fully appreciated that "normal" conditions in the United States — as existed in 1912 for instance — do not signify full-time employment for all workers. From an employment standpoint, however, conditions are normal only when all workers are operating on full-time. BAROMETERS OF LABOR CONDITIONS 139 TABLE No. 48.— COMPARISON OF EMPLOYMENT IN IDENTICAL ESTABLISHMENTS IN FEBRUARY, 1921, IN COMPARISON \VITH JANUARY, 1921, AND FEBRUARY, 1920* February, IQ2I February, IQ2I compared with compared with Industry January, igil February, igao Per cent Per cent Iron and steel +0.8 — 24.2 Automobile manufacturing + l-^ — +1-3 Car building and repairing — 12.8 — 16.6 Cotton manufacturing +17.8 — 0.1 Cotton finishing +12.9 — 16.0 Hosiery and underwear +20.8 — 44.2 Woolen +42.0 — 35.1 Silk +3.9 —21.0 Men's ready-made clothing +21.1 — 26.6 Leather manufacturing +0.2 — 36.3 Boots and shoes + 8.4 — 25.1 Paper making — 3.1 — 10.0 Cigar manufacturing — 3.3 — 7.5 Coal mining (bituminous) — 2.9 — 2.0 * Monthly Labor Review, vol. XII, No. 4, p. 83. representative industries which serves to reflect existing con- ditions. Table No. 48 which has been compiled from the February, 1921, statements illustrates how employment ten- dencies may be judged. In each industry, the number of workers employed in February, 1921, was less than in Feb- ruary, 1920. In automobile manufacturing, textiles, and leather manufacturing, the decrease was over 33 1-3 per cent. But in ten out of the fourteen industries the number of workers in February, 1921, exceeded that in January, 1921, the pre- ceding jnonth. This would dearly indicate that industrial conditions were recovering from the depression that was so evident in January.^ Employment conditions as a business barometer. — The largest "difficulty in connection with the use of employment ' In December, 1920, the United States Department of Labor began the organi- zation of an industrial employment survey of the United States. Monthly bulle- tins are issued under the title of "Industrial Employment Survey Bulletin." These bulletins show (1) a graphic curve which gives the monthly trend in the number of workers; (2) a cumulative table which gives the percentage of increase or decrease in employment in 14 industrial groups as set up by the United States Census; (3) a table which gives a geographic analysis; and (4) current comment on the employment situation in 231 industrial centers. — "Industrial Employment Survey Bulletin," No. 3, April, 1921", p. 1. A reproduction of the cumulative table as of May 31, 1921, is appended (including 1,428 firms employing about 1,600,000) : 140 BUSINESS FORECASTING conditions as a business barometer has been in the procure- ment of reliable statistics. This difficulty is now being ob- viated through the monthly compilations of the Department of Labor at Washington, one of which shows the conditions of employment in identical establishments, and the other the increase or decrease in the number of industrial workers in representative industries. From a barometric standpoint, the major advantage of an accurate knowledge of employment conditions is in judging the relative rapidity with which business recovers from a period of depression. The problem of labor is one of wages more than employment when business is active. INDUSTRIES REPORTING A DECREASE IN EMPLOYMENT IN MAY, Per cent of Amount of decrease from Industry decrease April 30, IQ2I Tobacco manufacture 1,542 5.5 Miscellaneous industries 15,355 4.9 Lumber 682 2.9 Iron and steel 8,781 2.5 Food and kindred products 915 0.7 Chemicals 105 0.1 Metals other than iron 3 0.004 Total decrease in 7 industries as listed 27,383 INDUSTRIES REPORTING AN INCREASE IN EMPLOYMENT IN MAY, 1921 Relative weight per cent employed to total employed 1.7 18.2 1.4 21.9 7.9 4.8 4.7 Amount of Industry increase Railroad repair shops 4,484 Leather and products 1,942 Vehicles for land transportation . . . 6,610 Textiles 6,606 Stone, clay and glass 276 Liquors and beverages 31 Paper and printing 223 Total increase in 7 industries as listed 20,172 Net decrease in 14 industries as listed 7,211 Net decrease in 14 industries since January 1 54,596 Per cent of increase from April 30, 1Q2I 8.4 4.3 3.8 2.7 2.0 1.9 0.4 1921 Relative weight per cent employed to total employed 3.7 3.0 11.5 16.1 0.9 0.1 3.2 0.45 3.3 BAROMETERS OF LABOR CONDITIONS 141 WAGES The trend of wages. — ^Wages follow a tendency which dif- fers materially from that exhibited by the other indicia of business conditions. In the first place, the range of fluctua- tions is not so great. A minimum wage is established by the cost of the essentials of life, which can not be infringed upon except for the shortest of periods if the workers are to survive. No such limitation obtains in the case of prices, for instance, for which there occasionally appears no minimum. In the second place, the usual course of wages is to follow well behind the general trend of activity. This is not always the case, however, as at certain points in the business cycle the wage trend has been known to precede the general trend. The cycle of wages as a separate economic phenomenon is well known. Wages increase in good times and decrease in poor times. In a period of business activity, labor demands and receives higher wages; and in a period of inactivity is obliged to accept reductions. In the intervening periods — comprising the theoretical normal times — ^wage scales remain fairly stable. A study of the index number of the average wages per hour of labor in the United States during the TABLE No. 49.— INDEX NUMBER OF WAGES PER HOUR, 1840-1920* (1913 = 100) Index Index Index Year No. Year No. Year No. Index Year No. 1840 33 1841 34 1842 33 1843 33 1844 32 1845 33 1846 34 1847 34 1848 35 1849 36 1850 35 1851 34 1852 35 1853 35 1854 37 1855 38 1856 39 1857 40 1858 39 1859 39 1860. 1861. 1862. 1863. 1864. 1865. 1866. 1867. 1868. 1869. 1870. 1871. 1872. 1873. 1874. 1875. 1876. 1877. 1878. 1879. 39 40 41 44 50 58 61 63 65 66 67 68 69 69 67 67 64 61 60 59 1880. 1881. 1882. 1883. 1884. 1885. 1886. 1887. 1888. 1889. 1890. 1891. 1892. 1893. 1894. 1895. 1896. 1897. 1898. 1899. 60 62 63 64 64 64 64 67 67 68 69 69 69 69 67 68 69 69 69 70 1900. 1901. 1902. 1903. 1904. 1905. 1906. 1907. 1908. 1909. 1910. 1911. 1912. 1913. 1914. 1915. 1916. 1917. 1918. 1919. 1920. 73 74 77 80 80 82 85 89 89 90 93 95 97 100 102 103 in 128 162 184 234 * Monthly Labor Review, vol. XII, No. 2, p. 74. 142 BUSINESS FORECASTING period from 1840 to 1920, as shown in Table No. 49, indi- cates this tendency although changes in the value of the monetary unit of measurement somewhat obscure the wage trend. Peculiarities of the trend in wages. — Few economic phe- nomena are better known than the fact that the trend in wages tends to lag behind the general trend in conditions at large. Business is well on the road to recovery from a period of depression before an appreciable increase in wages can be noted; and has started the downward trend from a period of activity before wages are adversely affected. The cause arises out of the alternate stages of unwillingness on the part of employers and employees to share equitably the advantages and disadvantages which changing economic con- ditions bring forth. A period of business activity is accom- panied by higher prices and larger profits in which labor usually shares only after the period is well developed. The stage of retrogression which follows a period of activity in- variably finds labor strongly resisting the wage reductions which the new conditions necessitate. The trend of wages and prices. — ^A comparison of the rel- ative changes in wages and prices during the period from 1890 to 1920, as shown in Table No. 50, leads to the opinion that certain modifications must be made to the general state- ment that the trend in wages follows the trend in prices. In a period of recovery, wages apparently start to advance before prices. This is due not to a betterment in conditions but because of a realization that wage reductions have been too drastic and that an upward readjustment is imperative. This advance is of undoubted assistance as a contributing factor to the recovery In Industrial activity which is never far distant at this point. Although wages advance, as has been just stated, before the period of depression ends and thus precede the rise In prices which becomes In evidence only after recovery has begun, the advantage is not long sustained. Once the up- ward movement of prices begins, the advance Is much more rapid than In the case of wages. During the dull years fol- lowing the crisis of 1893 wages advanced from an index number of 67 in 1894 to 69 In 1898, yet prices in both years showed the same index number, 69. In the succeeding period, from 1899 to 1907, however, prices advanced to 94 and BAROMETERS OF LABOR CONDITIONS 143 TABLE No. SO.— COMPARISON OF INDEX NUMBERS OF WHOLESALE PRICES AND WAGES PER HOUR, 1890-1920* (1913 = 100) IFhotesale ^^"f" ffages prices Year 1890 69 81 1905... 1891 69 82 1906 1892 69 76 1907 1893 69 77 1908 1894 67 69 1909 1895 68 70 1910. 1896 69 66 1911. 1897 69 67 1912. 1898 69 69 1913. 1899 70 74 1914. 1900 73 80 1915. 1901 74 79 1916. 1902 77 85 1917. 1903 80 85 1918. 1904 80 86 1919. Wholesale Wages prices . 82 85 . 85 88 . 89 94 . 89 91 . 90 97 . 93 99 . 95 95 . 97 101 . 100 100 102 100 . 103 101 . Ill 124 . 128 176 . 162 196 . 184 212 . 234 243 1920 * Compiled from Monthly Labor Re'vieixi, vol. XII, No. 2, pp. 45 and 74. wages to but 89. In 1908, the year following the crisis ol 1907, prices fell to 91 but wages remained at 89. By 1911, however, prices had advanced to 99 while wages had increased to only 93. The period from 1913 to 1915 which marked the opening of the World War showed that wages ad- vanced from 100 to 103 while prices had increased from 100 to but 101. By 1917, however, prices had increased to 176 while wages had advanced to only 128. By 1920 wages were rapidly overtaking prices as the respective index numbers of 234 and 243 indicate. In January, 1921, prices had fallen to 177, but wages were over 200, thus substantiating the accepted belief that in the downward swing of the cycle wages invariably lag behind. Wages as a barometer of business. — Under ordinary con- ditions the trend of wages follows the trend of general con- ditions and thus limits its use as a business barometer. In a period of activity, wages increase only after labor is brought to the realization that greater compensation can be obtained by reason of new economic conditions. In a period of retro- gression, wages lag behind the general downward trend be- cause of the resistance the workers offer to the loss of advantages gained during the period of activity. The trend of wages has its largest significance in a period 144 BUSINESS FORECASTING N PROSPERITY lasc iflaa = CRISIS )sss 1 laa^ / |l>^>^SSION ifiafi / 1 IfiM ,x 1 ^ RSOOVEBY 1 in»7 8 leoa 5 1699 \ PROSPERITI 1900 \ *4 190] , ;- 1 1991 \ 9 1 1 190: \ s 1951 si- 7 9.. 1906 \ 1 199£ \\ = IIAJOR = CRISIS 19«7 \ IHsEPRESSIOtr 1908 / « ^ RECOITERY 1909 « 191Q \ \ 01 19H U 9 PROSTEHIK 191t g g 1915 \ i 1914 i\ OilJ 11 i2li \ ^ "^■-- 1919 \ ■**•* ^ ■■■— ^ 1918 ~"^ ^ ■^, J 19H \ \, i"MSii3 1921 ^~^ > X 1 o o O z o - ^ a o t-i w en W •13 1-4 o w CO > o S o BAROMETERS OF LABOR CONDITIONS 145 of depression following a prolonged stage of comparative inactivity. Wages reach abnormally low levels and upward readjustments are necessary, quite apart from an actual im- provement in business conditions. Any tendency on the part of wages to increase at such a time is an indication that the period of recovery is fairly close at hand. INDUSTRIAL CONTROVERSIES Periodicity of controversies. — Periods of extreme indus- trial activity are invariably marked by a large number of controversies which develop between employers and em- ployees. The most common cause of the controversies is a demand for increased wages, although shorter hours, and recognition of the labor unions are frequently the point of contention. Industrial disputes rarely terminate in strikes or lockouts during periods of depression because the workers are not in a favorable position to safeguard their interests. Even after business has recovered, controversies are uncom- mon due to the wage increases which enlarged profits permit the employers to pay the workers. As Industrial activity increases, the cost of living goes up, and the workers find it necessary to seek even higher wages. In the meantime the encroachment of production costs upon selling prices Is reducing the margin of profit to the employers and causing them to resist the demand for increased wages. An impasse is eventually reached and a strike or lockout results. An increase In the number of controversies is an indication that the end of the period of extreme activity is in sight. As prosperity wanes and the business cycle swings downward, the number of controversies increases rather than decreases because of the desire of the workers, not to continue to seek higher wages, but to hold the betterment which they gained In the upward swing. Strike compilations. — Because of the difficulty Involved in securing adequate Information, no complete or official list of strikes are compiled in the United States. The Department of Labor endeavors to maintain as accurate a record as pos- sible but thus far has met with limited success." ° "For various reasons, in spite of the persistent efforts of the Bureau, complete information of every strike cannot be obtained, nor is it possible to say that the information is correct in every particular, especially since statements of em- ployers and employees are frequently greatly at variance." — Monthly Labor Revieiu, vol. XI, No. 3, p. 190. 146 BUSINESS FORECASTING The number of strikes and lockouts for which information was received by the Department of Labor during the calendar years 1914-1919 were as follows: 1914, 1,204; 1915, 1,420; 1916, 3,789; 1917, 4,450; 1918, 3,337; 1919, 3,374. These figures do not afford a fair criterion, however, due to the unusual industrial conditions which prevailed during the war years, notably the "cost-plus" contracts of the Government/ Industrial controversies as a business barometer. — Indus- trial controversies which develop into strikes and lockouts are highly significant. A scarcity of disputes indicates that industry is either in a period of depression or of gradual recovery from an era of inactivity. An increase in the number usually signifies that business has entered the final stage of the upward movement of the cycle. Narrower margins of profits, due to inability to continue increasing selling prices to offset enlarged production costs, cause the employers to resist further demands from the workers, and strikes ensue. And the increase in the number of disputes foreshadows the end of the so-called period of prosperity. The practical absence of controversies during periods of depression and recovery, however, prevents the use of this factor as a cri- terion of when depression ends and recovery begins. MIGRATION The two forms of migration. — The term migration covers the international movements of peoples. In the United States, immigration — the inward flow of aliens^ — completely overshadows the significance of emigration — the outward flow. This must naturally be so in any country similar to this nation which is still in the development stage. Immigration brings a multitude of problems, social and otherwise, but the purpose of the present volume limits the discussion to the economic aspect. From an industrial standpoint, the chief interest In immi- gration lies In the fact that herein is the great source of 'The first six months of 1920 witnessed a world-wide prevalence of strikes that has no precedence in industrial history. A compilation which appeared in the Journal of Commerce (N. Y.) on December 2, 1920, estimated the number of world strikers during the period at 8,977,798. The German estimate was 1,866,358; Italy, 1,781,250; France, 1,186,670; Great Britain, 1,117,040; the United States, 958,700; Spain, 724,700; Australia, 303,400; and Argentina, 61,100. BAROMETERS OF LABOR CONDITIONS 147 I-* t-> W 1 WOaPEBITY 18»9 1891 \ N, leea \ = liAJOR CRI3I3 laaa. ■ IBS*. ^^ -^ HmpRissioB 1896 1 ISOR \ 1 1 1«97 / / IBOB f lABS \ PROaMHIT? 191» \ 19C1 \ f IfOg \ Si lonx v \ !i" / S •-• 1£S&. ^ \ 1 g iSflS. \ = IIAJOB CRISIS 1007 X 1 H ^ IISPRS33I05 ISOH ^^^ .---^ ° r S BBCOVERY 1909 / -g- PBOSPERIIT 1910 ""^ -^^ 1911 ^ 1912 /' 1913 ^--^ 1914 \ 191& 1916 / 1917 191 B / .ISIS. 1 9 UAJOR CRISIS 148 BUSINESS FORECASTING unskilled labor which is continually in demand in this country. If immigrant labor always remained unskilled, less appre- hension might be felt by domestic labor which is chiefly skilled. But with the development of machinery and the natural apti- tude ofijmany aliens to grasp mechanical processes, the un- skilled immigrant of to-day becomes to-morrow a worthy competitor of the skilled American craftsman. Effect of immigration upon industrial conditions. — Prior to the ' World War, the number of immigrant arrivals in the United States annually averaged close to 1,000,000. In 1907, the arrivals totaled 1,285,349 and in 1914 the number was 1,218,480. Not all of these immigrants were able- bodied male workers, but the majority were, and their ab- sorption was not without effect upon the industrial situation. Rapid as the economic development of the country has been, it has not at all times been able to keep pace with the increase in the number of workers and it is significant to note that a slump in business conditions has been usually preceded by a substantial increase in immigration. It is not fair to assume, as is done in some quarters, that the increase in immigration caused the reaction in business. Quite possibly, it was one of the minor contributing factors which hastened the reaction, but, as has been shown, the chief causes lie in other developments. From Table No. 51 the opinion may readily be formed that alternate periods of prosperity and depression are a cause of changes in immigra- tion rather than an effect. Immigration as a business barometer. — The efficacy of immigration statistics as a business barometer is open to con- siderable question. Whether an immigrant moves from one land to another does not depend entirely upon economic and social conditions in the new land. The dominant factor is the relationship between conditions in the new land and the old. Adverse conditions in one land may be favorable in comparison with existing conditions in another. So a mere increase in the number of arrivals does not necessarily sig- nify prosperity present, past, or future in a country. Moreover it has not been established that a substantial increase in the number of immigrants has caused the indus- trial depressions of the past. The depression of 1920 fol- lowed five years during which immigration had practically ceased. The increase in the number of immigrants prior to BAROMETERS OF LABOR CONDITIONS 149 TABLE No. 51.— IMMIGRATION INTO THE UNITED STATES, 1851-1920* (fiscal years ended June 30) Year Arrivals Year Arrivals 1851 379,466 1886 334,203 1852 371,603 1887 490,109 1853 368,645 1888 546,889 1854 427,833 1889 444,427 1855 200,877 1890 455,302 1856 195,857 1891 560,319 1857 112,123 1892 623,084 1858 191,942 1893 502,917 1859 129,571 1894 314,467 1860 133,143 1895 279,948 1861 142,877 1896 343,267 1862 72,183 1897 230,832 1863 132,925 1898 229,299 1864 191,114 1899 311,715 1865 180,339 1900 448,572 1866 332,557 1901 487,918 1867 303,104 1902 648,743 1868 138,840 1903 857,046 1869 352,768 1904 812,870 1870 387,203 1905 1,026,499 1871 321,350 1906 1,100,735 1872 404,806 1907 1,285,349 1873 459,803 1908 782,870 1874 313,339 1909 751,786 1875 227,498 1910 1,041,570 1876 169,986 1911 878,587 1877 141,857 1912 838,172 1878 138,469 1913 1,197,892 1879 177,826 1914 1,218,480 1880 457,257 1915 326,700 1881 669,431 1916 298,826 1882 788,992 1917 295,403 1883 603,322 1918 110,618 1884 518,592 1919 141,132 1885 395,346 1920 430,001 1921 805,228 * From "Annual Report of the Commissioner General of Immigration,'' 1920, op. p. 277. Other years of depression was more likely an effect of chang- ing conditions than a cause, a belief which is substantiated by the decrease in arrivals during the years immediately following. But apart from the records of the past, the use of immi- gration statistics as a business barometer in the future is to 150 BUSINESS FORECASTING be subject to decided limitations. The days of free and un- restricted immigration are apparently over. Legislation has already been enacted under the terms of which the maximum arrivals permitted in the fiscal year ended June 30, 1922, is limited to less than the total immigration during the first half of the preceding fiscal year. A strong probability exists that this law will be followed by another which will in a similar manner restrict alien arrivals and thus reduce the efficiency of this factor as a business barometer.* 'Under the Immigration Act which became a law in the United States on May 19, 1921, the number of immigrants from each foreign country who will be admitted to this country during the fiscal year which will end on June 30, 1922, is limited to 3 per cent of the nationals of each country who were here in 1910. Under this restriction the maximum number of persons who will be per- mitted to land from the various countries in Europe and Turkey in Asia is estimated at 355,461. The Commercial and Financial Chronicle (N. Y.), vol. 112, No. 2905, p. 801. Chapter IX BAROMETERS OF BUSINESS PROFITS Barometers of prosperity. — Since the acquirement of mone- tary profit is the chief actuating force in business, the measure- ment of relative earnings should provide a serviceable method of determining the trend of general conditions. The degree of prosperity which exists at any particular time is reflected in various ways. The published earnings of the large corporations are indicative of conditions throughout the mercantile world, and especially in the United States where the corporate form of business organization is most popular.^ Changes in the number of business firms which become insolvent or bankrupt constitutes another criterion. The volume and nature of new security offerings reflects general financial conditions both from the standpoint of the corporations and of the investing public. CORPORATE EARNINGS The information available. — The information which is available concerning corporate profits is far from satisfac- tory. Promptness is essential if current business information is to be utilized for barometric purposes. Reports of indi- vidual corporate earnings are usually rendered long after the period covered has terminated, and by that time the figures have lost their utility as barometers. Accounting difiiculties militate against prompter and more frequent earnings state- ments, and cause the average company to compile a state- ment of profit, at least for public information, but once a year. It ordinarily takes from one to three months to pre- pare this annual statement, which means that profits earned during the late winter and spring and summer of one year are not made public until February or March of the follow- ing year. Annual corporate earnings statements therefore do not reflect accurately business profits as they are when 'In the fiscal year which ended on June 30, 1920, a total of 319,628 corpora- tions paid taxes to the United States Government. "Annual Report of the Commissioner of Internal Revenue," 1920, p. 105. 151 152 BUSINESS FORECASTING the statements are issued, but as they were during the pre- ceding year. Moreover, annual income reports are particu- larly unsatisfactory for barometric purposes because profits are generally reported for the entire year and no method is afforded of determining the trend in profits during the year. The year 1920 was notable in this respect. The first six months were unusually active and the last six decidedly dull in most industries. As a result the earnings statements pre- sented a hodge-podge of little barometric significance. Fortunately this shortcoming does not hold good for all corporations. The railroads and the public utility com- panies in general are required to file monthly statements of gross and net revenue with the various Federal and State commissions. Certain of the industrial companies issue quar- terly statements of earnings which arc especially valuable as barometers. Railroad earnings.— ^-The monthly reports of the gross and net earnings of the American railroads afford a double criterion for judging business conditions. The gross earnings serve as an indication of the business activity of the nation although frequen't changes in rates prevent the ready comparison of corresponding periods. As is discussed previously, however, records of car loadings and idle cars are better indicia for this purpose. The net earnings, i.e., the gross earnings less the operating expenses but before the payment of interest charges, show the prosperity of the railroad industry, and it is with net earnings that the present discussion is concerned. With the single exception of agriculture, railroading engages the services of the largest number of workers in the United States.^ Moreover, the railroad companies are the largest single class of purchasers of American products. The state- ment has been made that the country is never any more pros- perous than the railroads. That a large element of truth is contained in this statement is shown by the dependence, direct and indirect, placed upon railroad prosperity throughout the country. If the roads are not prospering, the wages of the employees must be adversely affected and ^ considerable degree of purchasing power is curtailed. If earnings are low, orders for new construction and equipment will be reduced with detri- ''The number of employees on the Class I railroads of the United States in 1918 was 1,837,663. The total on all roads was approjcimately 1,929,000. "Statistics of Railways in the United States," 1918, p. 20. BAROMETERS OF BUSINESS PROFITS 153 ment to a sequence of Industries which supply the required materials. And last but not least in importance, if the roads are not making money, the adequacy of transportation facili- ties is imperilled — a condition truly serious in a nation where transportation is a vital factor. The net earnings of the principal United States railroads during the period from 1910 to 1920 are shown in Table No. 52. The large decrease during the years 1919 and 1920 was due not to a falling-off in gross revenue but to substantial in- TABLE No. 52.— NET EARNINGS OF PRINCIPAL UNITED STATES RAILROADS, 1910-1920* Year Net earnings Year Net earnings 1910 $909,470,000 1916 $1,272,639,000 1911 883,626,000 1917 1,215,110,000 1»12 937,968,000 1918 905,794,000 1913 907,022,000 1919 764,578,000 1914 828,522,000 1920 461,922,000 1915 1,040,304,000 •From The Financial and Commercial Chronicle, vol. 112, No. 2908, p. 1080. creases in operating expenses. The facility with which the railroads will prove able to regain their former earning capacity during the years ahead will be a factor of large im- portance in determining the duration of the stage of industrial depression which exists as this chapter is being written.' Public utility earnings. — The public utility companies which include the electric light, heat, and power companies, the water and gas plants, xhe. telephone and telegraph services, and the traction companies, have, as a class, the most stable gross revenues. The demand for the product of the utility com- panies is largely independent of business conditions and thus differs materially from the demand for steam railroad service or the products of industrial concerns. Accordingly little baro- metric value may be found in the reports of gross earnings of these companies. Industrial earnings. — ^Although the majority of the indus- trial companies Issue a statement of earnings but once a year, a few of the larger companies issue quarterly reports.* A 'June, 1921. ' In addition to the United States Steel Corporation, the following important industrial companies issue quarterly reports: American Hide and Leather Co., Central Leather Co., Utah Copper Co., Colorado Fuel and Iron Co., Corn Prod- ucts Refining Co., International Nickel Co., Lackawanna Steel Co., Midvale Steel Co., and Republic Iron and Steel Co. 154 BUSINESS FORECASTING summary of the net earnings of the United States Steel Cor- poration for the period from 1906 to 1920 is shown in Table No. 53. A study of this statement shows that it reflects quite accurately existing conditions with a certain tendency to follow the trend rather than precede. The depression which followed the panic of 1907 is reflected in the substantially reduced earnings throughout 1908. But the earnings during the last quarter of 1914 — only $10,933,000 the lowest point in the entire tabulation — did not foretell that the same period the following year would prove the most profitable up to that time. And the large earnings during the third and fourth quarter of 1920 did not reflect the reaction which had already set in. TABLE No. S3.— NET EARNINGS OF UNITED STATES STEEL COR- PORATION, 1906-1920* (000 omitted) First Second Third Fourth Year quarter quarter quarter quarter 1920 $42,089 $43,155 $48,051 $43,877 1919 33,513 34,331 40,177 35,791 1918t 88,546 153,273 144,948 86,354 1917t 113,121 144,498 131,976 102,674 1916 60,713 81,126 85,817 105,968 1915 12,457 27,950 38,710 51,232 1914 17,994 20,457 22,276 10,933 1913 34,426 41,219 38,450 23,036 1912 17,826 25,102 30,063 35,185 1911 23,519 28,103 20,522 23,105 1910 37,616 40,170 37,365 25,901 1909 22,291 29,340 32,246 40,982 1908 18,229 20,265 27,106 26,246 1907 39,122 45,503 43,804 32,534 1906 36,634 40,125 38,114 41,750 * From Ne CD a 1904 \° 1 I 1905 y^ / / 8 "- 1 a 1906 \ g i = lUJOS CRISIS 1907 ~^ \ i- 1 DEPRESSION 1908 ^ N -^ 1 RECOVERY 1909 ,-'' ,^ -^ PROSPERITY igio 1911 / \ 1912 X * \ _iai2 *^ . -, \ 191* ^■ ^^:;v^ 1916 1916 ^^ ^^ 1917 / ,^-'' -'"' 193FI ./- _^'-'^ 1919 ^ g UAJOR CRISIS IWd "'^^ — _ H M TO Ri ts ra *^ \ ooooSoSoj o 1— ( > (^ M CO W c! Z H w a CO > BAROMETERS OF BUSINESS PROFITS 161 issued, probably months later. But the knowledge that any company is unable to arrange payment of its, maturing obliga- tions becomes current immediately, and serves as a barometer of what the near future has in store. The trend of commercial failures has almost invariably fore- told the trend of business conditions. When business failures continue to decrease until they approximate previous low records, the storm flags signal danger ahead. After the reac- tion has come, the number increases. The barometer does not work so well in periods of depression, but recovery cannot be assumed to have definitely started until there is an appreciable decrease in the number of failures.* NEW SECURITY ISSUES The financial policy of corporations. — Capital is essential in business. The amount of capital which a company has does not determine its earning power, but it is a contributing factor of large importance. Capital may be secured in either of two ways. The money may be borrowed, in which case bonds are issued ; or investors may be induced to become part proprietors in the enterprise, in which event stock is issued. It is obvious that capital requirements will increase in a period of activity, and decrease in a period of depression. Certain requirements, however, are independent of current conditions. As has been stated, when money is borrowed, bonds are issued which have a maturity date some time in the future. At the due date, the company will customarily refund the issue by selling new bonds thus increasing the total of new security issues irrespective of current conditions. In fact, a large share of the new issues during periods of depression arise from such refunding opera- tions, which is one reason why bond issues dominate in times of depression and stock Issues arc more common in times of prosperity. Nature of the issues. — The income derived from stock de- pends upon the earnings of the company, whereas the income from bonds is a fixed amount. In time of activity profits in- crease, and investors naturally desire stock; whereas in times of depression earnings are low and consequently bonds are 'In studying the number of commercial failures from month to month, allow- ance should be made for seasonal tendencies. Failures are usually most nu- merous in February because of insolvencies arising from year-end settlements. — Ne. 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Os T*- oo CM scT oT stT csT CO T-H so rH Os Os O Os ■+ r- tv o 'Th OS ■rh i-( 1-1 CO ■>< CO s s S ^^ I ^ S| o o •=** OZQ -5S BAROMETERS OF THE EXCHANGES 167 result in increased earnings cause the stock to advance in price not when the profits are actually realized but as soon as the circumstances are known. In the preceding period of inac- tivity, decreased earnings caused stock prices to fajl and acted as a deterrent both to prospective purchasers and sellers. As has previously been shown in describing the cycle of business, the factors which cause depression to be prolonged eventually work out their own salvation and the darkest hour of the period is usually shortly before the morning of business re- covery. Traders on the exchanges are quick to observe the first tinges of gray in the business horizon and a buying move- ment ensues which is well under way before the actual im- provement in business becomes appreciable. In the same man- ner, the end of a period of prosperity is foreseen and the tendency is for the volume of sales to decline at a time when business is apparently most active. TABLE No. 59.— NUMBER AND AVERAGE PRICE OF SHARES SOLD AT NEVV^ YORK STOCK EXCHANGE, 1897-1920* Year Number of shares Average price (per cent of par) 1897 77,324,000 67.0 1898 .' 112,699,000 72.7 1899 176,421,000 78.6 1900 138,380,000 69.2 1901 265,944,000 79.0 1902 188,503,000 79.9 1903 161,102,000 73.2 1904 187,312,000 69.9 1905 263,081,000 87.3 1906 284,298,000 94.2 1907 196,438,000 85.8 1908 197,206,000 86.6 1909 214,632,000 97.5 1910 164,051,000 96.2 1911 127,208,000 95.8 1912 131,128,000 97.7 1913 83,470,000 96.2 1914 47,900,000t 93.2 1915 173,145,000 85.1 1916 233,311,000 93.8 1917 185,628,000 91.2 191g 144,118,000 92.8 1919'' 316,787,000 90.0 1920.. 226,640,000 83.6 •From The Commercial and Financial Chronicle (N. Y.), V, 112, No. 2899, p. 205. t Stock exchange closed from July 30 to December 12, 1914. 168 BUSINESS FORECASTING Stock exchange prices. — The prices on the exchanges, as has been said, represent a consensus of opinion on the part of the general public as to the present value of the securities.^ Prospective earnings are always more important than current earnings in determining prices. Even in periods of depression when current earnings are low, the prospect that earnings will increase in the not distant future causes stock prices to ad- vance ; and in periods of prosperity, when current earnings are exceptionally large, the probability of smaller earnings in the future causes prices to decline. Industrial stock prices are most significant. — Of the three classes of stocks — rails, utilities, and industrials — the indus- trials are of greatest barometric value. This is because the earnings of this class fluctuate in close accordance with busi- ness conditions. Utility earnings have too large an element of stability irrespective of changing conditions, and railroad earnings are open to the same objections although in a smaller degree. An improvement in business conditions means a cor- responding improvement in the earnings of industrial com- panies, and, by the same token, a betterment in the price of industrial stocks. A depression in business adversely affects industrial earnings and causes industrial stock prices to decline. But of especial barometric interest is the fact that the trend in the prices of the stocks usually precedes the trend in con- ditions because of the constant endeavor of the market to predetermine developments. The men who are in closest touch with current conditions sense the change before it actu- ally comes and the stock market reflects their opinion.^ Although the trend of industrial stock prices moves ahead of the trend in general conditions, it is nevertheless an effect and not a cause of the improvement or depression that it precedes. ' "The market is not like a balloon plunging hither and thither in the wind. As a whole, it represents a serious, well considered effort on the part of far- sighted and well-informed men to adjust prices to such values as exist or which are expected to exist in the not too remote future." — "The ABC of Stock Specu- lation," S. A. Nelson, p. 44. ' The writer inclines to the opinion that the list of industrial stocks repre- sented in the average price indexes compiled by the leading periodicals is not well chosen for barometric purposes. The companies which are first affected by changing conditions are those which supply raw materials and producers' goods. On this basia the following list of ten industrial common stocks is suggested: United States Steel, General Electric, American Locomotive, American Wool, Kennecott Copper, International Paper, American Hide and Leather, Allis- Chalmers, National Lead, and United States Rubber. BAROMETERS OF THE EXCHANGES 169 o ^ CJ> Ot -^ (B <0 O So o o O O O > t— < i 1 HBOOVEHY 1897 <^ 1898 -^ ^^ Co 1899 ^ 1^ PROSPERITY 1900 ^^ !?r « ■^ a 1901 _m-' ^^ a o h— ( r** 1902 T 1903 ^ ^•^ jf a 1904 ^ ^. . CO > 1905 "^ . '^ — 8- 1906 - CO H UAJOR CRISIS 1907 .-^ ^^ O O n CO n CEFKBSSIOll 1908 ^ •--.^ ^ 5 1 KBCO'VERY 1909 ^* ^^ Z W PROSPERITY 1910 ^^ ■^^ 1911 1 1912 ^^ ► k! O 1412. ^ * 1914 ^ r CO 1915 "■• - .^^^ H O o 19r6 < w ^ 1917 •««» n 1918 ■^ ^ > 2 1919 ^** "^ 9 s lUJOH CRISIS 1920 _ ^ ^^ oo so 1 DEPRESSION 19£U *s 170 BUSINESS FORECASTING o \A o z < X u XI w u O P< O M Z Z O O ^HMM oowvo V0Tj*M voino ftj CJ^oo toooo^ vovOTf 04000% CX o\co 1-1 , < o h -' %^ z ;: m "sO vo Cvj «J^ l>.t^OO COC4l>* oot(-CnJ tHMCO cOtJ-O Onw^OO c4tn»0 OnO\0\ OOQnO ^h»— )0\ OO ON »0 ? VO O C7\ OO NO OO OS ro SO vo 0\ NO OO o o o § T-l I-* »-( ^ H z H b O W u 1-1 <; NO NO ro ^ OO O NO O u ^ to CN) ON T-t ^ OO »>; CO a> Ov ^ o O od On* l< OO (NJ •i ^ S NO NO NO *o \r\ »o H- to a> d p ^o o 1^ ■* !>. ro vr, o ^ NO to in OO w 1-4 «o o N Th rq m CN| NO On o. NO to o -. I> t^ t^ t^ l> NO »2 "o '5: be 4 E CO ^ OO CN» Kf CO c ^ »-l o T(- OO t-; Th to to OC t-; I-- O 00 OO c4 OO u o NO ^O ^o NO NC NO NC NO to to NO NO 1 ■a , •o 0) 1^ u l_l « : !>, . ^ Si 1h ^ ^ (. E p J3 C > C -1 en s 1 I e u z S < S (^ 1 ^ CO O^Q BAROMETERS OF THE EXCHANGES 171 One of the great difficulties in forecasting is to differentiate between cause and effect. Few developments in financial cir- cles — Wall Street, Lombard Street, or elsewhere — are causes of changes in business conditions. What happens on the ex- changes is an effect of what has happened or -w^ill happen else- where, and not a cause. Stock exchange transactions do not offer an independent field for fundamental barometric re- search as in themselves they comprise a composite result of barometric surveys made precisely along the lines indicated in the present volume. They are valuable solely as represent- ing the general opinion as to the course of events, and not as a factor with direct influence upon succeeding developments. The stock exchange as a business barometer. — Stock ex- change transactions serve as a barometer both in the volume of sales and the trend of prices. An increase in the number of shares traded in daily during a period of business depression indicates that recovery in general business conditions is not far distant. A decrease in the number of shares traded in daily during a period of prosperity signifies that reaction in business conditions may be expected. The prices of industrial stocks have a greater significance than prices of the rails, or the utilities, or combined average prices. This is because of the tendency of Industrial earnings to follow the general trend of business conditions more closely than do the others. As the stock exchange endeavors to dis- count the future, an advance in prices, especially, as has been said, of industrial stocks during a period of depression foreshadows a resumption of commercial activity; and a de- cline in prices during a period of activity presages a downward swing of the business cycle in the near future.* *"In the long run, the course of stock exchange prices is governed by future prospects. At times — for conjparatively short intervals, but long enough to be deceptive unless correctly interpreted — the course of the market has its major influence in the mood of the community which may be haphazard pessimism or optimism rather than reasoned despondency or cheerfulness. The distinction is sometimes important because the spirit of pessimism, when it gains absolute control, paints everything in the news with a gloomy color. Visible increase in railway traflic over preceding months suggests only the unfavorable contrast with a year ago. An order for decrease of railway wages calls forth only the comment first, that the reduction should have been larger, and, second, that the laborers will strike against it. Much larger consumption of cotton, officially reported, merely drives Wall Street to renewed examination of the large figures of unsold supplies; movement of foreign exchange in favor of New York is construed as evidence of progressively worse conditions abroad; reduction of the Reserve Bank rate is dismissed as testimony to idleness of capital in a pros- trated state of industry, and so on." — Alexander D. Noyes in The New York Times, June 20, 1921. 172 BUSINESS FORECASTING THE COMMODITY EXCHANGES Transactions on the Commodity Exchanges. — Transac- tions on the commodity exchanges differ in m'any respects from those on the stock exchanges. Hedging operations cause many transactions to be consummated, irrespective of price, in order that business men may protect their regular commercial profit from loss through price fluctuations while commodities are in their possession. What is termed "short-selling" on the stock exchanges is termed dealing in "futures" on the commodity exchanges. No overhead expense is Incurred in carrying securities (except dividends on short sales) as happens in the case of commodities, and this factor tends to make confus- ing the spread between "spot" and "future" prices on the commodity exchanges. At first thought, prices of "futures" seem to have a greater barometric value than "spot," or present, prices. As is shown in Table No. 61, the daily quotations of the cotton exchanges give prices not only for the current month but for the succeed- ing eleven months as well. As a matter of fact the future prices are dependent chiefly upon the present price, and any change in the current quotation is Immediately reflected in the future prices. TABLE No. 61.— CLOSING PRICES ON THE NEW YORK COTTON EXCHANGE, JUNE 10, 1921* (Middling upland) Cents Spot 12.50 Futures: July (1921) 12.35 August (1921) 12.63 September (1921) 12.94 October (1921) ; 13.14 November (1921) 13.38 December (1921) 13.63 January (1922) 13.73 February (1922) 13.86 March (1922) 14.00 April (1922) 14.12 May (1922) 14.25 *Tke Commercial and Financial Chronicle (N. Y.), V. 112, No. 2920, p. 2550. The spread, or difference, between present and future prices Is due to the cost of carrying the commodities between the har- BAROMETERS OF THE EXCHANGES 173 vests. The carrying cost includes interest on the money In- vested, storage charges, and insurance premiums, all of which must be added to the current price." Future prices depend therefore upon present prices on the commodity exchanges. Present prices, however, are affected chiefly by future conditions.^ The commodity exchanges as business barometers. — The ability of men in business to foretell the future has its best exemplification on the commodity exchanges. The small per- centage of ignorant traders is in distinct contrast to the large number who operate on the stock exchanges. Traders on the commodity exchanges are well-informed men who do not act be- fore they have made a careful analysis of each influencing fac- tor. They fully appreciate the law of causality and realize that what will happen in the future depends upon what occurs in the present. To this end they maintain extensive organizations the purpose of which is to keep fully Informed of every fac- tor, however minute, which may affect the situation. The fact that the prices of the commodities which are most extensively dealt in on the exchanges — cotton, wheat, corn, sugar, coffee, copper, etc. — are the first to be affected when prices change has been referred to previously. This Is not due to fortuitous circumstance but is chiefly attributable to the ability of the traders to foretell the trend of conditions. Prices rise and fall in accordance with conditions of demand and supply. The commodity exchanges watch both factors closely as they change from day to day and cause prices to change In accordance with the relative balance and lack of balance between the two. The producers endeavor to regulate ""But it will be asked, why should July (1911) wheat be sold at 93f cents, when May wheat, representing an earlier month, sells on the same day at $1.04i? Here it must be remembered that these prices, besides including the expense items just mentioned, must also reflect the discounting process which speculators always have in mind when selling grain for future delivery. Con- sequently, we find dealers on October 10, 1910, selling wheat for delivery in July, 1911, and in doing so they are already looking towards next year's crop, which begins to come on the market in July, whereas May wheat has reference to the old crop harvested in 1910."— "American Produce Exchange Markets," S. S. Huebner, in The Annals, V. XXXVIII, No. 2, p. 7. ° "The markets of the world, whether in coffee or cotton or anything else, go more by the prospects and by the probable future production than by the imme- diate supply." — Testimony of Herman Sielcken, of Grossman & Sielcken, the largest dealers in green coffee in America, before Pujo Committee. — "Money Trust Investigation," Part I, p. 59. 174 BUSINESS FORECASTING the supply to meet the derrland, and the traders on the com- modity exchanges "keep the score." Prices on the commodity exchanges are therefore of parti- cular barometric Importance. Prices move in sequence, from raw materials to finished products to wholesale prices to retail prices to wages, and almost Invariably the beginning is In the commodity markets. Prices on the commodity exchanges have a double significance. They represent the opinion of the best-posted men in the country as to future developments. But even more important, In the money economy of modern commerce, they Indicate whether business conditions will be prosperous or otherwise, in foretelling whether general prices will rise or fall. Tables Nos. 62 to 70 show the trend of prices on the com- modity exchanges from 1911 to 1920. It will be noted that metal prices lag behind those of agricultural products. FOREIGN EXCHANGES The function of Foreign Exchange. — The term foreign exchange means the exchange of foreign currencies.^ Ameri- can purchases abroad must be paid for in the currency of the selling nation, and accordingly dollars must be exchanged for francs, lira, or as the case may be. American sales abroad must be eventually paid for in dollars which requires that foreign purchasers exchange their currency for dollars. Under ordinary circumstances, a charge Is Imposed for the service which Is limited by the cost of actually shipping gold which, , regardless of the die stamp, is international currency. The amount of the charge — ^whlch strange to say is sometimes a credit — depends upon the relationship between the demand for the particular currency at a given place and the supply which is available at that location. Demand and supply, In turn, are normally predicated upon the volume of merchandise ship- ments between the two countries. Effect upon domestic conditions. — When a charge is made for the exchange of currencies, the currency being offered in exchange Is said to be at a discount; when a credit Is received, ' Foreign exchange operations are conducted in this country without a common meeting place of buyers and sellers. Practically all transactions are completed over the telephone. The banks are analogous to retailers and the wholesalers are a comparatively small number of dealers of whom in New York City less than twenty-five are of importance. BAROMETERS OF THE EXCHANGES 175 the currency is at a premium. A small discount is relatively unimportant but large discounts — such as have existed in the United States since the close of the World War — seriously handicap trade. The loss through depreciated currency causes nations to stop trading with nations whose currency is at a large premium. Consequently the large discount on foreign cur- rencies in the United States has been one of the factors which have adversely affected the international commerce of this country. A betterment in the exchange rates on foreign cur- rencies, i.e., a smaller discount, must have a beneficial effect upon American exports and incidently, American industry. Causes of fluctuations in foreign exchange. — The par of international currencies is determined by the relative gold content of the monetary units. The par of the pound sterling in the United States is $4.8665 because there is 4.8665 times as much pure gold In the pound sterling as In the American dollar; the par of the French franc and Italian lire Is 19.3c because the gold In the franc or the lire is worth 19.3c in American money. European currencies are no longer redeem- able In gold, and the premium on the American dollar In those countries — ^whlch is the reciprocal of the discount on the Eu- ropean currencies in this country — reflects the premium on gold In Europe rather than the merchandise trade which ordinarily determines the premium or discount. Another factor which has had large Influence upon exchange rates since the close of the World War Is speculation. The discounts on many foreign currencies offered large potential profits in the event of any substantial recovery and attracted a rhultitudc of speculators. Speculation In foreign exchange has proved a most unfortunate development because of the relative inability of the speculators to form an Intelligent opin- ion upon which to base their commitments. Foreign Exchange as a business barometer. — Foreign ex- change rates under present conditions are of chief barometric value as indicia of foreign conditions. Permanent advances In rates reflect Improved conditions In the countries affected, whereas stable or lowering r*ates signify no betterment. Dally fluctuations arc without especial significance as they are chiefly due to speculative operations. Domestic industry will bene- fit from higher exchange rates since foreign purchasers will be encouraged thereby to buy in this country. 176 BUSINESS FORECASTING o o o o o ^ w) wi u^ w^ K^ m CO cn cn CJ OJ C^ O O "^ so tN. o Th en O 1^ OO Csj ro CO CNJ o o _ O O - . n O tv. vo CT\ r*. vo t^ o o o r*. o o M^ »-* ir> Cv| »0 ^ \A CO oo M CMCMCQCSJ e^N'HCi < o o o o \rt \r\ \n \r\ t^ t^ tv. !>. to CO CO en o o o o o-i tn *n w^ i^ t^ r^ t-^ «o CO CO CO oooo oooo u-)u^u^<— ( mu-i*o»0 cocococo cococoto csjcvjMc^i ri^icsjC'^ c^c-jcsicsi c^ncsjw w oooo oooo XT, \r\ \n \j^ r^ cvj cvi CM cvi CM r4 r4 O O C" o O C) o o u^ xr» iri m CM CM CM N CM CM CM CM oooo oooo ^ii-i»Ot^ tr\ M^ \r\ QO ir^vovOCM Vovot^VO CMcococo tocococo CMCMCMCM cicMCMCM O S O ^ £^ oooo ^ i-H i-H oo o lij* oo oo O o» ^ ^* CM <-< o t^ «^ ■* O CO t^ O O T*- ^ CM ^ vo to H- o o o o O O O CO CO O vo so CM Ov OO so CM C^ Ci CM o o o c> o O O to OO CM oo Ov CO CO i-H CM C" O O O OOOO to o *o o m !>. CM ^O o o o p o o C) ^^ t^ lo *o »'^ CM CM CM C>i CMCM(MCM CMCMCMCM CM Oooo* o »o O OO OO ^ so CM O CO m CO Ci O O O y-' o o o t^ t>- wt oo CO oo *o VO oo oo t^ ^ CO so so U-i ooot-^ oo»^»o cocol>.Tt* toOCMCM soi>.*oso coCM^HCM O O O CO O O »0 00 CM 1-* i-< tH o « o oooo OOOO O »-* vo CM OOOO - oooo iP O O O OS !2 oo o w CTN S* P ^ ^ o C)oeMt^ oc>c>o oosooo o*o»^o lO^OOSO 0000*H\0 ^Oi-hO 00C\^0s OOOO 0*^*000 C)000 ot^om oooo w-1 *o C> CO VO 0\ w^ o ^ i-( CM (M o o o t^ O "1 O i-( so oo o oo OS OS O OS PQ lOu^CMt^ »nioto»o iAi»oOeo CMt~^^^«>o CMt^t^CM t^t^^oco Oco-^CM ooCMcooo t^OOt^^H OOOO OCMCM^ i-hOOt-i O O O CO in O »o «o CO t^ »n »n OOOO OOOO oOC'co »nio*ooo OO"^"^ xnw^Oco t-^t^tv-o oooocoSD cM"^*^"^ ^^lotn OS OS Os 0\ Q\ Ov OS Os On Os On 0\ %r\ \r^ \r\ tr\ t^ Csl CM t^ (O oo t^ 00 O OS On Os *S ^ J3 ^ * : ; £: : : ^ £: w ■ • • nj oj rt « . . . m • xJ "2 to j:3 2 • . . O . m E O < S I-, 1-1 <1 CD : '^ ►; E; ; 0) Qj (t "SCO •Sugg O O 1* to BAROMETERS OF THE EXCHANGES 177 o o c> o t^ O O O vo t-^ o cj a, ^ vrt »o ^ o o o o o o o o On ON oo csj '"O oo oo oo O O O CO O O O CO m O oo ^ !>. ■«4- ■^ »0 O O O O M ^ vi-i o u-» vo CO On en oo co O oo t>. oo rl- O CO T-H OO U-t CO CO CO O o O O O m o *n O O CO -t^ ^ vo t^ NO oooo oooo OOOO oooo O "^ O ^'^ oo l>. !>. t^ O O O CO ^ ^ O CO »o o o oo NO NO U^ "^ OOOO oooo O M^ "^ O vo NO xr» NO oooo oo OOOO o XA Ut to to l>^ o < u !«! M I— I Q o o o z o CO »— * Oh O (J »o o o oo c\i o *n wi CO (^ c^ t^ On On O On »n o t-- H- CNi U-) oo to CO oo -^ »o t^ !>. t^ t>, OO oooo OOOCO »o OtO tOU-iOO oooco oo oo^ t^T-Htnoo Novoot^ 1-t tn^ t^COONNO Ovt-IOOON »o 1-Jw i-JcNli-Jt-J vHCsir-iiH fA O O »« OO o o c^ o *0 oo On . t^ NO t^ ooocn tooor.OOON OOC*I»Oi-( ooco^to t^OOOOOO OOOONON oooo to to O O oo t-- O C^J NO ^-. t^ t>. o o »« oo O to l>» O c^ oo r^ NO r-s t^ r^ t^ tOO"^CO o»ooio I^toCNJoO tor^toCNj tOON»ONO CnIcoOnv^ b-t^t^t^ NONONONO o o X. O O O CO h^ to to to oo rv to CNJ fO CO t? NO NO NO NO O O O CO w^ o o oo •o t^ o t^ NO NO !>. NO tOOOtA OOtotO cNiooi>. oot^r* oo^Onco CsjtotoO NOt^t-^t^ t^t^NOt>. > O O o t^ to O ^O NO NO On CD oo ■^ Tj- to Tt- O to to CO O t^ C^ CO Tt- NO oo \o to to to to Ot^to^ tOOO*'* tOCOt^tO CNJtOOCNI ONOtoi>. i-HCMcnCN| nonoo.no I>.t^OO. ^ I— I M t-] oooco OtoOOO Ot'l^OO ^OCNJtoO ONTht^VO 'J-OCONO NONONONO t^OOO.t>. O to CNJ OOOO o w -ch to to o o ^ OO to OO OO O On !>. t^ t-. NO to to to 0*^0 00 m csi to to I^ to VI l1 CNi Th 0. l^ to NO to ; NO t^ to > > ' u > 1^ u (1) > > C4 : 6^ ■ ■ UJ f!i (U Ih nuary bruar arch. en CO ^ p W Ih •^ 1 a CO C CO - 3 U s CO s CO ^^•s. < S I— ■» ^ ■)< CO OlZjCi 178 BUSINESS FORECASTING S^ »o o o 1-1 o O o m NO a\ C^l ?n oo «0 tH o. ,_( VO VO oo oo oo to O fO (M CM M C4 CM »o to z ^ o u OO in »o Vl tn tn tH VO ^o t^ o CM oo VI (M .. Ov 1-1 1-1 N C-vit^ i-jCMO.oto VO b^Tj^t^vo 0\OCMO l>!intoiX vioOi-Joo cj rH^i-ii-t WCMCMCM CMCM0 »n »n VO ^ *n t^ o t^ 0\ CM CM CO CM »rtOOoo »nov^co mu-imoo VOt^vooo Theooom oocMrJ-»H o\oo\on osonovov i-n rj- (M ^ to o 1-1 ON Ov o\ 5 M 3 ■ J5.£S >. bO ■.< CO S S S o ■4-1 f* VJ O O 4J ^'l OZQ .?0| BAROMETERS OF THE EXCHANGES CHART XXIII.— TREND OF WHEAT PRICES: 1910-1920. WHEAT (Ho. 8 Red, bu.) (8) 179 i 2.70 2.60 2.30 2.10 1.90 1.70 1.50 1.30 1.10 .90 i lilMtiiMi^ 1911 12 13 U 15 16 17 18 19 20 CHART XXIV.— TREND OF CORN PRICES: 1910-1920. CORH (Coatract jrioe per bu. Chicago) ($) 1911 12 13 14 16 16 CHART XXV.— TREND OF COll'ON COTTON (Middling uplands 17 ] PRICES , lb.) L8 1 1910-lS [cents ^ ? 2( 1 3. 20 *c A r" / ' 38 - f \\ 1 34- i A Vr 1 i / iu- 1 V r 1 26 - jW i V 22 - I - V j I f 18 - 17 \ 1 ii 1 >^ / / JL / •i J \ > / k J J ' f fV f V J ^ 10 - -<;; f } ,J Si L^ *1 - 2 191 1 2 1 5 1 4 1 6 1 6 1 7 18 1 9 2 180 BUSINESS FORECASTING ft ^ O C3 CO f^ O O O tn Oi ^ oo O t^ N 0> 0\ O 0\ O O O O O O o o o OO t^ 00 * o o ooot^ oooo ooovo oooo oooo oooo ifi \A w^ to t^ tN. tN. t>i oooo. 0*0 iX vi T^ ^ t^ c^ t^ t^ oootN. oooo. u^ 000*0 OOC)^ o- t^t^t*.t-^ i>.i>o.o. t-*. CO W u ,j_, 5. o rt s' z "O* ? o o ? w 2 O c S A s CO U 'S (J s t— t p:; ">. (1< C Q f^ o > * u > ' ^ u > u a : tC • B » ; C*^ s »X vo ^ M^ o o o o o O o o o o o o o oo >o •. CVl i-H rj 00 ^o o\ o o *o ^H 10 o o »~* t*- O o 0^ 00 »0 U-1 M oooooood Cnoooooo 00000000 O^Ocn^H w z < 11! >< i>^- is w z >H ^ H rt Q 13 C 71 S S U u* w S ffi u H Z ^ t>. r/) "Z rt CL, H a, w O O »o 10 ^ to O t^ !>. ^ t^ O 00 00 S On O C^ 0< to O "^ o t*. 00 0\ 00 OOOO O >o vi-1 en m (M t^ 00 t^ 00 t^ l>I 10 O "^ "O (M O CSI *0 1-) 10 i-t C^l 0\ 0*1 CT> ON »o O *o O t^ o c^ «o 00 \i-> NO en c*i CO cj CO 0*0000 mu^tooo 0»CNJCviO »Oi-oi>.o oot^to tnt>.oot^ 0*000-^ On On On On On On 0\ On C)Oiou-> ioij-iOt>. O'ocjCNj r^r^vriNo oor^i^t^ t^t-^Ndi>I to o o M CNJ o o ■^ NO m *0 U^ 00 o\ i>I 00 C) »0 O 00 ^H O (M *o *o 00 »o NO C^ ^ C^ On On 0\ On On O O to i-H 10 O CnJ On !>. 10 NO N SO t^ t^" c^ OOOt*. otootn 0*00*0 OioO'-H lOCMvnt^ ot^tot-. VOf-Oi-i t^i-(l>.oo \otoCsjeo onooonon odt^t^t^ \o"«o^'o > 100*00 lOOO^O t^OCvJt^ b-OOCvJ OOVONONO 00*0*ONO 10 O O i-i M *o ^ On »-H t-^ O CN» t— (i— (1— (i-H OnOnOsOn OOOO T-( o 2:; oo*oi-( o*oioNo ooor-^ ot*~t~^oo *or^CNji-< *o»ovoi-H *OMcom t^eoi-(^ t^C-JC^l'd" 'Th -<*■■ ^ r*-* tJ^ -"^ -^ Th 5" -^ -<^ ^ ^ S ^ *o VO CO 00 00 •^ »o ^ ^ -^ n 00*0*0 0*00*0 oo*o»o toot^-t-^ lOt^'OC^I *o»oCsrt^ CNJOCOCX3 CaOOr^rH CMWNOCO toeorJcNi CnJthCVICVJ cotMCOCO U-» 10 VO T-H O t-^ rj r-^ os S sAC 3 u a XI to u - en J3 O ■ i-e » J S c >i M ■" " 3 = 1> 00 ^o 00 l^ CNJ c en 10 ^ -* CO T3 T-H »-( > IH * »H u > m a : u 5 >, ;C^l Th P* ON'^'oeo 'eft^i-Jt^ Csj^r-^O eocsjoow vi Ov OOOO oooo OOOO OOOO N OOOO OOOO O CD O O OOOO * s^ 0\ 0\ ON ON On 0\ ON ON ON On ON ON 0\ ON ON ON (^ < o t> »n in u^ u-i en rj^ ri^ t>. oo t-^ t>^ t-C in u^ ir% ui * * * * i^ i-C t-C t^ r^ t^ t^ t^ oooo oooo OS Oi 0\ On CO a o < o >> I— < Q o o O W K H Z O CO O l-H H O NO NO t^ NO w^ O *^ O On O CO *-< lO NO NO NO ^ w^ m »o »o o o o» CNJ W^ *n ^ t^ (^ l< t^ O O »0 I'l O rt- NO CO i>! t-^ K !>: Vl NO ^O *0 OOOO O*^*ot^ cs» vitri'^oo Tt"CO«om vo NONOO-^ t^iNOw^M NO NO to U^ ^ vn NO »A ? O CNJ W-l b- o ON to oo O CM OO 0\ O en ? O o en CM o oo o oo oo ii" * ■^ rt- ^ en en ■* en ■* T*- t^ »A NO to m \r\ C3i m o o 00 0\ ^ Tl- m O O O CO m * * ■* *■**■* T)-**'* "J-'J-'** Tj-'l-^Tj- n o z w M > * 1^ > ' t^ b > > O Oh '■ !». ! PS CJ • , I- : J -9 O »H -5 -O O tH t, M H rt 3 o D I; S o o ^ e t) O 1» cn B •'5 > ■i 4. s ^11 s s < C3 -O M cn n- n C en en en >H * <^ ::: 1 h^ ■)< CO oza BAROMETERS OF THE EXCHANGES 183 CHART XXVI.— TREND OF WOOL PRICES: 1910-1920. WOOL (O.Fa.&W.Va.I)elalne TTnTfeBhed.,^ lb. at Boeton) LOU- ~ \A n 92 i i\ Aa - / qn r \ «i " V V J \ j| / V DO " 1 \/ M -- T 1 60 _ - 1 I , f \ bH - / T r i Ta - ^ ■/* A ** ai ^J ^ ^ ■4 " y \, / >, "f 9f L ■ ' 1 ).911 12 13 14 IS 16 17 16 19 20 CHART XXVII.— TREND OF COFFEE PRICES: 1910-1920. COFFEE (Ho. 7 Rio, lb.) (cents) '^(3 "■ — ~ ~ ^ p — — ~ — — — — — "~ " 24 22 20 1 18 16 i V Ka 14 h >•< 1^ l> \ VI / t 12 V J \ CI ^ . 10 \ \ r J 1 1 f % ^ ^ T 8 f "y \ r> S»i J \ {^ \ f f ' \ \\ fi y_ ^ 1 1911 12 13 14 15 16 17 18 19 20 CHART XXVIIL— SUGAR (Fine rREND OF SUGAR PRICES: granulated, in bble. 100 1910-1920. lbs.) (ft) 2i d 21 1 1 19 1 1 17 1 1 15 \ 13 » 11 \ \ 9 r " "1 7 ^ V n ri / - J y s J J > ^ 5 / 1^ h^ / ^ f \ / - /» J 3 1 9 11 1 3 1 3 1 4 1 5 1 S 1 7 1 3 I 9 Z 184 BUSINESS FORECASTING O Ow^^oto w^OOrH C^JOu^M c:) yrx \r\ ^O OO P» t^VOCM"^ i-HiHoOO 'O'i-C^^ vorj-(Z)CO »^ 0\ ^'^^^ ^^cn^ cncn«n«o OC4MC>J tn Pi u-iu^OO OOOco OOOO OOOco OOOOOOOO OO^OOOI>> -"O "O VO \o vo so "O VO O M^ O OO 00*0 1:^ t^ ^s. OO t^ 000*0 0"^0oo o>jnO*o vo»r%vow^ OnooCTsoo ooeovoCM t^t^l^t^ SD^OVitso ^OVCl^nvo a ,_, O Jij ■p^ o <: >- K 1? u 1) X z w JJ m !x H 13 1— 1 Q 3 O O CU § u S & o u rt H O ffi 13 H oT a ?; tC o ^r t/) tu M c; •p 1— 1 a, ai r* Oi H o |3h o o o o !>. tJ- \£> 0\ OO t^ r--. i^ vnoON O^J^vAVO ooo^o ■J^*riosvo fovooow^ t^t^VOl>- SOSO"OSO t^t>.|>.|>- O O vj-i ^H w-i i-( 0^ vn l>. ^O w-» « o o o o l^ O O On u^ VO SO tA O <0 O e<^ en On vo On SO »A m u^ O O O SO O O O vn o -^ ■^^ ■i^ i-H en !>. t^ !>. 1^ O o o o ON CM vn CSJ VO t^ t^ tv. O O O SO so SO OO so NO "O so SO O O On (O O O O O O i-H O I-^ On OO O^ OO C7N ■^ O l>. OO OO 0< OO O O O en -* ■* Tl- t-- OO !>. t-* l^ 0*0 0"^ vo o O OO o ^ ^ o O O w^ *-< >. i-< OO CSJ l-< l-H O l-< o o o o C4 so O ^O 1-H ,-( (M w O o O en CTv tn t^ so O O O O X O O O o en 00 OO en en csj so Ti- O O O en »j-t «j-i ^ ^H ■* CSl ON CSJ O O O en OO en ^ OO On 1-1 ,-H O O O O so CSJ O *0 v^ ■rt o o o > ™ 3 o a 3 IH IH (3 w c 2 • 3 u S »-i 3 O* CO I— !<; » ills 025Q BAROMETERS OF THE EXCHANGES 185 O O 1^ "^ t^ ^ to "^t- tX -(^ • z ii^ tn so tn tn tn 1-H tn ^J m Hi ■5 to m W (M CM ti' tn cn tn tn tn tn tn v^vo^*'^ \0tni-(0 CMCMCsJC-J tnCsJtntn OOOO <^ M^ tn t>. ^ ^ ^_ ^ T*- oo 1-; ^ tntntntn tntntntn 1-1 •^ O o o o o O O tn to O O to o m in tn O 1 «-i to o o o vn tn tn !>. O o CM o CM CM oo ^ CO a\ O tn i~i a\ CM in CM d to tn CM d •^* ■^ CM O^ W CM tn tn tn tn '*■ -+ ■<*- m »^ m m to tn tn tn cn o "i? X 13 a, o u 'O o O O tn m O O CM »r> w-t o t-s o O O (>s Th ■o »N u^ o o oo CM «-i u-i ■^ !>. !>. in "O tn O m vo vo CQ §■ as o o o\ d d d d O* a^ a\ OS OS y-i t^ CM d i-t CM CM T-l CM CM CM CM 1-H 1-1 iH to xn »n wi m m m vn m in o o m in in m CM •* K, (M CM CM Cvj CM CM CM CM CM m m !>. (M ^ CM OS q ^ 1-H 1—1 1-1 Th 1-H ^ rh ■** m* T*-* VO ^■o OO T<-< 1-H in o ^ o GO 8 "^ O tn O CM O o u-» CM m m m W^ m o o oo o> u u CO »N o t>. o CT\ o o !>. OS b>. t^ t>. t^ t^ m m in t-. Z « iX ^ \A Th \A »r> '^ Tl^ ^ ^ ^ ^ *i^ ^ Th ■** ■^ a o M '~' CO d e IH O ^ S fVi o o o cn ui O O OO O O m »o O m o m tn G CL, 1 oo o oo tn oo t^ i^ o o O SO iX in *n o in vn in in (O H TH i-( *-t ^H rH T-l ^ »-( t-( 1-H 1-H ■1 O PL4 3 " « ON f^J u^ ir» in »o o o lA) (M O M-l O m o o o tn OS 'rt •n oo oo oo oo o 1-H CM m t-; o t^ oo o m oo oo ffi d ^' •S »n in i-< in 1-1 i/ i-( lO rH m vd m 1-* od oo 1-H in lU n < m m m m OOOO m m i^ m m lo in m u-i vn m in C) o m m O O oo OS »X in '^ Th ^^ ■ a u u B J3 « • m E O • S u B ■3 = 5"" !-,< CO lU S ^ 111 s I ^ S B O O 4» ''^ OZQ 186 BUSINESS FORECASTING O O vrt vA o ^ c-j r^ 0^ OS 0\ OS m O M^ O M o t^ o OS CT\ od OS OOOSOSOO OOU^^SO o (J oooro o»nor^ tnoOoo OOOcn Ob-.OOs CSJOOO VOOOOt-I U^lOt^wi OOTj^TfCJ C^|(M^HC\1 ,-(^^,-(,-1 i-iOJC*ICS| o o o t^ *^ o o ^ to vo \d lo CM (M 04 CM o o o o »n o o o o v^ vd vo vo vd Th ; l-^' od to CO CO CO cn CO CO CO CO CM CO eo CO CM Csj CM CM CM CM CM 2 ,,^ < S -"O o O O so o o O t^ O O o O O O O t^ •^ ? m Vi-l O so m m O so u^ XTt o o CD to O so >^ ^ (NJ SO od »n od o^ od od so SO od l>c od od to O CM CM Csl CM CM c^ c^ CM CM CM CM CM CM CM CO CO 2 Q O cd ^ S 13 C 3 O >o O CM M^ so O o o t^ O O O o »A »o to oo m SO C^I ri- o o o so w o to o CsJ t^ t^ to O u CO ^ w^ H- l>^ ^ ^ OS CM CTs" od o od !>.* OS od Oi l-H '^ »-l 1-1 y^ CM CQ 1-1 CM l-H 1-1 IN» *-( 1-1 i-< ^ H a Z u '^ C^ O O -* r^ o t^ CO t^ t^ o CM to O CM CO u •^ ? o o o CO u-> CO m oo CO o ■*. CM to so ^^ O iT to \A »o u^ •^ 'i^ ^ ■^ CO CO CO CO csj w CM C^ .±^ tH '"' l-( ■^ TH tH T-( rH *-l I—" T-* ■^H »— * 1— t 1— t 1— < CO n] W jj U t— 1 Pi Oh ?^ U-1 o o CM o to vn O O u^ O CM CM t^ O CO O Oh l>. w^ o 't o t^ !>; *0 o Csj O -^ so oo to CO t-^ SO »X so *o tX vi in to xA so u^ SO vd to so o >-) pa ftl to o o ►n CM *0 to :^ ^ H- -* so so "O so t^ t^ t-- t^ t»v to to Os oo I-. O !>. Ir^ l^ K t-^ coCMCMCM CMCMCMCS) CMCMCMCM CMCMcoCM "5 e ra 3 rl 3 n C a -o a . . - w H "i^ 3 tl^ CO I ^ s E o o 1> <^ OZQ BAROMETERS OF THE EXCHANGES CHART XXIX.— TREND OF RUBBER PRICES: 1910-1920. ROBBEH (Dp-river, fine, lb.) i 187 '1911 12 IS 14. 16 16 17 18 19 CHART XXX.— TREND OF PIG-IRON PRICES: 1910-1920. PIG IRON (No. 2X, Phila. ton) (8) 1911 13 13 14 15 16 17 18 19 CHART XXXI.— TREND OF COPPER PRICES: 1910-1920. COPPER (Lake. N.Y., lb.) (oentB) 1911 12 13 14 15 16 17 18 19 Chapter XI BAROMETERS OF FINANCE Financial barometers. — Financial barometers are five in number. The total bank clearings of a nation which transacts the largest part of its business transactions through the pay- ment with checks — as is the case in the United States — afford a means of judging the relative commercial activity of the country at any given time. The bank statements disclose the condition of the financial institutions upon which the business world depends for credit — a prime necessity in modern busi- ness. Interest rates reflect the condition of the so-called money market, which is in reality a credit market. Interna- tional gold movements are highly significant as a criterion both of credit conditions at home and general conditions abroad. The fiscal operations of the United States Govern- ment, in view of the enormous debt created during the war, have become an influencing factor of large importance upon general business conditions in this country. BANK CLEARINGS Meaning of the term. — About 85 per cent of the payments made in the United States arc handled through the use of checks.^ A certain share of these checks — not over 10 per cent — are deposited in the banks upon which drawn. The great majority, however, are deposited in other banks for col- lection. For mutual convenience, local banks in various local- ities have established clearing-houses to which they send all local checks. The total volume of checks cleared, i.e., pass- ing through the clearing-house, indicates the relative business activity of the community. The aggregate for all clearing- ' "The ABC of the Federal Reserve System," E. W. Kemmerer, p. 9. 188 BAROMETERS OF FINANCE 189 H H t-t hi h* ■ 0> (DO C3 it>. 0> CD EROSiSRin THSn 1891 ^ 1892 ^ ^ MA.TnB naxgjs 109? J \ t »3 CD O ID S 'i 1 1B94 / \ c V 'r- H CSfKESSIOn 1B9F \ \ i IflSfi \ \ g ! EEOOVERY 1R9V \ \ 1? 1898 s. -^ 1899 A^ ^;._, 1 PROSPERITY 1900 ^ ".vo ooe>^ooo^ oovoi>»oi ^voc^«o ^OOooCNJ vo\ot*^o vo»^t(-o^ ^^^^ tCeo'tX't^" tCe,ro"(Nf Oo't-TtCtC vo'rJ^Th'^ so^HOoo t^(-(00\ enooosTH ^H^OOOO w-jvosot^. CSJco^^O SO»-honoO^ '^'^^^ tH^^HCO I-HtH'^^ »-i^-(^h^ ,mi-<»-«»o to c>* oo t** o »o *r\ o CM to CO Os rh Tf- tn w ON *, 3 o ^ oi t^ CO *^ «o oo en so r^ Q^ so tn O to OQ lo O m o lO vo O W^ *n l>^ l>^ O oo ^ ^ ^ ^« S oToo ThcsT ^ On -^ O 1-h" oT t^ o "^ Th OS O ^ S ^ "^ ^ 1-1 »H s QO On (M \o CO >. ■rh^ tn^ w ^_ t-.^ ^^ ■FH t^ ^ O oo ^ oT ci TjT esf fsf cm" tC to" en" csf oT vT CO T^ tn CO OS 11 W CO TH rt W t*> ■PH rt T-l to ,^ ,-( ,.H T^ 1-t 1-f o\ \o oo tJ- tN. CO Os O to OO O OS Th CM t>. (^ o CO OO oo rH CM *0 ^ *0 to o OS CM w so oo so so £;• i-H^ CO csj oo to lo" ^ rt* 0^*0 O co" "^ oo* O^ OS^ oo^ oo^ oT co" irT 00 Os^ CM to l>^ oT O O^ tH CO VO 1-1 so CO en CM t^ ^ ^ CO ^ Os CSl so tn S "^ oo_ \n OS to t^ ^ t>. Th ■<*;^ ^ G>^ to_ en OS oo to o oo cT oT o cTo"^ O O O ^ cT CsT ^ ^ oC ^ --^ ^ CM »1 ,-1 1-1 CO ^ ,-1 ^ CO ■rH 1-1 ,-, en CM i-t o C^l (vj w VO >0 CM *^ (>» <4- 00 O CM 'H oo ^ to so OS ^ o o CM *n OS t^ *H r^ so "^ OS o to to OO ^ U ^ to OS w"rh VO to i-< Tl oT so" ^ t/^ Os Os ^ to ■^ O so^OO^ oo" in" so" OS T-i_ lO C»J OS^ csT to" oT ^ to o. ■* W CO O CM oo O !-• O tn tn i-< bN s - ^- '^^ *=3. so o o^oo^ OS OS ^ en^ Os^ O CM CM en z (^ t-. o. t^ oo" ^ oTo^oo ^ Cs» CM CM i-H 1-t eo O H i-< Q ^ ^ 1— * ■a ^ so \o CO 00 o oo »■ oo t-N CM OS to oo so O 1-1 « V 'T ■^ OO !>. ^ t:^ ^ so oo oo CM OS CM t>. CM eo t^ H a >o r^ to csi CO ^ so t-^ l>*^ OS^ t^ CM Os^ O^ »o -(i^ G3^ ^ t) "a 5> ^ cT co" oT ^*' ^ so OS tn" to" Os" SO* CsT tn" oT t*- to Os CO oo O O OS OS oo tn tn en O 1-1 tn t-. •«*• to O O >N '"I. '^l. ^ ^* (M OS O CM CM t^ i-<^^ ^ to Os Os ^ o o o so vT ^o tC SO «>r so oo* so" vT so' 00* b-" (C tC cf tC CO rH 1-i CM t^ O Z hH ^ OS en o CO ?;:SS5 oo oo oo »n t^ oo CM 00 1-1 '^ Pi < Os u-i Ov ^ t^ U-l 1-H <0 to CO O t^ CM ? W »n W o ^O so" ut" o«3" lo CM o oo to ol ^^to ^o' lo ^ oo OO^ Os^ Os^t-^ i-T o oo" 1-t to t<, OO ^ to csf ^ (M" so to M Ov *^ (M O w^ i-( wi Os <0 CM oo ^ (M CM o d s TO SO^ ^^ oO_ CO CO to O^ vo" "^ trTtC 1-1 so i-( Os^ so' to" so tC 1-1 CM cm" M z <; OS ^ \0 l^ »-( en oo to t^ 00 o t^ i-< O oo OS oo Os \o OS M^ CM t^ On OS CO en en o CM N ^ so i-H w n f»> O Os^t>^ OO^ oo C^ oo^ l-^ »0 CM O o«3^ SO^ l-H^ C*J^ Os^ ^ 1 s "^ oT co" oo" to" i>r ut" so" oT oT i-T oT so' oo" i-T to |_ Ov OS ,-H irs so tn ^ V-) ^ O CM OS (M CM O C5 CO oo S s OO^OO^ (NJ^ OS CM '-< OS co^ CM so Os^ oo^ O en r- O 1-t t>. SO vo" so" oo' so so M^ oo so" lo" u^" tC b^ so so O to ^ ^H 1-1 1-1 CJ t^ d "^ z ;:; ^ OS ^ Tj- m vs T-H CM b^ tJ- OS ■^ r^ OS t^ •^■ CO -I so so CM so W O t^ OS CM so CO CO i^ r^ i-f t^ so IM ")_ OS CM t>. t^ O OO^ VI m so so OO en CM Th O CS|^ ^« S Os vo co" oo" to" rh" oC tC ^ tCsn i>r O" oC so so cT Ov en «-i o OS ^ O CM ■* OS Os en CM 1-1 CO ■^ OS t^ Sj < J? tO_ so i-H o Csj^ w^ t--^ O^ O t^ t^ so i-( so ^ tn i-( R <3 .R H so" wT so o. so so O CM *fa| t^ CM oo 00 H- OS t^ w 0\ ^ Os CM tn to o OS O r»- m w w H- l^ to to OS so oo to tn T*- t^ so tJ^ -^ O OS o ^ oo M so N t^ Os^ oo_ so^ CTs^ Psl^ so 0«S^ °1 ». CO ^^ o" oo" to" vrT so" so" e. CM to to CM tH OS to 5? OS Os oo I>* ^ MT^ VD so "1 ^ ■*. '^ O O »H ^_^ oo U^" 1^ SiT" so" vC xX" vT so" to" so" sn" so" so so so" o«r tc ■B l-< '-' w ^ so u : : :s IH 3 cr CM ■ ' 1-4 ; « — Ui en ■»< CD . . . h : : : iJ ' U Ul t^ "a, E "S J s^ : rt b b ■ 3 2 3 O 4-. ^ u u m C '-0 rt ^ : v oi rt 8 1 C > "s ^ « S s ^ £ > u ±' < * 1— jpi. ^ < s 1^ t OZQ BAROMETERS OF FINANCE 193 TABLE No. 72.— OPERATIONS OF THE FEDERAL RESERVE CLEARING SYSTEM, 1919-1921* Month ended 1919 Total checks cleared July 15 $11,362,000,000 August IS 11,447,000,000 September IS 11,439,000,000 October 15 12,572,000,000 November IS 13,418,000,000 December 15 12,935,000,000 1920 January 15 14,042,000,000 February 14 12,517,000,000 March 15 13,154,000,000 April 15 14,450,000,000 May 15 12,818,000,000 June 15 12,841,000,000 July 15 13,616,000,000 August IS ; 12,301,000,000 September 15 , 12,878,000,000 October 15 13,674,000,000 November 15 13,088,000,000 December IS 12,090,000,000 1921 January IS 12,024,000,000 February 15 9,899,000,000 March 15 9,417,000,000 April 15 10,724,000,000 May 15 9,319,000,000 June 15 9,852,000,000 July 15 9,762,000,000 August 15 9,188,000,000 * Compiled from "Federal Reserve Bulletin." A combination of the total clearings at the clearing-houses with the Federal Reserve Clearing System, would cover practically all local and out-of-town checks. Unfortunately, the Federal Reserve system has a fiscal month ending on the 15th in con- trast to the practice of combining the clearing-house returns weekly. Bank clearings as a business barometer. — Bank clearings are not so good a barometer of business as is generally be- lieved. Barometric limitations are caused by changes in price levels, and the time intervening between the making of a busi- ness transaction and the date of payment. But of chief im- portance is the tendency of clearings to follow after the trend in business. Bank clearings show accurately how business has been in the immediate past, but offer little assistance in determining how it will be in the immediate future. 194 BUSINESS FORECASTING BANK STATEMENTS Statements according to classification. — The bank state- ments which are of chief barometric significance are: (1) the weekly statement of the combined Federal Reserve banks; (2) the weekly statement of the reporting member banks of the Federal Reserve system; and (3) the bi-monthly statement of condition of the combined national banks. The total number of banks in the United States on June 30, 1920, which reported to the Comptroller of the Currency was 30,151.' Of this num- ber 12 were Federal Reserve banks, 18,195 were State banks, 620 mutual savings banks, 1,087 stock savings banks, 1,408 loan and trust companies, 799 private banks, and 8,030 were national banks. The Federal Reserve system, in addition to the 12 Federal Reserve banks, includes approximately 10,000 of the above-mentioned banks.* Relative importance of different classes. — The relative im- portance of the principal classes of banks is shown in Table No. 73. The loans and investments of the reporting member banks of the Federal Reserve system are about the same as for all national banks, and are about 40 per cent of the total for the country.* The Federal Reserve system embraces about 60 per cent of the banking power of the country. The weekly Federal Reserve statement. — The weekly Fed- eral Reserve statement reflects the condition of the Federal Reserve system which comprises about 60 per cent of the bank- ing facilities in the United States. At the close of business on Wednesday of each week, the twelve reserve banks telegraph to Washington a statement of resources and liabilities. A consolidated statement is then prepared and appears in the newspapers on Friday, two days later, as Is shown in Table No. 74. The significant items in the statement are shown in the table in distinctive type, a prac- tice which unfortunately is not followed by the Board or by the newspapers. The Items on the statement have been num- ' "Annual Report of the Comptroller of the Currency," 1920, p. 252. "All National banks must, and other banks may, be members of Federal Reserve system. The exact number of member banks on March 31, 1921, was 9,715. "Federal Reserve Bulletin," V. 7, No. 5, p. 614. ' About 800 of the larger member banks of the Federal Reserve system each week report to the Federal Reserve Board. The reporting member banks in- clude trust companies as well as national banks, and it is a coincidence that the total for the reporting member banks approximates the total for all national banks. BAROMETERS OF FINANCE 19 S a Pi 'm' CI tx o p;^ 00 ui^ rh CTn^ nT §. t^ r>j" VO Th" f-H" oo h-T \. en c^ r^ c^i c^ r-i .— 1 v> ■« W5. **i •o •N^ «-> tsi -rH ^O Ln VO O "* ^ R 1 §' L#-i cv> »— 1 ^ -^ -^t* CN I>^ ^D en vo VO MD On ^ « *i •^ CS m GO 00 t^ vn g R 2 On On^ in^ '^ ^ "^ ^ ^ « •5 >o" in" en" i-^ oT CO oo t^ i2 \0 00 en 1;. oo oo O IS 1 i -<*H en ^ ^ O" ON 1— t f— 1 W5. ■% in VO O R ■? a' CM t^ oo ON NO ^ »V o "a .« vo" -^'' cm" Oh i~] ^ 1-H i~t "6 1= 1— 1 oo CM On '<+' ^H ^^. •n CM On r^ OO in t-- ^ "§ ,-H T*H NO Tt^ ^ ^•^ o R a^-"" 1*. ^ K ^ O CM r^ in -^ On 0\ i 1 oo Tt< vo -* in in On On in O cc oo ON r^ T-H ■tH 00 ON NO O o o -^ON^oo CVl" 15 s-^ ^ tS cs" en en en (N «-h" •-h" •S >t On ^^ en in On O ON .i NO O ON oo ^ O ON ^ ^ R CN CM »-* T-( ^ is C ri t>. t^CVlt».00 vovOooO csjt^oo^CNj vot^enm ^^^^^O^ cTcT\o"Tt-'" 0~^cro"ar ^-TbCcsTcr r*T'rn'c 1-H H- fO ON ^ r^^ tJ^ o" "o" t>r oo" U-> NO oo ^o •O W-l OO NO ^ r^ oo CO °V "^ ^ ^ oo" co" NO~ 'Si-' CN) oo NO On *i-f O O O ti-i oo *^ CNJ to CO On CNI 1-H 1-H O T-l WpTcnTm cfC^C^Cl CNJtMCNfcJ CNICST^OJ CN» CO w z < n u > a a CO U « ? i-l c < Pi i a VM a o en <^ Q _« m M "o (L> Z ■o rt 1— 1 (U M o C s CO txD o ■a C3 •S o « ^ en c w a . CN| NO t^ t>. t-. ^ O NO o O 'i- C^ ON t; ON^OO^^ iX" On t^ T^ Ti »o r* ^ OQ OO^ On^ OO 1-H NO ^ tN. CnJ On On CO O OO t^ CNJ On 0^ O OS CO O i-H ^d- iN^ rH NO ■^ O P" co" i-T o, ^ NO t^ On CO CO CO NO oo NO t>r t-T oC i-T t^ M-1 oo ^ u^ »o tJ- xn o i-^ t>. m Tf On t^ O CM lo CO ^ lo" no' no" oC CO O **■ CNj CO CO CO CO NO 00 O oo 1^ CsJ ^ 5- t ^. ^^ ^ On o-_ H;^ oo" no" '-<" wT O ■^:^ CNJ CM Th NO NO VO OO CO l-H ^ vo NO r^ vo t^ 1-4 r*. u-t NO No~ »-r H^ t^ NO "^ NO CO CO CO to oo CM »-i ts. oo On i-H On CM rH_ -d-^^ CM^ T^" no" oo" no" NO NO NO NO C^J CM CM CM ^v, t^ ON 1^ 1-1 oo o 52 '"' *^ U-l NO ^-' "* Tt- o oo ^ ^ ■=*" '"t "^ eo" y^ ^^ ^S OO OO C^ ON CNl CM ^ CM >. in U n r* a ^ u > s ° — U H 3 _3 u 3 - -2 -° CO S S B o •S S g c fi > o = y O *^ '^ O Z Q i? E BAROMETERS OF FINANCE 201 TABLE No. 76.— MONEY IN CIRCULATION IN THE UNITED STATES ON JUNE 1, 1921* Circulating medium Amount Gold and gold certificates $885,732,861 Silver and silver certificates 524,207,249 United States Government notes 336,002,306 Bank notes 891,281,092 Total excluding Federal Reserve notes $2,637,223,508 Federal Reserve notes 2,782,725,207 Grand total $5,419,948,715 * From "Circulation Statement," June 1, 1921. serve note circulation prior to 1919 are without significance, as the amount showed a continual upward movement from the opening of the system in 1914. As is shown in Table No. 77, the volume of circulation decreased materially dur- ing the early months of 1919 which reflected the short-lived post-armistice depression. From April, 1919, to December, 1920, the increase was almost unbroken. On December 23, 1920, the high record of $3,404,931,000 was reached. The first half of 1921 witnessed a substantial decrease as the volume of $2,674,435,000 in Table No. 74 attests. Reserve ratio. — The percentage which total cash reserves (7) is of the sum of total deposits (25) and reserve notes (26) is known as the reserve ratio (30). It is obvious that any change in the reserves, discounts, deposits, or notes, of the reserve banks affects the reserve ratio. For this reason, the ratio serves as an index number for each statement, and it is possible to observe the composite effect of all influencing factors from week to week merely through watching the re- serve percentage. A single percentage is used for convenience only. From a legal viewpoint, as has been stated, two separate reserves are required, one against notes and another against deposits. The legal minimum is a varying percentage between 35 and 40 depending upon the relative amount of note and deposit liabilities outstanding. As a matter of practice, the minimum reserve ratio — which would indicate a satisfactory condition of credit — Is believed to be about 60 per cent. Below that is unsatisfactory, 50 per cent is the danger mark, and 40 per cent the approximate legal limit. The ratio of 56.8 per cent on June 15, 1921, 202 BUSINESS FORECASTING TABLE No. 77.— FEDERAL RESERVE NOTES IN CIRCULATION 1919-1921 (in millions of dollars, weekly figures) Month igip /p^rf ips/ January 2,647 2,998 3,344 2,590 2,914 3,207 2,SiJ 2,849 3,159 2,466 2,844 3,115 2,450 2,850 3,090 February 2,454 2,891 3,075 2,468 2,959 3,050 2,466 2,977 3,037 2,472 3,019 3,051 March 2,488 3,030 3,042 2,50J 3,039 3,005 2,510 3,047 2,962 2,521 3,048 2,930 April 2,547 3,077 2,908 2,548 3,0«0 2,893 2,543 3,073 2,868 2,549 3,068 2,856 May 2,549 3,074 2,830 2,556 3,092 2,828 2,532 3,083 2,804 2,504 3,085 2,767 2,519 3,107 2,734 June 2,513 3,127 3,112 2,751 2,700 2,499 2,488 3,104 2,674 2,499 3,116 2,639 July 2,552 3,168 3,180 2,634 2,671 J" '.7 2,538 2,512 3,135 2,603 2,504 3,118 2,564 August 2,506 3,120 2,537 2,532 3,141 2,536 2,540 3,169 2,520 2,553 3,174 2,503 2,580 3,203 2,485 September 2,611 3,243 2,481 -^ 2,621 3,295 2,517 2,621 3,289 2,491 J 2,655 3,279 2,474 -^ October 2,708 3,304 2,457 2,741 3,322 2,482 2,752 3,353 2,475 2,753 3,356 2,440 2,752 3,351 November 2,806 3,354 2,808 3,328 2,817 3,307 2,852 3,325 T)prpmber 2,881 3,312 xy cv^ciiiL'ci ........... 2,907 3,311 2,988 3,344 3,057 3,404 BAROMETERS OF FINANCE 203 compares with the low record of 42.2 per cent reached on May 14, 1920." Significance of changes in reserve ratio. — ^A change in the reserve ratio can come as a result of changes in one or more of three items, namely, cash reserves, loans outstanding, and notes outstanding. As the volume of loans and notes depends upon credit conditions, the factors arc really two in number : cash reserves and outstanding credit. A decline in the re- serve ratio signifies either a decrease in cash reserves, or an increase in credit outstanding at the member banks; an in- crease in the ratio may mean either a gain In cash reserves, or a decline in outstanding credit. When the ratio is above 60 per cent, a decrease Is a favorable sign; when the ratio is below 60 per cent, an increase Is more desirable. The gain in the reserve ratio from 44.5 per cent on June 18, 1920, to 56.8 per cent on June 15, 1921, was due chiefly to a contemporary gain in cash reserves from $2,100,900,000 to $2,615,j624,000. In other words, the improvement in the ratio did not signify a corresponding contraction in outstand- ing credits." District reserve ratios. — A recent innovation of the Fed- eral Reserve Board is that of supplying the reserve ratios for the separate districts as Is shown in item No. 32 of Table No. 74. Although the ratio for the combined banks was 56.8 per cent, the individual ratios show a wide variance from 38.5 per cent at Dallas to 68.8 per cent at Boston. The individual ratios are invaluable criteria of credit con- ditions in the various sections of the country. On the June 15, 1921 showing, the agricultural districts — notably Dallas, Minneapolis, Richmond, and Atlanta — ^were still feeling the effects of the credit difficulties encountered In moving the "A slightly different method of computing the ratio was employed in 1920; under the present method, the ratio on May 14, 1920, would have been 40.5 per cent. " A different method of computation causes confusion in comparing the reserve ratio of the Bank of England with that of the Federal Reserve banks. The Bank of England is divided into two departments, one of banking and one of note issue* the Federal Reserve banks conduct both functions without the depart- mental division. In. London, a special reserve in gold — of approximately 100 per cent is set up against bank notes, and the remainder of the cash applies against the deposit liabilities. On June 15, 1921 — when the Federal Reserve ratio was 56.8 per cent — the reserve of the Bank of England was reported to be 13.14 per cent. Had the ratio been computed according to the American plan it would have been 53.6 per cent. 204 BUSINESS FORECASTING t^u-iu^w^ 0^^»r^\o OOCJ a z < z o h— 1 H < 1-1 tD * «2 o * Z o^ S -^ CO »-r w 2 H W oH ^ ^ Z>H ^ c W "5 o > w E p^> M-l S p< o tJ3 J« < J «< <4 W Qi - d Z w 1-1 P5 < H C t^t^t^t-^ ooi>.voi>. t^t~^r^t^ ITt \0 oo VO 0\ Tl- o o^ c4 c4 CO o t"^ Vw) »-r\ v N >»J • ' 1—1 >. ^ VI I ) y~i ^1 oooot^oo t^t^t^t^ t^t^t>-t^ t^ tv t^ !>* vo '^ %£l t>. CJ «n tn CO On 1-1 oo CO Tj- U^ tn O O od C7S ON ON ON O On O^ oo CO ON O ON 0\ On On OO ON oo oo On OO OO oo o o. ^' td o E fe; D CTv W '^ o . < t-i Xi *x\ coQ" K, i>-l zz ^ :^ << c4 O i-J B Ido bA 1-1^ B i? fe) ? Sz s 53^ It :? ^Q 01 0) ? >^° zz t4 o<: g fe; CO E < 2? p« H Z t3 o (J 5 *. en s> R so^^ ^ot^t^ r-^r^r^ t^i^t^ r^ «H< Mji* MHi Mil e^-* ^Tj--i- ri-Tj-vo t^t^t^ l^t^t^ K'-^ e** ew PW MW< MWi HN r^M r*« r*l W-« «W **■* *-J-* '!■■+* *■** \o \o 'O vo ■+*•<■ '!-*■* ■**■* t(-*tJ- \r^ \r\ ir\ •*■ -i- •*■ •«■•*■* C uitnto rotnto co^"i tou^i \r\ \r^ \r\ \r\ v\ v\ CO ^ ^ \r\ \£% O Z a < en (n CO to fn CO 't ■<*- -1- '3 13 5 -a ra 3 y 3 K M C J= « 3 1 _r u -.< CO -S •" 2 > o o o u OZQ 212 BUSINESS FORECASTING ductions in 1921 indicated that money conditions were much easier, but even 6 per cent is much too high for a basic rate. As is shown in Table No. 81, the pre-war discount rate at the Bank of England averaged less than 5 per cent. The market rate of interest. — To the business man, the Federal Reserve discount rate has been of academic interest only. It applies only to transactions between the member banks and the reserve banks. And until such time as the TABLE No. 82.— INTEREST RATES ON 60-90 DAY CHOICE DOUBLE- NAME COMMERCIAL PAPER, 1911-1920* (Average monthly rates in New York City.) ■findices 1920 1919 1918 1917 1916 1915 1914 1913 1912 1911 January 98.9 6.0 5.2 5.6 3.6 3.1 3.8 4.5 4.9 3.9 4.0 February 92.6 6.4 5.2 5.7 4.1 3.1 3.8 3.8 4.9 3.8 4.1 March < > > z o w o o o a o w BAROMETERS OF FINANCE 219 desirable. The total gold money stock of the world is less than $8,000,000,000 of which this country possesses about 40 per cent. No other individual nation even approaches the United States in the volume of gold holdings, as is shown in Table No. 85. Gold entering the United States serves one of two pur- poses: either It may be used as a basis for credit granting, or it may be utilized to strengthen the reserves against the credit already outstanding." Which will prove the case depends entirely upon the policy adopted by the Federal Reserve Board. Thus far, the credit restrictions imposed In 1920 are being lifted most gradlially. Accordingly the gold which has been received during the past year has served the second function, that of strengthening cash reserves. The gain in the reserve ratio from 42.2 per cent on May 14, 1920, to 56.8 per cent on June 15, 1921, is attributable chiefly to this policy on the part of the reserve banks. New gold production. — To a nation which has received about three-quarters of the total gold production of the world during the preceding year In the first four months of 1921, the quantity of current production creates little in- terest. Yet It should be remembered that the gold which is being received in this country Is the new gold which is being produced in the most part. In other words, the gain in the gold holdings of the United States has not been at the ex- pense of the gold stocks of the other nations of the world. The new gold production of the Transvaal — the most pro- ductive gold mines In the world — Is sold at auction in London and the United States has been able to secure most of It by reason of the premium on the dollar In that market. Appar- ently the gold Influx into the United States will continue until such time as it Is stopped by this country. Production of new gold declined materially during the war. Inasmuch as gold has no price but Is price, gold pro- ducers were confronted with the greatly increased operating expenses and a stationary revenue. The total production which amounted to $455,239,000 in 1910 was curtailed to $339,400,000 in 1920.'^ The decrease In gold production is " Under an arrangement made by the Treasury Department, all gold imports are delivered to the Federal Reserve banks. " The Journal of Commerce (N. Y.), February 7, 1921. 220 BUSINESS FORECASTING CO O '«0 On CO en ^O in CO o oo O -H t^ OO O Tt- w^ 0^ O O ON On Oncocow^ (Mt^»n^ OCD»-*co ^t^CM'^ ow^i>.r*! r^osM^T-t vofNicMO t-.CN)O0 000Ni~.rN.soi-H C4 ««1 CN| oo vo «o *o CNJ NO VO *0 On On CO 0\ vo *0 CVI t^ SO O t^ CO i-H ■O" no" C^f irC !>. CO l-H Cs! NO ^ r^ O ^ V% 0\ 00 ^ On t~- 1-t Os On CO to -^ rh of rT 0\ CNJ O (M NO !>. t~^ i-( t-^ On oo t1- On NO "^ CNJ tJ- ^O *o t^ vT vo^ oo o" CNl O On CO (^ t^ NO *-( OJ O l-( to CSJ t^ On OO t^_ On_ »-h_ OO^ to l-^ O" -r^ Cn» t^ *0 »n t^ NO NO O CJ Ov r-) csj OO «^ CO CNJ ^ oT NO o tH xr> On t-^ l~>. NO vo O On I^ NO CNJ On tH On i-H O CO NO 1-1 t^ T-T tC no" i-< •<*■ C^l OO !>. t>* l>. l-H On O NO »0 On i-« O i-H w^ r^ c^ No^ no" o" o. t^ t^ ,-H^ CnT ^ 1— I m o NO O Tt- r-" t-^ !>._ CNl^ I>^ On oo 1— f On t^ w^ T^ t^ NO NO NO On z o H o & Q O P< Oi Q O O < < D O •4- 1-1 ^ ON Cn C4 ON ■<:*■ NO CO O O ri" i-T t-T ,-h" oo CNJ oo ON !>. !>. f-- CN^ t^ CO t^ oo^ cnT oT on" i-T ^ t^ li-l CO t>. r^ t^ CM O oo *-« On On m CO (^ OO^ NO CM^ l>^ tC no" oo" CNj" ti-l lO CO «-i !>. t-- !>. CM O Ov On OO On CO i-H 'i- C^ OO «*■ vo i-T of of ^ u^ C-) CNI On t^ t-- t^ *-< of 1^ Th OS C) Oi ^ ■. o !>. ^ On NO CM t>. NO On OO u-i t^ OO NO OO vo NO O CO NO NO NO '^ VO NO t^ NO NO t^ T-l o_ r-t \r\ OO CO o_ T*- oo tC CO VO i>r 'i-" !< 1^ ^" CO O^ co" tJ^ ON OO vo ON CO \r\ r^ NO ON NO OO Xr^ On OO t^ ■^ t^ t-^ t-- CO t^ !>. t^ Ol t^ I-- t-^ CO !>. !>. t^ CO Tl- ^ m o o oo O oo »n CO O OO I-H CO ,-1 v^ oo CnI CO •"^ oo ■^ OO o w-> NO \r\ NO CO »o ON CNJ^ ON o »o OJ^ ON^ CO t--. t>. oo NO o_ !>. •>!*^ no" CO*" yr\ ■ ■o t^ l^ t^ CM On oo oo NO t-- NO r- i-H l>- !>. t^ CM t^ t^ t^ CO t^ t^ l>. CO T-H NO NO H- W CM CO NO NO VO NO ON r^ ON NO CM t^ ON CM «*^ oo CM On O NO t^ r^ r-l m On o ^ oo t^ l-^ <« ■**-^ O^ i-( t^ of co~ cm" ^ CO T— < O ^ t-^ t^ t^ 1-* NO ^O t^ On T^ to CO ^-< t^ oo 1-H^ C^ co" vf irT ^ CO I-H On ■+ t^ t^ NO l-< Q < I o Z W < O O^ CM ■«*■ ON CM »0 '-O CO i-H *0 CD^ On" ^ o" ■=^ OO CO On 1^ t^ l-^ !>. t*^ cnT Th ^o t^ r-> r-. o r^ »o On to O tn ^" Tf tC NO OO On rh CM r^. t^ t-. CO nocoOn CSCMnooo NONOCMTi- VONOCO"^ ooor-No nonoonOI t-^toO*^ t^ONcoT—i coOcot^ COt^lOt^ t-^l-^OOCM t^l-^t^CM CM CM On NO NO *H OO On oo I^ CO O^ 1-H NO^ in" oo NO^ On m CM O OO NO t^ t^ C> OO r^ CO OO CO CO On "O to t^ CO ON no" ^ I-T oo NO NO Ti- t^ I--, t^ t--. CM of T-l NO m O^ to oo i-H CO tJ- tJ- OO t^ oo co" of Ti- 1-1 t^ t^ NO f^ NO NO O of 1-H t^ NO tJ- On OO CO O O) ON NO CO ti- r^ CM oo" tC no" of "^ NO lO t-^ O CM t^ t-. t-^ CO 1-1 of on" 3 K t^oo^nO r|-i-ir-.CM ool>.*oO CMCMNOCM T-iiONOCO »OC5CMCrN OooOOn ^-»ONW^CM CM^NoCM^ i-7o"Ncrt-^ i-cvn"Th"o^ "'5;s c Ol -^ ^ a.co D 3 5 OJ ^ On oo 1^ NO CM O O NO O. On to oo" oT On" oo*" O i-H O to !>. O- t^ i-H CM ; u u cj tH -Q J3 3 ° > ij *f CJ O 4J "^ o z: Q BAROMETERS OF FINANCE 221 unfortunate as it makes even m,ore difficult the restoration of the depreciated currencies of Europe. Gold movements as a business barometer. — Gold move- ments have lost most of their former significance as a barom- eter of business. Exports embargoes on gold shipmenlts, except by special arrangement, in most of the leading nations prevent the normal flow of gold in payment of merchandise obligations. From the standpoint of the United States, the chief significance is the effect of the gold imports and exports upon the credit situation. As long as the present policy of the reserve banks obtains — that of using imports to strengthen reserves, a repetition of the war inflation of credit is impossible. FISCAL OPERATIONS OF THE TREASURY DEPARTMENT The relation of Government to business. — During the World War, the public debt of the United States increased from less than one billion to over twenty-five billion dollars. The annual expenditures of the Government have increased from about one billion to five billion. One item alone, the interest on the public debt, now exceeds the entire expense of conducting the Government before the war. Federal taxes before the war were extremely light; in fact negligible in comparison with the present. As the problem of the redemption of the public debt is one of taxes and as taxes have become of lively interest in business circles and exert a definite effect upon conditions, the problem deserves careful consideration from a barometric standpoint. Table No. 87 shows the public debt of the United States as of June 1, 1921, arranged according to the maturity dates of the various items. By June 30, 1922, a total of over $2,000,000,000 must be met; during the following' year an additional four billions; and within the following five years, a further amount of six billions; or, a total of $12,000,000,000 within the next seven years in addition to the regular expenses of conducting the Government. The possibility of tax reduction. — In contrast to the fore- going is shown Table No. 88 which gives the results of the operations of the Treasury Department for the fiscal period from July 1, 1920, to June 15, 1921 — almost a full fiscal year. This table appears daily in many of the leading news- papers and is worthy of careful study as it shows to what extent the Government is "catching up with the game." For 222 BUSINESS FORECASTING TABLE No. 87.— PUBLIC DEBT OF THE UNITED STATES ON JUNE 1, 1921* (Arranged according to maturity) Treasury Certificates 1922' $2,831,948,450 Victory Liberty Loan 1923' 4,022,116,555 War Savings Securities 1924' 704,382,584 Loan of 1925 1925 118,489,900 Third Liberty Loan 1928 3,643,848,200 Consols of 1930 1930 599,724,050 Panama's of 1936 1936 48,954,180 Panama's of 1938 1938 25,947,400 Fourth Liberty Loan 1938' 6,357,692,050 Second Liberty Loan 1942" 3,317,847,700 First Liberty Loan 1947' 1,952,279,350 Panama's of 1961 1961 50,000,000 Non-interest-bearing debt ' 230,260,212 Miscellaneous ' 49,250,960 Total gross debt $23,952,741,592 Balance in Treasury 244,565,951 Net debt $23,708,175,641 'Treasury certificates have varying maturities from 1 to 3 years but the great majority are for 12 months or less. ' Optional redemption in 1922. 'Maturity is 5 years from issue; most were issued in 1918 and 1919. * Optional redemption in 1933. ' Optional redemption in 1927. ' Optional redemption in 1932. ' Chiefly United States currency notes. ■ Postal Savings and Conversion bonds having varying maturities. * Compiled from The Commercial and Financial Chronicle, vol. 112, No. 2920, p. 2502. ' the period in question, the excess of ordinary receipts over expenditures — it is the amount of just this surplus that deter- mines the rapidity with which the public debt can be reduced — amounted to $241,320,000. In comparison with the same period for the preceding year — ^which showed a deficit of $488,452,000, the showing seems fairly good, but it is far from being so. Tax rates are so high that they are a cause for continual complaint in business quarters that they act as a positive de- terrent. Yet the revenues of the Government are barely sufficient to meet the expenses to say nothing of meeting enormous maturities of the public debt in the next few years. It is inconceivable that tax rates can be reduced, at least for many years. Yet radical reductions in the appropriations for armament, as well as elsewhere in Government expendi- BAROMETERS OF FINANCE 223 •■5 §> K V. so o VJ- O O "^ d *n so 1-t vo VO O (Nl i-< t>* OS ^O so OS O N OS to t-.r *r\ tn tN. so »-< ^O VO OS 1-1 ^ vT cT t>r wT w V\ OS oo * 1-1 1— , w r^ ■* »H ts. 1-1 «X T-l CO od i-i n (M oo OS R o so r*^ Csj^^^ !h" oa o" vT so" oo g "a p> t*. OO o O CO ^ •^ s so en r^ ^^l>-^ vo" -<:h' 0\ co" i-T CO i*^ OS O ■«*• oo tH ^ ?■ N r^ co^ >o <^ csf Pi H «> H tH ^ ^ vy OS ^ so CO .« o w^ o !>; OS CO "•5 N «n SO oo *o CO Ov tn so o 1-i CO e iT t^ l>^ oo so to Q -S! cf vT o" (sf co" c^ en 1-1 CM M S » vn tH OS so so !: o ^ OO so H S H Ck o o oo *n r^ oo . (O o U >-) 03 sn T-« i-< ir» so OS (sj SO 13 SO u ■^ 13 1-1 ^ C5^ 73 co" c 1-t CM <«■ ^ 'B 3 ^ C fin 3 OJ 13 > 5 a S " O m ti ^ u a a a a ° 1 "SO P rt C y ^ Q S o g » i> 5 m u ° S 2 c as 2 "5 C 3 ^ rt 2 It O —* o rr en ■ H ^ 2" h $" 0, a ?. c t-" ^ '3 e; •--> o ^H CO ^ »- *^ V <« u s u K 3 -6i "— 1 w ii o o t>s § «4 C u te; s «j u CO -«; u h 3 J3 _c « ■3 •a ■T3 w JS ." 13 n ^ •T o .2" c o. '5 0. c • < (IS pu • ■1- 224 BUSINESS FORECASTING tures can work wonders in this direction. The small daily statement of the Treasury Department gives a far better in- dication of what is being accomplished along these lines than columns of reading matter. Fiscal operations of the Treasury as a barometer of business. — The chief barometric significance in the daily re- ports of Treasury operations relates to taxation. Heavy tax rates which presently exist can be reduced only when the Treasury Department is able to build up a substantial surplus in revenues over expenditures. Incidentally, the outlook for lower taxes before 1950 is not favorable, and before 1930 practically impossible. Chapter XII BAROMETRIC SUMMARY Business barometers in general. — In applied meteorology a barometer does not deriv-e its chief utility from the accuracy with which it measures existing weather conditions. A ther- mometer also measures weather conditions, and with equal ajccuracy. A barometer, ihoweyer, measures air pressure, whereas a thermometer indicates the degree of heat.' Changes in atmospheric pressure — attributable though they are to rela- tive differences in the degree of heat in neighboring regions — have a greater significance from the standpoint of prede- termining future weather conditions than do temperature changes. It is this function of a barometer — as a prognosti- cating agent — that makes it of greater utility than certain other meteorological instruments that do not contain this function. A technical error is therefore made in the assumption that all the various ways in which business activity is measured are true commercial barometers. Agricultural production deserves to be called barometer because subsequent economic develop- ments are largely predicated upon this factor. But bank clearings are more analogous to the thermometer than to the barometer since they serve almost solely to measure current ac- tivity and give no basis for determining future activity. In the chapters immediately preceding, each of the various methods which are commonly used for commercial barometric purposes have been separately discussed and it has been shown that all are not of equal importance. The purpose of the pres- ent chapter is to epitomize the thought of the foregoing chap- ters, and to show the interrelationship of the functions of business from a forecasting viewpoint. Interrelationship of business forces. — Business forecasting may be likened to estimating the outcome of a push-ball con- test. If the ball is subject to the pushing power of an indlvid- ' "Barometer: An instrument for determining the weight or pressure of the atmosphere, and hence for judging of the probable changes of weather." — "Webster's New International Dictionary." 225 226 BUSINESS FORECASTING ual, the direction in which the ball will move and the rapidity attained can be determined by measuring the strength of the individual and noting the direction in which the power is ap- pHed. If two persons are endeavoring to move the ball, each in a different direction, the future movement of the ball can be determined by measuring the relative strength of the two individuals. If three or more persons endeavor to move the ball simultaneously, the problem of predetermining the move- ment of the ball can be solved througlh the same mathematical process of measuring the opposing forces. The trend of business conditions may be assumed to be the push-ball, and all the various factors which influence business conditions to be the players in the contest. The problem is unchanged; the method of attack similar. If it were possible accurately to measure the various forces which influence busi- ness conditions, it would be likewise possible to foretell cor- rectly changes in the conditions. From a practical standpoint, the great difficulty lies In the proper measurement of the in- fluencing factors.^ Few, if any, economic developments are without effect, large or small, upon all forms of commercial activity. A slight change in the railroad freight rate on raw cotton shipments between two neighboring towns in Texas has been known to affect the price of raw cotton in Liverpool.^ Because the term implies the mental capacity correctly to ascertain and properly, to weigh the innumerable forces which are constantly affecting business conditions, accurate commercial forecasting must al- ways remain a relative concept. An intellect with the power to secure a comprehensive grasp on all the permutations of commerce is found as rarely as a Galileo, a Newton, or an "The complexity of the problem may be better understood if, in considering the push-ball problem, it is assumed that in a large hall some thirty men have various positions along the walls to which each will endeavor to push the ball. The men have different degrees of strength and aggressiveness and are per- mitted to use any tactics and may push each other as well as the ball. Where will the ball be at the end of'two or three minutes? ' One of the most perplexing problems in astronomy — that of bringing into line with modern theory a whole series of eclipses of two thousand years ago — has apparently been solved through the assumption that the length of the day is increasing at the rate of one two-hundredth of a second every century. As one of the factors which increase the circumference of the world, the building of skyscrapers in New York is seriously considered to have a definite influence, infinitesimally small though it may be, upon the day's duration. — "Astronomy," A. R. Hinks, p. 134. BAROMETRIC SUMMARY 227 Edison. Impossible though it is for any individual to prede- termine precisely what economic developments will bring forth, no small measure of success is attainable for those who watch carefully the factors which are most likely to exert the largest influence upon changing conditions. The fallibility of commercial barometers. — ^An infallible business barometer does not exist. Economics in fact, is an inexact science. Economic laws might more properly be termed economic tendencies. Economic forces do not invariably have tihe same effect and therefore laws can not be proved with the facility which obtains in the exact sciences, such as mathematics, physics, and chemistry. The most that can be said is that eco- nomic forces tend to have a certain effect. When fundamental laws are not invariable in their opera- tion, the difficulty of predetermining the precise effect of a single economic development, or a group of developments, becomes fraught with many difficulties. Although agricultural production has truly been termed the fountain-head of com- mercial activity, large harvests have not Invariably been fol- lowed by prosperous days. And so with the other commercial barometers. No single barometer can be accepted as definitely indica- tive of coming events. The "shadow which is cast before" must be sought in diverse developments rather than through one factor alone. The range of fallibihty Is materially les- sened when several Indicia forecast a similar trend. A simul- taneous grouping of large harvests, favorable bank, statements, and an Improvement in conditions abroad Is far more certain to Indicate a prospective betterment In business activity than any of the factors individually. Business barometers as causes and effects. — The most diffi- cult phase of business forecasting Is the differentiation between economic phenomena on the basis of cause and effect. An In- crease In prices serves to increase industrial profits and thus causes industrial production to be enla,rged. And subsequently the increase in Industrial activity causes wages to be increased and hence selling prices to be further advanced. So an in- crease in prices and In industrial production aict both as causes and effects of the other. 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C W CO g rt Sum^SOfa S a g -§ -2 '5' : s: „• ^-i g a (-• _c " *j •g J i - °* S ^ti-Bl-B 8 >^ -a o < |.S „ o J3 C f== .•- ^|Q I m « "5 a S S ° - d.^ i 5fS 2.2i 2 S o „ , ■+< o .3 s o .a ^ >> >;•" Ja -^ ;», >1 ^ ^t a> cd ^ n u o. ts ■a % T3 .s s (A « 3 S cd U «^ ISxi to h O n ■^ Direct; Direct ; Indirec Ih c a (fi 3 CO c4 S 3 i C B H )H u u -0 3 IS c 13 ■Ot3 1^ Ih a s-g "" u ft .« • r. "^ ... "^ f. w Ih ■-3 M o 5'Q,S c h- 1 H^ < M O GH fa C<3 230 BUSINESS FORECASTING But despite the constant interplay of cause and effect, cer- tain of the barometers represent causes to a greater degree than effects. An attempt to chart the various business barom- eters In their relation to each other on the basis of cause and effect is essayed in the accompanying table. Any classifica- tion similar to this which embraces 462 distinct variations of cause and effect opens the way to considerable difference of opinion. The chart, however, has been painstakingly prepared and is believed to contain a high degree of accuracy. Summary of the barometers of production. — Agricultural production Is the most important single factor which influences business conditions. It supplies the major share of the raw materials used in manufacturing, provides employment for a larger number of people than any other occupation, and defin- itely affects the earning power of the second largest industry — railroading. Large crops usually create increased business activ- ity, and small corps have the opposite tendency. A favorable forecast on winter wheat production In the April Government crop report indicates business activity during the spring and fall months; and a favorable forecast on the crops In general in the September report foreshadows commercial ac- tivity during the fall and winter months. Industrial productivity has at once its greatest strength and greatest weakness In the facility with which the output is con- trollable. Quite Invariably, In times of rising prices, the en- ticement of large profits leads manufacturers to lose a proper perspective of the entire situation and to Increase industrial pro- duction well beyond the point of balance with concurrent condi- tions of consumption. By a converse psychological operation, activity is unduly curtailed during periods of depression. Sta- tistics of industrial production — pig iron, unfilled steel orders, raw material imports, and others — are of barometric value chiefly in comparison with other Indicia, such as agricultural production, wages, earnings, financial conditions at home, and general economic conditions abroad. Industrial production should keep pace with external developments. When it Is out of balance, either above or below, reaction is inevitable. Structural production Is treated as a separate phase of Industry In barometrlcs inasmuch as the individual trends substantially differ. The tendency of building operations to diminish as prices rise and to be resumed as prices fall is of particular barometric interest. The utility of this barometer, however, BAROMETRIC SUMMARY 231 is considerably reduced from a practical standpoint by reason of the inadequacy of the statistics available. Summary of the barometers of marketing. — The all-im- portance of the element of price in modern business makes changes in price levels of major significance in barometric work. No other factor more truly reflects the trend in busi- ness activity. Prices rise during periods of activity, and de- cline when business is dull. Just as the abnormally high levels attained during times of prosperity help to accomplish the reaction which ensues, just so do the abnormally low levels reached during periods of depression aid in the later recovery. The usual sequence with which prices change offers a fore- casting medium of special value. Prices change earliest in raw materials, particularly those which have an active market on the commodity exchanges, such as cotton, wheat, coffee, sugar, and copper. A change in the trend of prices on these commodities forecasts a subsequent change In semi-finished and finished products, and wholesale prices generally. Retail prices follow wholesale prices, and wages of labor are last to be affected. The volume of commodity shipments serves as a satisfactory Index of current activity. Its barometric value Is quite limited, however, because It follows the trend of agricultural and In- dustrial production. Changes In the volume of car loadings and idle cars do not Indicate subsequent changes in produc- tivity; rather does a change In productivity forecast changes in conditions of transportation. Foreign trade statistics must be carefully Interpreted to be of barometric utility. Due to the effect of price changes the value of the trade is of much less importance than the vol- ume. The total of exports, under present conditions, is of less significance than the total of imports. The dependence of American industry upon foreign buyers has been overempha- sized as the value of manufactured products exported aver- ages materially less than 10 per cent annually of the total value of domestic production. European imports have a particular value as a criterion of the degree of economic recov- ery in that continent. Retail sales have little barometric value. They are about the last to be affected by changing conditions. A general Improvement or retrogression through almost the entire field is necessary before reflection may be noted in retail sales. 232 BUSINESS FORECASTING Summary of the barometers of labor conditions. — Employ- ment conditions are reflected in the trend of wages and of controversies. Wages almost invariably follow the course of business conditions, increasing in times of activity and lower- ing in periods of inactivity. Toward the close of a period of prosperity wages tend to increase more rapidly than profits and bring about the controversies which become more fre- quent at this time — an indication that business activity has about reached its peak. During a period of depression, wages decline even below reasonable minima and thus require an up- ward adjustment even when conditions are inactive. Slight though such an increase may be, it indicates that the darkest hour has passed and that recovery is not far distant. Under new restrictive legislation, immigration figures have lost a great part of their barometric significance. Summary of the barometers of business profits. — Corporate earnings are without special barometric value. The informa- tion obtainable, from a forecasting standpoint, is usually ob- solete before it is published ; and even then rarely differs from that which preceding conditions indicated in advance. The number of commercial failures is valuable because it indicates accurately and promptly the trend of business events. A very low number of failures in comparison with preceding periods indicates that business is extremely active, that prices are rising, and that profits are fairly easily secured. But most of all it forecasts the end of the era of prosperity, as the months immediately preceding the transition from a period of activity to one of dullness show commercial failures at their lowest ebb. New security issues have thus far proved of practically no barometric value. Whatsoever utility may reside in this fac- tor has been lost in the inadequacy of the statistics which have hitherto been available on the subject. Summary of the barometers of the exchanges. — As prices on the stock exchanges represent the consensus of opinion of well-informed men as to the future course of earnings of the large industrial enterprises of the country, the trend of conditions should logically find expression in these prices be- fore elsewhere. In a constant endeavor to discount the future, traders buy or sell securities In accordance with the prospective effect of expected developments. The prices of Industrial securities, especially those of companies chiefly interested in raw BAROMETRIC SUMMARY 233 materials and producers' goods, offer the best criterion for judg- ing the impending course of events. Prices on the commodity exchanges reflect an even more scientific study of future probabilities than do those on the stock exchanges. Prices rise or fall in accordance with the relative balance In conditions of supply and demand. Any lack of balance is most quickly appreciated on these exchanges and finds almost immediate expression in current prices. As changes In prices on the commodity exchanges begin a se- quence of price changes that travels throughout the business world, the action of the commodity exchanges serves as an Important barometer of forthcoming changes in the business weather. Fluctuations In foreign exchange rates are of chief baro- metric value as a criterion of economic conditions abroad. Summary of the barometers of finance. — Bank clearings reflect business which was transacted In the Immediate past rather than currently. Changes In price levels between the date of contract and the date of payment, the time involved in manufacture, and the customary terms of credit, all tend to make current bank clearings more representative of business as It was from two to three months ago than as It now Is. Moreover, bank clearings, standing alone, are quite without sig- nificance as to future tendencies. Bank statements — especially the weekly statement of con- dition of the combined Federal Reserve banks — are Invalu- able as business barometers. They reflect the condition of credit availability in the country — a factor of large signifi- cance in view of the absolute dependence of modern business upon an adequacy of credit. A period of increased business activity Is possible only when credit conditions are favorable. The Increase In activity brings a corresponding increase in the demand for loans, and as the period continues the credit availability at the banks is substantially reduced until such time as curtailment of loans becomes imperative. This devel- opment In the business situation is revealed in the weekly bank reports which permit even a casual observer of the re- serve ratio to keep in Intimate touch with the current condition, of credit. When bank statements were rendered at rare intervals, as was the case prior to the organization of the reserve banks, interest rates afforded the most satisfactory method of judg- 234 BUSINESS FORECASTING ing the condition of the money market. Under the present practice of weekly representative bank statements, interest rates have become of relatively minor barometric utility. The rates vary as a result of changing conditions of credit, a de- velopment w'hioh can now be closely observed through the bank statements. Eventually the discount rates set by the Federal Reserve banks will dominate the market commercial rate in the United States In a manner similar to the manner in which the Bank of England discount rate dominates money rates over there ; but this desideratum has yet to be reached. Because of the operation of gold export embargoes in prac- tically all nations of the world except the United States, interna- tional movements of gold have entirely lost their prewar significance. Gold no longer flows as a natural resultant of debit balances between countries. The position of this country as the leading creditor nation gives it command of most of the gold stock of the world. New gold which comes into the United States may serve either of two purposes, namely, as a basis for ad- ditional credit expansion, or, to strengthen the reserves against credit already outstanding. The alternative chosen is largely dependent upon the policy adopted by the Federal Reserve Board which, at least during the period from June of 1920 to June of 1921, elected to utilize the enormous gold increase to strengthen credit reserves and thereby brought the reserve ratio from slightly over 40 per cent in 1920 to over 60 per cent In 1921. The fiscal operations of the United States Government have become a barometer of Importance inasmuch as they Indicate forthcoming taxation policies. Taxation has become an in- fluencing factor upon business conditions. Changes in taxes can be predetermined more readily throug'h observation of the relationship between current Federal revenues and expendi- tures as it appears in the daily statements of the Treasury De- partment than through any other single source. Barometric ranking. — The foregoing summary leads to a direct comparison of the forecasting utility of all the various barometers which have been discussed. Such comparison must naturally be made on the practical basis of the information which is actually available irrespective of whatever theoretical barometric superiority may be Invested In certain of the baro- meters concerning which adequate information Is not thus BAROMETRIC SUMMARY 235 far obtainable. On this basis the different indicia are arbi- trarily divided into five classes in the order of their importance. The first class includes seven barometers, each of definite intrinsic barometric value. As a single group they constitute a simple forecasting unit which embraces all the major fac- tors influencing business conditions. GROUP I. A-1. Agricultural production. ( a ) The April report on winter wheat. (b) The September general report. A-2. Bank statements. (a) The weekly Federal Reserve Report. ( 1 ) Reserve ratio. (2) Bills discounted. (3) Notes in circulation. (b) The weekly statement of reporting member banks. (1) Loans and discounts. A-3. Railroad net earnings. A-4. Commodity exchange quotations. Wheat-cotton-corn-copper-wool-hldes-rubber. A-5. Industrial production. (a) Pig iron. (b) Bituminous coal. A-6. Stock exchange quotations. (a) Average of ten Industrial common stocks. United States Steel — General Electric — American Locomotive — Kennecott Copper — American Wool — American Hide and Leather — Allis-Chalmers — United States Rubber — National Lead — Inter- national Paper. A-7. Business failures. GROUP II. B-1. Prices. (a) Department of Labor Wholesale Price Index. B-2. Industrial controversies. GROUP III. C-1. Interest rates. (a) Commercial rate on prime 90-day two-name paper. (b) The call loan rate. (c) The discount rate on commercial loans at the Federal Reserve Bank of New York, 236 BUSINESS FORECASTING C-2. Gold movements. (a) The balance of shipments for the month and calendar year to date. C-3. Foreign trade. (a) The value of imports from Europe. (b) The value of manufactures exported. (c) The quantity of raw materials imported. C-4. New building operations. C-5. Federal finance. (a) The relationship between total ordinary revenues and expenditures for the fiscal year to date. C-6. Foreign exchange rates. GROUP IV. D-1. Banlc clearings. D-2. Commodity shipments. (a) Weekly car loadings. (b) Weelcly idle cars. GROUP V. E-1. Wages. E-2. General corporate earnings. (a) Quarterly reports. (b) Annual reports. E-3. New security issues. Composite barometers. — In view of the large variance in the significance and the relative importance of the different indicia of business conditions, a logical development would be the construction of a single barometer which would show the composite effect of the influencing factors. Obstacles which appear almost unsurmountable are met at the outset, however, and make the task by far the most difficult in commerce. The first problem lies in the selection of the indicia. In the present volume, the individual barometers are discussed under seven main classes which are divided into twenty-two subdivisions which in turn comprise many smaller classifica- tions. Obviously it would be impracticable to include all of the separate indicia in constructing a composite barometer. On the other hand no consensus of opinion exists as to which should be chosen. The composite barometer which is probably most highly regarded in the United States at the present time BAROMETRIC SUMMARY 237 does not include agricultural, production as one of the in- fluencing factors ! The second problem is to determine the relative importance of the indicia chosen so that each may receive proper weight. It would be unreasonable to ascribe to the volume of new security issues an importance equivalent to that of business failures. Again uniform opinion is lacking. Bank clearings, for illustration, are generally regarded as having greater sig- nificance than is stated in the present volume. The third problem is to combine factors which have many elements of dissimilarity. Not only are units different — vol- ume, value, and percentages — but also are trends because some precede the major swing, some move with it, and the others follow. In a period of liquidation, bank clearings do not immediately fall off but prices decline. In a composite barometer the effect of the inclusion of bank clearings at such a time would be to neutralize the effect of the decline in prices. Moreover there are certain indicia which cannot be stated statistically or graphically, and which therefore could not be included in a composite barometer. These include factors such as economic conditions abroad, commercial legislation at home — tariff, taxes, etc. — conditions of employment, and poh- tics. The Harvard index of general business conditions. — In connection with the preceding paragraphs brief mention of two of the leading American composite barometers should be of in- terest* The Harvard Index of General Business Conditions is really three composite barometers rather than one, the three groups covering speculation, business, and banking. Each of the three groups includes four indicia, which makes a total of twelve separate barometers used in the construction of the index. The twelve are as follows : , Group I. — Speculation. 1. Bank clearings of New York City. 2. Average price of industrial stocks. 3. Average price of railroad stocks. 4. Average price of railroad bonds. "'The Index of General Business Conditions" prepared by the Committee on Economic Research at Harvard University, and "The Annalist Barometer and Business Index Line." Other composite barometers include the "Babson Compositplot of American Business Conditions," prepared by Babson's Sta- tistical Organization ; and "Brookmire's Forecaster," prepared by The Brook- mire Economic Service. 238 BUSINESS FORECASTING Group II. — Business. 1. Bank clearings outside of New York City. 2. Bradstreet's Index of Wholesale prices. 3. U. S. Dept. of Labor Index of Wholesale prices. 4. Pig iron production. Group III. — Banking. 1. Interest rate on 60-90 day paper in New York. 2. Interest rate on 4-6 months paper in New York. 3. Loans of New York City Clearing House banks. 4. Deposits of New York City Clearing House banks. The twelve barometers used may be summarized into six: (1) bank clearings, (2) security prices, (3) wholesale com- modity prices, (4) pig iron production, (5) interest rates, and (6) condition of the New York City banks. It is there- fore significant to list the important indicia which are not considered: (1) agricultural production, (2) condition of the Federal Reserve system, (3) railroad earnings, (4) business failures, (5) commodity exchange quotations, (6) foreign trade, (7) building operations, (8) commodity shipments, and (9) wages. The writer is reluctant to believe that a satisfactory index of business conditions can be constructed without including at least some, if not all, of the nine indicia which are excluded from the Harvard index. "The Annalist" barometer and business index line. — Inas- much as the Annalist Barometer Includes but four indicia — wholesale prices, pig Iron production, bank clearings, and the interest rate on 60-90 day commercial paper — It Is open to even greater objection for indicia excluded than the Harvard index. It Is accordingly even more difficult to believe that the Annalist Business Index Line satisfactorily reflects the trend of business conditions. In view of the Important Indicia omitted — and it Is significant to note that three out of the four included are primarily effects and not causes — the Annalist Barometer has little scientific foundation.^ New barometers, actual and prospective. — At no time in the past has greater interest been taken In the subject of In- telligent business forecasting than Is manifest as the present " "The present index line is frankly empirical and its value as a forecaster of the future is predicated wholly on its success in the past." — The Annalist vol. 17, No. 428, p. 377. BAROMETRIC SUMMARY 239 volume is being written. During the first half of 1921 two new barometers have been started, one being the monthly sur- vey of employment conditions by the Department of Labor,"^ and the other the monthly report on new security issues by The Financial and Commercial Chronicle.^ A comprehensive production and trade index is being evolved by the Federal Reserve Bank of New York, which should shortly be available and which should prove of Invaluable assistance in barometric work.* But even greater development along barometric lines is necessary if a maximum degree of accuracy is to be attained in business forecasting. An index of actual industrial production is needed to cover weekly and monthly output records of lead- ing manufacturers of semi-finished and finished products. An index of retail prices which would approach in accuracy cur- rent indexes of wholesale prices would be serviceable. An In- dex which would show collection conditions throughout the country at least once monthly would provide a criterion by which relative financial stringency could be measured.' A com- prehensive record of building operations in actual progress throughout the country would be infinitely preferable to the present method of compiling the total value of building per- mits and contracts awarded in certain sections." But the greatest of all is the need of a method of accurately forecasting weather conditions beyond a few days in advance. This problem Is one In applied meteorology rather than in applied economics, yet its solution will be of the utmost im- portance to the commercial world. Inability to regulate agri- ° Reference has previously been made in Part 11, Chapter VIII. — Monthly Labor Revieiv, vol. XII, No. 1, p. 143. 'Previous reference appears in Part II, Chapter IX. — The Financial and Commercial Chronicle, vol. 112, No. 2909, p. 1216. 'For previous reference, see Part II, Chapter VI. — The American Economic Remeixj, vol. XI, No. 1, p. 70. ° "Methods of Developing an Index .of Collection Conditions," W. H. Steiner, in Quarterly Publication of the American Statistical Association, vol. XVII, No. 132, p. 426. "At the First Federal Conference on Business Conditions Reporting, held at Washington, Feb. 21-22, 1921, Prof. Melvin T. Copeland stated that addi- tional statistics were needed in four groups: production, prices, mercantile trade, and credits. Production statistics should include copper, rubber manu- factures, clothing, flour, canned goods, machinery, farm implements, builders' hardware, jewelry, musical instruments, and silk goods. "Our production statistics also should be made available promptly, ordinarily within 10 days 240 BUSINESS FORECASTING cultural production because of uncertain climatic conditions has an influence greater than that of any other single factor upon the phenomenon of the business cycle." Future barometric progress. — Despite the fact that certain new barometers which are now being developed will prove of undoubted assistance in business forecasting, the time is close at hand when further barometric progress will be restricted to the refinement of the indicia which are already available. In an effort to find new methods of predetermining business con- ditions, economic research has covered practically the entire field of commercial endeavor and has found barometric utility in almost one hundred indicia of business conditions of which about twenty-five, as taken up in the present volume, are of ma- jor significance. It would be unreasonable to expect that fur- ther research will disclose many new business barometers, and illogical to devote considerable effort to searching for new indicia while present barometers are but imperfectly under- stood. The deficiencies in the present barometers are not attri- butable to inherent faults but to inadequate development. Moreover little forecasting assistance may be expected from barometers of a freakish nature which, through mechanical de- sign or otherwise, endeavor automatically to unfold the busi- ness future. Business conditions are susceptible to the influence of so many factors that it is quite impossible to resolve them all into any contrivance which will automatically foretell future of the end of the month to which they apply. If a two-month's interval elapses before the statistics are published, the figures oftentimes are stale for practical use in judging current business conditions." Price statistics should include comparative movements according to commodity groups. Mer- cantile trade statistics should give monthly reports on sales, purchases, and inventories. Monthly reports should be compiled showing retail and whole- sale credit conditions. — Federal Reserve Bulletin, vol. 7, No. 3, p. 291. " It is encouraging to note that the Department of Commerce has taken a deep interest in the preparation of business statistics. In view of recent statements by Herbert Hoover, it would not be surprising if the Department should undertake the preparation of statistics which are not now available. In The Nation's Business for June, 1921, (p. 12) Mr. Hoover is quoted as follows: "What I mean is that we should have more timely, more regular and more complete information of the current production and consumption and stocks of every great commodity in the United States. I am convinced that we should go even further than this; that we should secure and publish the proportion of the total equipment of more important industries, that is, in current production, together with total proportion of labor complement that is in service; and that in a few commodities it may be well to procure and publish the primary prices." BAROMETRIC SUMMARY 241 economic developments. Furthermore, the utility of any baro- meters depends primarily upon the intelligence with which it is interpreted. No real business man will ever ask or expect a device which will relieve him of the burden of thinking.'^ " Since this chapter was written, the Department of Commerce has begun the publication of a monthly "Survey of Current Business" which is a statistical compilation of the various indexes of production and marketing. The Survey contains many indexes which are not specifically covered in this book because of limited barometric value. The chief objection to the Survey is that it is issued too long after the information has become current. This disadvantage can be remedied by issuing the Survey weekly and having it cumulative for the month. Part III BUSINESS CRISES IN THE UNITED STATES 243 Chapter XIII THE PRINCIPAL AMERICAN CRISES Frequency of American business crises. — The annals of American business from 1800 to 1921 include seven major crises which developed in the following years, namely, (1) 1837, (2) 1857, (3) 1873, (4) 1884, (5) 1893, (6) 1907, and (7) 1920. Minor disturbances occurred in 1814, 1818, 1825, 1829, 1848, 1866, 1903, and 1913. The elapsed time between the major crises was respectively 20, 16, 11,9, 14, and 13, years. If the minor crises are included the elapsed time was 4, 7,4, 8, 11, 9, 9, 7, 11, 9, 10,4, 6, and 7 years. While a greater degree of periodicity is found in the recurrence of the major crises than in the elapsed time between all crises, in neither case have the intervening intervals been sufficiently regular to substantiate a theory of true periodicity. "Seven years of plenty followed by seven years of want" has not been the accurate story of American business. Alternate periods of prosperity and depression are the results of cumulated change, as has been shown in the earlier description of the business cycle, but an analysis of the various factors which contribute to the change does not warrant the belief that a fixed regularity exists in their operation. Upon two occasions — the outbreak of the Civil War in 1861 and the World War in 191^1 — developments which ordinarily are not considered in the establishment of a theory of periodicity in business cycles, have thrown commerce entirely out of its accustomed channels, have necessitated radical changes In business methods, and have completely altered the results which would have obtained had the old order remained. Changes in the nature of crises. — In the brief summary of the major crises of the United States which appears In the following pages, a material change in the nature of succeeding crises is noteworthy. Economic conditions were vastly differ- ent in the early nineteenth century from those in the early twentieth. Agriculture was then the chief occupation and 245 246 BUSINESS FORECASTING engaged the attention of more than 75 per cent of the people. The population was relatively small, being but 17,000,000 in 1840. Facilities of transportation and communication were decidedly poor, as the railroad development did not come until nearly the middle of the century. From a political aspect, the nation was none too strong. The twenty years estimated by Washington as necessary to weld the country together proved a conservative prediction. Federal finances were in deplorable condition until well after 1 820. A shortage of monetary metal compelled the issuance of a superabundance of paper currency.' The last half of the nineteenth and the first twenty years of the twentieth century witnessed a striking change. The inven- tion of the steam engine and its application to transportation and to industry and the development of the use of electrical power proved momentous factors in the rising importance of industrial production. Improved facilities in transportation and communication, large scale manufacturing made possible through new machinery and the corporate form of business organization, and a tremendous increase in the use of credit in business, all tended to put the conduct of business on a plane vastly different from that occupied in the early nineteenth century.^ With the entire institution of business in the process of ma- terial change, the commercial disturbances which meantime arose differed from those which preceded and followed. The earlier crises are attributable to causes such as specie shortage, overexpansion of railroads, and the building of public works; whereas recent disturbances are diie more to reasons such as industrial overproduction and credit inflation. The earlier crises. — The economic disturbances which de- veloped in the United States In 1814 and 1818 were chiefly due to the unsatisfactory banking policies in practice. After Congress refused to extend the charter of the First Bank of the United States in 1811 — a most unfortunate act as later developments proved — hundreds of State banks entered the field. A vast increase in the volume of outstanding credit re- sulted through loans and note Issues by these new banks, enor- mously out of proportion to the specie reserves held at the time. In the meanwhile the War of 1812 had begun and was * "Financial History of the United States," D. R. Dewey, p. 76. ' "Syllabus of Lectures on Panics and Depressions," W. H. Lough, Jr., p. 3, THE PRINCIPAL AMERICAN CRISES 247 TABLE No. 89.— CONDITION OF BANKS IN THE UNITED STATES 1811-1816* Number of Year banks Capital Circulation Specie 1811 88 $52,000,000 $28,000,000 $15,000,000 1815 208 82,000,000 45,000,000 17,000,000 1816 246 89,000,000 68,000,000 19,000,000 * "A Brief History of Panics in the United States," C. Juglar, p. 36. going none too favorably for the United States, with corre- sponding adverse effect upon banking confidence. The capture of the city of Washington by the British on August 24, 1814, was followed by a suspension of the Philadelphia and New York banks. The banks remained closed until 1817. The period of depression which began In 1814 lasted until 1820. Business conditions In 1819 were particularly poor.' Even the rectification of the error of 1811— ^when the charter of the First Bank of the United States was permitted to ex- pire — through the chartering of a Second Bank of the United States in 1816 failed to prove of assistance until well after 1820. The crisis of 1837. — Business conditions during the period from 1820 to 1837 were In marked contrast to those which existed during the' six years immediately preceding. The com- pletion of the Erie Canal In 1825 was the first great step in the opening of the West, and served as a stimulus for similar projects throughout the North and East. Steam railroads were proved practicable by 1830 and extensive construction was in progress within a few years thereafter. The financial po- sition of the Government had Improved to such an extent that the entire national debt was redeemed by 1835 and a surplus of $26,749,803 was on hand on January 1, 1836.* With the ex- ception of a small reserve, this surplus was divided among the State governments. Public projects — banking, canals, and railroad construction — were undertaken in the enthusiasm of the moment without conservative regard for productive power '"Distress was severe throughout the country; many laborers were thrown out of employment ; prices of exportable articles fell ; and, in general, a readjustment of values was forced upon the country. Contraction of credits by the banks in their endeavor to obtain a specie basis in 1817 also contributed to diminish the credit facilities which the banks could afford to importers; the State banks reduced their note issues from $100,000,000 in 1817 to $45,000,000 in 1819." — "Financial History of the United States," D. R. Dewey, p. 166, '"History of Modern Banks of Issue," C. A. Conant, p. 626, 248 BUSINESS FORECASTING in the immediate future. Speculation, especially in land, be- came rampant. Factors other than speculation and unproductive projects also contributed to the reaction of 1837. Congress refused to extend the charter of the Second Bank of the United States which expired in 1836. The Coinage Act of 1834 changed the ratio of the relative value of gold and silver under the bimetallic system which then prevailed from the old ratio of 15 to 1 — which undervalued gold and hence kept it from circulation, thereby protecting reserves — to a new ratio of TABLE No. 90.— BANK EXPANSION IN THE UNITED STATES, (amounts in millions of dollars) Number of Year banks Capital Circulation 1829 329 110.2 48.2 1834 506 200.0 94.8 1835 704 231.2 103.7 1836 713 251.9 140.3 1837 788 290.8 149.2 1838 829 317.6 116.1 1839 840 327.1 135.2 1840 901 358.4 107.0 1841 784 313.6 107.3 1842 692 260.2 83.7 1843 691 228.9 58.6 1844 696 210.9 75.2 1845 707 206.0 89.6 * "Financial History of the United States," D. R. Dewey, p. 225. 1829-184S* Loans 137.0 324.1 365.2 457.5 525.1 485.6 492.3 462.9 386.5 324.0 254.5 294.9 288.6 16 to 1 — which overvalued gold and hence forced it into cir- culation and out of the country.' In 1836, the Treasury De- partment refused to accept other than specie in payment for public lands, and thus put a decided check upon speculation in this field. The failure of the agricultural crops in 1835 and 1837 was an additional unfavorable factor. Public meetings held in New York protesting against high commodity prices early in 1837 indicated that the end of the pe- riod of prosperity was close at hand. The crisis came on April 1, 1837, and during the following ten days 128 commer- °In 1834 the ratio on the basis of the relative market value of gold and silver was 154 to 1. At 15 to 1, gold was undervalued; at 16 to 1, silver was yndervalued. THE PRINCIPAL AMERICAN CRISES 249 cial failures were reported in New York City. Specie pay- ments were suspended by the banks on May 10 and were not resumed until the following year. The depression in busi- ness continued until 1840. The crisis of 1857. — Liquidation was so thorough during the three years of depression immediately preceding 1840 that the ensuing period of recovery was long sustained. A failure of the principal European crops in 1845, 1846, and 1847 was but a single factor contributing to the general prosperity In this country. The Mexican War in 1847 stimulated commerce through abnormal Federal expenditures in the same manner although to a lesser degree as did the recent World War. The discovery of gold in California in 1849 greatly increased the monetary reserves of the country.* Political and economic TABLE No. 91.— BANKING CONDITIONS IN THE UNITED STATES, 1846-1860* (in millions of dollars) Number of Specie Year banks Loans Deposits Circulation reserve 1846 707 312.1 96.9 105.6 42.0 1847 715 310.3 91.8 105.5 35.1 1848 751 344.5 103.2 128.5 46.4 1849 782 332.3 91.2 114.7 43.6 1850 824 364.2 109.6 131.4 45.4 1851 879 413.7 129.0 155.2 48.7 1852 992 527.0 189.0 156.3 53.0 1853 1,098 408.9 145.6 146.1 47.1 1854 1,208 557.4 188.3 204.7 59.4 1855 1,307 576.1 190.4 187.0 53.9 1856 1,398 634.2 212.7 195.7 59.3 1857 1,416 684.5 230.4 214.8 58.3 1858 1,422 583.2 185.9 155.2 74.4 1859 1,476 657.2 259.6 193.3 104.5 1860 1,562 691.9 253.8 207.1 83.6 * Compiled from "Financial History of the United States," D. R. Dewey, p. 260, with slight amplifications. °The gold discoveries in California were almost simultaneous with those in Australia. The average annual production of gold in the world from 1492 to ■'"50 was about $9,000,000; in the period from 1851 to 1860 the annual average increased to $133,000,000. — "History of Modern Banks of Issue," C. A. Conant, p. 637. 250 BUSINESS FORECASTING difficulties in Europe caused an enormous increase In immigra- tion to the United States.' Railroad expansion was more rapid than the growth of the country. In the nine years preceding 1857, over 20,000 miles of new railroads were constructed; in the year 1856 alone, 3,642 miles were completed.* As the era of prosperity continued, business activity in- creased, and prices advanced. A fever of speculation ensued and the demand for bank loans was insatiable. A tightening of the credit market as early as 1854 gave warning of the ne- cessity of the curtailment of credit. The warning passed unheeded, however, and the inevitable crash came in 1857. TABLE No. 92.— NEW RAILROAD MILEAGE CONSTRUCTED IN THE UNITED STATES, 1840-1900* Mileage Mileage Mileage Year increase Year increase Year increase 1840 516 1860 1,837 1880 6,711 1841 717 1861 660 1881 9,846 1842 491 1862 834 1882 11,569 1843 159 1863 1,050 l£g3 6,745 1844 192 1864 738 1884 3,923 1845 2*56 1865 1,177 1885 2,975 1846 297 1866 1,716 1886 8,018 1847 668 1867 2,249 1887 12,876 1848 398 1868 2,979 1888 6,900 1849 1,369 1869 4,615 1889 5,162 1850 1,656 1870 6,078 1890 1851 1,961 1871 7,379 1891 4,844 1852 1,926 1872 5,870 1892 3,656 1853 ' 2,452 1873 4,097 1893 4,143 1854 1,360 1874 2,117 1894 2,899 1855 1,654 1875 1,711 1895 1,895 1856 3,642 1876 2,712 1896 2,053 1857 2,487 1877 2,274 1897 2,163 1858 2,465 1878 2,665 1898 2,026 1859 1,821 1879 4,809 1899 3,466 * "Statistical Abstract of the United States," 1919, p. 328. '"In 1845, the number of immigrants to this country was 114,000; in 1847, 225,000; and in each of the five years after 1849 it was more than 350,000. More immigrants, in fact, came between 1845 and 1855 than in the preceding twenty-five years. — "Financial History of the United States," D. R. Dewey, p. 257. ' "History of Modern Banks of Issue," C. A. Conant, p. 637. THE PRINCIPAL AMERICAN CRISES 251 ~ I-. H H 1 PHOSPEBITY 1868 1869 \ \ IfilQ \ ipyj \ 1872 X s lUJOB OEiais lev? ^ 1 1874 ^^ 1 1S1£l 1 ^M DSSBSSSIOS ^ \ ^877 / 1 lR7n \ 1 BMOVilHl 1879 ^^ ^ d Ififift \ \ EBOSPERITY 1861 ^^ S lSfi£ N P, i 1 nR*^ ---^ MIBOB CRISIS 1884 ^^^ " §hS 1 EEOOVERY T RRF / t-3 18B6 *^ — -^ ^^ a C3 PEOSEBEIK 1886 laaa ,^ ^' '^ 1890 1 189? / / ^ UUOB CRISIS 1893 \ fc 1 1894 / H SEPRESSIOS X3S&. / 1 1S96 - BBOOVEffif 1^23. \ 252 BUSINESS FORECASTING The failure of the Ohio Life Insurance and Trust Co. on August 24, 1857, precipitated a panic. Prices dropped de- moralizingly on the New York Stock Exchange, interest rates mounted enormously, specie payments were suspended by the Philadelphia and New York banks, and several large railroad companies went into receivership. As is usually the case when economic crises develop out of financial difficulties, the crisis of 1857 was not long continued. By the end of the year, con- ditions had regained a large degree of stability. The crisis of 1873. — American commerce passed through tu- multuous days between 1857 and 1873. The Civil War which lasted from 1861 to 1865 left many perplexing prob- lems in the form of a tremendous increase in the national debt, and the monetary system of the country on a paper basis. The public energies turned from war to industry with such vigor that even a serious panic in England in 1866 failed to affect adversely American conditions.' Railroad construction in the years following the Civil War was greatly increased. The average new mileage completed during the war was slightly over 1,000; in 1869, it increased to 4,953; in 1870, to 5,690; in 1871, to 7,670; and 1872, to 6,167; or a total of 24,480 miles in four years. The increase in railroad construction naturally brought a corresponding gain in iron production, and in industry generally. Production was overstimulated from the viewpoint of both the actual require- ments and the financial capacity of the country. A marked stringency developed in the money market late in 1872 and continued with increasing emphasis into 1873. A few small bank failures early in September were followed by the failure of Jay Cooke and Company — a private banking house intimately connected with the Treasury Department — on September 18, 1873, and panic ensued. Bank runs com- pelled many financial institutions to close. Industry was pro- foundly affected; new railroad construction decreased to 2,117 miles in 1874 and 1,711 in 1875; foundries and mills prac- tically ceased operations. Business prostration continued for six years — one of the darkest periods In the commercial history of the United States. The crisis of 1884. — The economic disturbance of 1884 was of short duration. It is attributable almost entirely to specu- "May 11, 1866 — the day following the Overend, Gurney and Co. failure — ^has long been memorable in British financial history as "Black Friday." THE PRINCIPAL AMERICAN CRISES 253 lative causes. European crop failures resulted in a heavy de- mand upon American agricultural production with the result that the value of merchandise exports in 1881 was nearly $1,000,000,000. The large favorable trade balance brought a corresponding Increase in gold imports which served as a basis for augmented bank loans. Stringency developed rap- idly during 1884. The suspension of the Marine Bank in New York on May 5, 1884, was followed by several smaller failures. To meet the currency shortage, local banks and clearing houses formed associations which issued "clearing house certificates" which were acceptable in lieu of cash. The crisis, which was chiefly felt by the stock exchanges, passed rapidly and by the end of the year equilibrium had been re- established." TABLE No. 93.— THE RATIO OF GOLD TO SILVER ACCORDING TO RELATIVE MARKET VALUES, 1840-1895* Ratio of gold Ratio of gold Year to silver Year to silver 1840 15.61 1875 16.58 1850 15.70 1876 17.87 1860 15.29 1877 17.22 1870 15.57 1878 17.94 1871 15.57 1879 18.39 1872 15.63 1880 18.04 1873 15.92 1885 19.39 1874 16.17 1890 19.77 1895 31.57 * "Financial History of the United States," D. R. Dewey, p. 406. The crisis of 1893. — The severe business depression which developed in the United States in 1893 was caused by two outstanding factors. The failure of Baring Brothers and Company in London caused British nationals tO' regard their foreign investments with large misgivings. Although the In- vestments marketed through the house of Baring had been principally In Argentine, British investors were led to restrict their commitments In other countries, including the United States. Up to this time, English capitalists were content to leave their investments In this country undisturbed and even reinvested the interest payments. As a result of the Baring collapse, however, the English investors began to withdraw ""A Brief History of Panics in the United States," C. Juglar, p. 102. 254 BUSINESS FORECASTING their commitments which required that large gold shipments be made from this country. Another reason which prompted this action was the bimetallic policy which was being followed by the United States Government. Under legislation passed in 1873, the United States went on a gold monetary basis. The Bland-Allison Act which was passed in 1878 attempted to restore silver on a bimetallic basis with gold at the ratio of 16 to 1 but with limited success. The silver advocates, disappointed with the results of the Bland- Allison Act, succeeded in passing a more comprehensive meas- ure in 1890 which was known as the Sherman Act. The at- tempt on the part of the Government to keep silver on a mone- CHART XXXVII.— RELATIVE GOLD AND SILVER PRICES: 1867-1899.* Price of Bat Silver ■> (in tiondon, per ounce R>iia of Cold to Silver SILVER, 1867-1899 iterliug, 0.925 fine.) * From "Financial History of the United States," D. R. Dewey. tary equality with gold at a ratio far different from the relative market values as shown in Table No. 93, resulted disastrously. Federal gold reserves were rapidly depleted, falling from $190,000,000 in 1890 to $80,000,000 in 1893. Public con- fidence in the monetary situation weakened, and reached its lowest ebb when the British Government closed the mints in India to the free coinage of silver in May of 1893. The uncertainty in the monetary situation was quickly re- flected in banking and industry generally. The failure of the THE PRINCIPAL AMERICAN CRISES 255 Chemical National Bank in Chicago on May 9, 1893, precipi- tated a panic which became country-wide. With credit con- ditions extremely stringent, industry soon came to a standstill." The repeal of the Sherman Act on October 30, 1893, was a belated attempt to rectify damage which had already been done. Business conditions recovered gradually but it was close to 1896 before the effects of the crisis had definitely terminated. The crisis of 1907. — The crisis of 1907 ended almost as quickly as it began. The cause was purely financial. Bank- ing was still being conducted under legislation passed In 1863 under the emergencies of war times, which made the circulating currency dependent upon the volume of United States bonds outstanding. The banks of the country followed a policy of independence from each other rather than one of Interde- pendence. Under reserve legislation, the surplus funds of the country found their way to New York at all times of the year except at the harvests, when the funds were withdrawn. Consequently each fall found credit conditions decidedly strin- gent with adverse effect upon business in general. The credit situation in New York in the fall of 1907 was more dif&cult to handle than in previous years. This was due to the increase in speculative transactions during the year im- mediately preceding, and to the prevalence of credit stringency abroad as well as at home. The banks found their cash re- serves perilously low and were obliged to curtail loans and to advance interest rates to extremely high points. The Knick- erbocker Trust Company failed on October 22, 1907, and this failure was followed by those of other financial institutions. The banks eventually met the situation by issuing clearing- house certificates in various cities. Moreover, the close of the harvest brought a lessened strain upon the banks, and, by the end of the year, the critical phase was passed. The crisis of 1920. — While it is still too early to pass defi- nite judgment upon whether or not the year 1920 will go down in commercial history as one of crisis, the situation was de- " "The production of coal, both anthracite and bituminous, fell off; the out- put of pig-iron, which had been about 9,157,000 tons in 1892, fell to 6,657,000 tons in 1894; new railway construction almost ceased; in 1894 there were 156 railways, operating a mileage of nearly 39,000 miles, in the hands of receivers; among these were three great railway systems, — the Erie, Northern Pacific, and Union Pacific." — "Financial History of the United States," D. R. Dewey, p. 446. 256 BUSINESS FORECASTING cidedly critical throughout most of the year. The beginning of the year found practically all commercial indicia registering new high records. Prices, wages, bank loans, bank deposits, foreign trade, commodity shipments, and other barometers of business reflected unprecedented activity. Speculation, en- couraged by low Interest rates, had increased enormously throughout 1919. The credit situation had stood the strain satisfactorily due to the enormous gain in gold reserves during the early years of the World War. The Department of Labor Index of wholesale prices for January of 1920 was 248 in comparison with 100 for the entire year 1913. The maximum was reached in May, — 272. Prices declined rapidly during the last half of the year as is witnessed by the Index of 189 for December. The decline In prices was accompanied by a general slackening of business activity which, however, did not reach Its lowest point until 1921. The reserve ratio for the combined reserve banks on Jan- uary 2, 1920, was 43.7 per cent, or fairly close to the legal minimum. Federal Reserve notes In circulation amounted to $2,998,992,000 which represented almost wholly currency ex- pansion in the United States during and following the war. The low ratio prompted the banks to take corrective action early in the year. Discount rates were advanced In January; the Increase in New York on commercial paper was from 4^ to 6 per cent. The plan did not prove Immediately efficacious, however. The ratio continued to decline and reached 42.2 per cent in May. Note circulation increased constantly. More drastic action was then taken. Discount rates were further advanced; the commercial rate in New York was increased to 7 per cent. Moreover banks adopted a policy of refusing loans for all but essential purposes in order that credit might be conserved for the most beneficial objects. This dual policy was strictly enforced throughout the remainder of the year. The cause of the reaction in business In 1920 may be found in an analysis of the credit situation. As long as credit was freely obtainable, as was the case throughout the war and up to the beginning of 1920, prices advanced constantly and busi- ness was abnormally active. When it became apparent early in 1920 that credit could no longer be Indefinitely expanded and that curtailment was necessary, it was seen that reaction was inevitable. Bank loans were no longer available to THE PRINCIPAL AMERICAN CRISES 257 finance foreign trade, or to withhold commodities from the market, or for any purpose other than essential production. The upward trend of prices was checked and a descent of unprecedented rapidity ensued. Labor was unwilling to ac- cept corresponding reductions in wages, and industry slackened as a consequence. The end of the year found conditions extremely quiet. The extreme activity of the beginning of the year had been trans- formed completely. Through the operation of the Federal Reserve system, the transition had been accomplished without a panic but the practical effects were only less severe than had formerly been the case. APPENDIX SOURCES OF BAROMETRIC INFORMATION DAILY 1. Stock exchange quotations The New York Times(a) 2. Commodity exchange quotations T/ie New York Times (a) 3. Foreign exchange quotations The New York Times(a) 4. Interest rates Tie New York Times(a) 5. Federal finance Daily statement of Treasury Department {h) 6. Industrial controversies The New York Times^a) WEEKLY 7. Bank statements (Friday) Weekly statement of Federal Res. Banks{h) 8. Bank clearings (Saturday) . . . .The Commercial and Financial Chronicle (c) 9. Bituminous coal production (Monday), Weekly report of U. S. Geological Survey {c) 10. Idle cars and car loadings (irregular), Weekly report of the Car Service Division of the Am. Ry. Assn.(b) MONTHLY 11. New security issues (1st) The Journal of Commerce (N. Y.) (c) New security issues (ISih) . . .The Commercial and Financial Chronicle(c) 12. Pig iron production (5th) Iron Age{h) 13. Business failures (5th) "Bradstreet's"; "Dun's Review" (b) 14-. Agricultural production (10th), Monthly Crop Reporter of the U. S. Dept. of Agriculture (b) 15. New building operations (10th) ...'. ."Bradstreet's"; F. W. Dodge & Co.(c) 16. Wholesale price index (10th) "Bradstreet's" (b) Wholesale price index (15th), Monthly Labor Review of the U. S. Dept. of Labor (b) 17. Gold movements (20th), Monthly Summary of Foreign Commerce of the U.S. Dept of Commerce {h) 18. Foreign Trade (20th), Monthly Summary of Foreign Commerce of the U. S. Dept. of Commerce(h) 19. Wages (15th) Monthly Labor Review{c) 20. Railroad net earnings (30th), Monthly Reports of the Interstate Commerce Commission(b) (a) Information appears in all important daily newspapers. (b) Original sources; information is reported in leading papers. (c) Original sources ; not generally reported in newspapers. 259 INDEX (Reference should also be made to the analytical table of contents at begin- ning of book.) Accuracy in forecasting, 4 census forecasting, 12 crop forecasting, 18 life insurance forecasting, 9 national budget forecasting, 15 population forecasting, 13 weather forecasting, 11 Agricultural production, according to states, 76 barometer of business, 83, 230 barometers of, 59 chart showing comparison with av- erage wholesale prices, 81 during depression period, 23 during period of prosperity, 33 during period of recovery, 28 during period of retrogression, 39 influence on railroad earnings, 60 measurement of, 59, 62 relation of acreage to, 76 relation of price to, 79 Agricultural products, price of, and relation to prices generally, 115 Agriculture, employment in, 138 American Experience Table of Mor- tality, 8 Annalist business index line, 238 Astronomical predictions, 6 B Babson Compositplot of American Business Conditions, 237 Bad order cars, 118 Balance of trade, 131, 132 settlement of, 215 Bank clearings, as business barometer, 193 as financial barometer, 188, 233 barometric limitations of, 190 chart showing, 189 during period of depression, 26 during period of prosperity, 37 during period of recovery, 32 during period of retrogression, 42 in New York, significance of, 190 outside New York, 192 trend of, 191 Bank expansion in United States, 248 Bank of England, computation of re- serve ratio by, 203 discount rates of, 211 Bank statements, 194 as barometer of business, 207 barometer of financial conditions, 188, 233 during period of depression, 26 during period of prosperity, 37 during period of recovery, 32 during period of retrogression, 43 national, 207 Banking conditions in United States 1846-1860, 249 Barometer, definition of, 225 Barometer of business, agricultural production as, 83, 230 banking clearings as, 193 bank statements as, 207 building permits as, 94 car loadings as, 120 commodity exchanges as, 173 commodity prices as, 115 corporate earnings as, 156 dividend payments as, 154 employment conditions as, 139 failures as, 157, 159 fiscal operations of Treasury as, 224 foreign exchange as, 175 foreign trade as, 121, 131 gold movements as, 221 idle cars as, 118 immigration as, 148 in general, 225 industrial controversies as, 145 industrial production as, 92 interest rate as, 215 new security issues as, 163 relative value of, 234 retail sales as, 135 stock exchange as, 171 structural production as, 230 transportation as, 121 wages as, 143 261 262 INDEX Barometers, as causes and effects, 227 composite, 235 fallibility of, 227 grouping of, 234 interrelationship of, 228 new, actual and prospective, 238 of finance, 188, 233 of industrial production, 83 of labor conditions, 137, 232 of marketing, 99, 231 of production, 59, 230 of corporate prosperity, 151 of the exchanges, 164, 232 Barometric information, sources of, 258 Barometric progress in the future, 240 Barometric summary, 225 "Bear" market, meaning of, 165 Bills discounted by Federal Reserve Banks, 196 Bituminous coal, production of, 87 Bland-Allison Act, 254 Bogart, E. L., cited, 122 Bradstreet's index number, 100, 103 Brookmire, James H., cited, 62 Brookmire's Forecaster, 237 Budget estimates, 14 verification of, 15 Building materials, chart shovping rel- ative wholesale prices of, 110 Building permits as business barom- eter, 94 "Bull" market, meaning of, 165 Burton, T. E., cited, 23 Business cycle, 20, 43 chart showing, 21 divisions of, 22 Business, stages of, 22 Call loans, definition of, 215 Call money rates, 212 Car loadings, 29, 120 Cash reserves of Federal Reserve, 196 Census forecasting, 12 Chart showing annual production and December 1 price of corn, 65 ; cotton, 74; wheat, 68 balance of gold movements of United States, 218 bank clearings in United States, 189 business cycle, 21 comparison of agricultural produc- tion with average wholesale prices, 81 comparison of wholesale prices and wages, 144 course of stock market, 169 effect of prevailing prices upon acre- age planted to winter wheat, 77 failures in United States, 160 Federal Reserve notes in circula- tion, 199 foreign trade of the United States, 124 immigration into United States, 147 interest rates on commercial paper, 213 pig iron production in United States, 91 railroad construction in United States, 251 relative wholesale prices of build- ing materials, 110 chemicals. 111 clothing, 107 farm products, 105 food, 106 fuel, 108 house furnishings, 112 metals, 109 trend in prices of coffee, 183 copper, 187 corn, 179 cotton, 179 pig iron, 187 rubber, 187 sugar, 183 wheat, 179 wool, 183 trend in volume of idle freight cars, 119 wholesale prices in United States, 101 Chemicals, chart showing relative wholesale prices of. 111 Clark, John B., cited, 54 Clearing system of Federal Reserve, 191 Clearings (see Bank Clearings) Clothing, chart showing relative wholesale prices of, 107 Coal, production of, 87 Coffee, chart showing trend in prices of, 183 prices for ten years, 181 Commercial paper, interest rates on, 212 Coinage Act of 1834, 248 INDEX 263 Commodity exchanges, 172 as barometer of business, 173 spot prices on, 176, 177, 178, 180, 181, 182, 184, 185, 186 Commodity prices, 99 Composite barometers, 235 Conant, C. A., cited, 247, 249, 250 Construction, 94 during period of depression, 24 during period of prosperity, 34 during period of recovery, 28 during period of retrogression, 40 Consumers' goods, definition of, 52 Copeland, M. T., cited, 239 Copper, prices for ten years, 186, 187 Corn, acreage, production and value, 67 chart showing annual production and December 1 price, 65 chart shovfing trend in prices of, 179 crop losses, 66 .harvesting of crop, 66 information contained in Govern- ment reports on, 63 prices for ten years, 177 production of, 63 Corporate earnings, barometer of busi- ness, 151, 156, 232 during period of depression, 25 during period of prosperity, 36 during period of recovery, 31 during period of retrogression, 42 Cost of living, 133 Cost of production, effect on price, 46 estimation of, 49 Cotton, acreage, production and value, 78 chart showing annual production and December 1 price, 74 chart showing trend in prices of, 179 closing prices of, on June 10, 1921, 172 condition of crop, 75 countries producing, 73 crop losses, 75 dates of issuance of reports on, 63 Government reports on, 73 percentages harvested monthly, 76 prices for ten years, 178 production of, 73 Credit conditions, barometer of, 207, 233 Credit, relationship to periods of prosperity and depression, 52 Crises and panics, 39 principal American, 245 Crisis of 1837, 247 1857, 249 1873, 252 1884, 252 1893, 253 1907, 255 1920, 255 Crops, effect upon business, 62 forecasting, 17, 18 losses, 80 reports, 62, 79 D Davenport, H. J., cited, 50 Debt of the United States, 222 Deflation and Inflation, see Bank Statements Demand, definition of, 47 effect upon price of changes in, 53 estimation of, 47 Department of Labor index number, 100 Depression period, causes of, S3 bank clearings during, 26 bank statements during, 26 characteristics of, 23 construction during, 24 corporate earnings during, 25 failures during, 26 financial conditions during, 26 foreign trade during, 24 gold movements during, 27 immigration during, 25 interest rates during, 27 labor conditions during, 25 marketing during, 24 new security issues during, 26 prices during, 24 production during, 23 retail sales during, 25 stock market during, 26 wages during, 25 Dewey, D. R., cited, 246, 247, 250, 254 Discount, exchange at, 174 Discount rate of Federal Reserve banks, 210 of Bank of England, 211 Dividend payments barometer of busi- ness, 154 Dividend record of Pennsylvania Railroad. 155 264 INDEX of United States Steel Corporation, 156 E Earnings, barometers of, 232 of corporations, as barometer of business, 156 of industrials, as barometer of busi- ness, 153 of public utilities, as barometer of business, 153 of railroads, as barometer of busi- ness, 153 of United States Steel Corporation, 154 Economic forces in business, 20 Employment conditions, as business barometer, 139 Employment by railroads, 152 Employment, problem of, 137 Estimating death claims in life insur- ance, 7 Estimating national budget require- ments, 14 Exchanges, barometers of, 164, 232 commodity, 172 functions of, 164 Exports of merchandise, 125, 127, 128 Failures, barometer of business, 157, 159, 232 causes of, 157 chart showing, 160 during period of depression, 26 during period of prosperity, 36 during period of recovery, 31 during period of retrogression, 42 relationship of number to number in business, 158 relationship to amount of liabilities, 158 table showing number in United States, 159 trend of, 158 Farm products, chart showing rela- tive wholesale prices of, IDS Federal Reserve banks, bills dis- counted by, 196 cash reserves, 196 clearing system, 191, 193 discount rates of, 210, 211 gold holdings of, 200 notes in circulation, 198, 199 reserve ratio, 201 reserve accounts of member banks, 196 statement, 194 statement of condition of, 197 Federal Reserve system, statement of retail sales issued by, 134 panics under, 205 Finance, barometers of, 188, 233 Financial conditions during period of depression, 26 during period of prosperity, 37 during period of recovery, 32 during period of retrogression, 42 Fisher, Arne, cited, 5 Fisher, Irving, cited, 32, 115 Fluctuations of business, 20 Food, chart showing relative whole- sale prices of, 106 Forecasting, accuracy in, 4 crops, 17 in business, 225 in life insurance, 7 national budget requirements, 14 population, 12 weather conditions, 10 Foreign exchange, barometer of busi- ness, 175 barometer of conditions abroad, 233 causes of fluctuations in, 175 effect of domestic conditions on, 174 functions of, 174 Foreign trade, 121, 125 as a business barometer, 131 barometer of marketing, 231 during period of depression, 24 during period of prosperity, 34 during period of recovery, 29 during period of retrogression, 40 imports of United States, 130 of United States, chart showing, 124 visible and invisible items, 215 Foresight in business, 3 Franc, par value, 175 Frozen credit, 43 Fuel, chart showing relative whole- sale prices of, 108 "Futures," meaning of, 172 Gold holdings of Federal Reserve banks, 200 Gold movements, 215 as barometer of business, 221 balance of, 216 chart showing balance of, 218 INDEX 265 during period of depression, 27 during period of prosperity, 37 during period of recovery, 32 during period of retrogression, 43 iinancial barometer, 1S8 significance of, 234 since 1914, 217 Gold, nations holding large stocks, 217 production, 219, 220 ratio to silver, 253 world's supply of, 219 Government crop reports, 62, 63 cotton reports, 62 wheat reports, 69 H Harvard University Committee on Economic Research, 92, 237 Harding, Gov. W. P. G., cited, 206 Hinks, A. R., cited, 226 Holmes, Justice O. W., cited, 18 Hoover, Herbert, cited, 240 House furnishings, chart showing rel- ative wholesale prices of, 112 Huebner, S. S., cited, 173 I Idle cars, 117, 118 chart showing trend in volume of, 119 Immigration, 146 as barometer of labor conditions, 232 as barometer of business, 148 chart showing, 147 during period of depression, 25 during period of prosperity, 35 during period of recovery, 30 during period of retrogression, 41 effect upon industrial conditions, 148 Restriction Act of 1921, 150 statistics of, 149 Imports, 89, 129 Index numbers, 100 Bradstreet's, 100 Department of Labor, 100 of production, 96 of wages per hour, 141 Industrial controversies, as barometer of business, 145 Industrial earnings, 153 Industrial production, barometer of business, 83, 92, 230 during period of depression, 24 general index of, 96 measurement of, 59 sources of information, 90 Industrial stocks, average prices of twenty-five, 170 significanc. of prices of, 168 Inflation and deflation, see Bank Statements Insurance, forecasting in, 7 Interest rates, 209, 212 barometer of business, 215 barometer of financial conditions, 188, 234 during period of depression, 27 during period of prosperity, 37 during period of recovery, 32 during period of retrogression, 43 on call loans, 212 on commercial paper, chart show- ing, 213 on 60-90 days commercial paper, 212 Interrelationship of business barom- eters, 228 "Invisible" items of foreign trade, 122, 215 Iron and steel industry, 83 Iron, chart showing production of, 91 chart showing trend in prices of, 187 prices for ten years, 185 production in United States, 84 J Johnson, Joseph French, cited, 44 Jones, E. D., cited, 30 Juglar, C, cited, 253 K Kelly, F. C, cited, 14 Labor conditions, barometers of, 137, 232 during period of depression, 25 during period of prosperity, 35 during period of recovery, 30 during period of retrogression, 41 Labor controversies, 145 as business barometer, 146 Labor, extent of employment in man- ufacturing, 83 Law of causality, 5 Liabilities of failures, relationship to number, 158 Life insurance, forecasting in, 7 use of mortality table in, 8 266 INDEX Liquidation, period of, see Retrogres- sion Lire, par value of, 175 Lough, W. H., cited, 246 Loveman, Amy, cited, 19 M Manufactured commodities, exports of, 128 Manufacturing, employment in, 83 Marketing, barometers of, 99, 231 during period of depression, 24 during period of prosperity, 34 during period of recovery, 28 during period of retrogression, 40 Marshall, Matthews, cited, 39 Mathematics of probabilities, 5 Member banks, statement of condi- tions of, 206 Metals, chart showing relative whole- sale prices of, 109 Mitchell, W. C, cited, 19, 28, 29, 38, 45, 60, 100, lis Money economy, influence of, 44, 54 Money, functions of, 44 in circulation in United States, 201 Moore, Henry L., cited, 12, 24 Mortality table, 8 Moulton, H. G., cited, 115 N National bank statements, 207 National banks, table showing condi- tion of, 208 Nelson, S. A., cited, 168 New security issues, 161 as barometer of business, 163, 232 during period of depression, 26 during period of prosperity, 36 during period of recovery, 31 during period of retrogression, 42 table showing, 162 trend in, 162 "Normal" meaning in crop reports, 62 Notes in circulation, 198 table showing, 202 Noyes, Alexander D., cited, 171 Panics and crises, 39 Panics and the Federal Reserve sys- tem, 205 Panics, history of, in United States, 245 Par value of currencies, determination of, 175 Pearl, Raymond, cited, 14 Pennsylvania Railroad, dividend rec- ord of, 15 Persons, W. M., cited, 92 Pig iron, chart showing trend in prices of, 187 production in United States, 84, 91 Population of United States, rate of growth in, 13 table showing actual and prospec- tive, 14 Pound, par value of, 175 Premium, exchange at, 175 Prices and wages, 142 Prices, a barometer of marketing, 231 a barometer of business, 115 chart showing comparison with wages, 144 chart showing index number of, 101 chart showing comparison of agri- cultural production with, 81 chart showing relative wholesale prices of commodities, 105 to 112 decline in, during 1920-1921, 113 definition of, 44 determination of, 46 determination on exchanges, 165, 172 diagram showing analysis of, 47 during period of depression, 24 during period of prosperity, 33 during period of recovery, 29 during period of retrogression, 40 effect of demand and supply esti- mates on, 51 fluctuations in, 104 of commodities, 99 on exchanges, 168 of coffee for ten years, 181 of copper for ten years, 186 of corn for ten years, 177 of cotton for ten years, 178'' of industrial stocks, significance of, 168 of pig iron for ten years, 185 of rubber for ten years, 184 of sugar for ten years, 182 of wheat for ten years, 176 of wool for ten years, 180 relation to agricultural production, 79 relation of farm product prices to general, 115 why they rise, 51 INDEX 267 Producers' goods, definition of, 52 Production, barometers of, 59, 230 effect of seasonal variations on, 90 estimating cost of, 49 during period of depression, 23 during period of prosperity, 33 during period of recovery, 28 during period of retrogression, 39 limitations upon, 49 subordination of, 45 Profit, definition of, 44 Profits, barometers of, 232 Prosperity, bank clearings during, 37 bank statements during, 37 barometers of, 151 borrowing during period of, 162 characteristics of, 33 construction during, 34 corporate earnings during, 36 failures during, 36 financial conditions during, 37 foreign trade during, 34 gold movements during, 37 immigration during, 35 interest rates during, 37 labor conditions during, 35 marketing during, 34 new security issues during, 36, 162 prices during, 34 production during, 33 retail sales during, 35 stock market during, 36 transportation during, 34 wages during, 34 Public utility earnings, 153 during period of depression, 26 Purchasing power, effect upon de- mand, 48 R Railroads, construction during 1840- 1890, 250, chart, 251 employment by, 152 Railroad earnings, 152, 153 influence of agriculture on, 60 Ratio of gold to silver 1840-1895, 253 Recovery period, carloadings during, 29 characteristics of, 27 construction during, 28 corporate earnings during, 31 failures during, 31 financial conditions during, 32 foreign trade during, 29 gold movements during, 32 immigration during, 30 interest rates during, 32 labor conditions during, 30 marketing during, 28 new security issues during, 31 prices during, 29 production during, 28 retail sales during, 29 stock market during, 31 transportation during, 29 wages during, 30 Reserve accounts of member banks, 196 Reserve ratio, 201 by districts, 203 computation by Bank of England, 203 significance of changes in, 203 table showing, 204 Retail prices, index number of, 100 Retail sales, 133 barometer of business, 135 barometer of marketing, 231 during period of depression, 25 during period of prosperity, 35 during period of recovery, 29 during period of retrogression, 41 Federal Reserve statement of, 134 stores reporting, 134 Retail trade, condition of, 136 Retrogression period, bank clearings during, 43 bank statements during, 43 characteristics of, 38 construction during, 40 corporate earnings during, 42 failures during, 42 foreign trade during, 41 financial conditions during, 42 gold movements during, 43 immigration during, 41 interest rates during, 43 labor conditions during, 41 marketing during, 40 new security issues during, 42 prices during, 40 production during, 39 retail sales during, 41 stock market during, 42 transportation during, 40 wages during, 41 Rubber, chart showing trend in prices of, 187 prices for ten years, 184 268 INDEX Scrip dividends, danger signal, 157 Seasonal variations, influence on pro- duction, 90 Secular trend and seasonal variations, 90 Security issues (see new security is- sues) Shares traded, number and price, 166 Sherman Act, 255 Short sales, 164 Sielcken, Herman, cited, 173 Silver, ratio of gold to, 253 Simpson, Kemper, cited, 50 Smart, Wm., cited, 56 Snyder, Carl, cited, 92 Sources of barometric information, 258 "Spot" prices, 172 Stages of business, 22 Steel and iron industry, 83 Steel, unfilled orders, barometer of business, 87 Steiner, W. H., cited, 239 Stock exchange, barometer of business, 171 prices on, 168 transactions on, 165 volume of transactions on, 166 Stock market, chart shovfing course of, 169 during period of depression, 26 during period of prosperity, 36 during period of recovery, 31 during period of retrogression, 42 Stocks, average price of tvrenty-five industrial, 170 suggested list for barometric use, 168 Stourm, Rene, cited, 15, 17 Strike statistics, 145 Structural production, 93 barometer of business, 94, 230 Sugar, chart showing trend in prices of, 183 prices for ten years, 182 Supply, determination of, 46 limitations upon, 49 regulation of, 48 Table showing acreage, production and value of corn, 67 acreage, production and value of cotton, 78 acreage, production and value of wheat, 72 American experience of mortality, 8 average price of twenty-five indus- trial stocks, 170 balance of gold movements, 216 bank clearings outside New York for ten years, 192 bank expansion in United States, 248 banking conditions in United States, 1846-1860, 249 banking progress in United States, 195 Bradstreet's wholesale index num- ber, 103 building permits, 95 call money rates, 214 closing prices of cotton on June 10, 1921, 172 comparison of employment Febru- ary 1921, January 1921, Feb- ruary 1920, 139 condition of corn crop, 64 condition of cotton crop, 75 condition of national banks, 208 condition of retail trade, 136 condition of winter and spring wheat, 70 corn crop losses, 66 cotton crop losses, 75 daily statement of United States Treasury, 223 decline in wholesale prices, 1920- 1921, 114 Department of Labor index number, 104 discount rates of Federal Reserve Banks and Bank of England, 211 dividend record of Pennsylvania Railroad, 155 dividend record of United States Steel Corporation, 156 exports of manufactured products in United States, 128 exports of United States, 127 Federal Reserve notes in circula- tion, 202 foreign trade of United States, 123 gold holdings of Federal Reserve banks, 200 immigration into United States, 149 imports of leading commodities, 130 imports of United States, 129 INDEX 269 imports of raw materials, 89 index number of wholesale prices in United States, 102 index number of wages per hour, 14t indices of production and trade, 98 interest rate on 60-90 day commer- cial paper, 212 interrelationship of business bar- ometers, 228 money in circulation in United States, 201 monthly balance of trade of United States, 132 nations holding large gold stocks in 1919, 217 net earnings of railroads, 153 net earnings of United States Steel Corporation, 154 new security issues, 162 number of failures in United States, 159 operation of Federal Reserve clear- ing system, 193 percentages of corn crop harvested monthly, 66 percentages of cotton crop harvested monthly, 76 percentages of wheat crop harvested monthly, 71 population of United States, ac- tual and prospective, 14 prices of coffee for ten years, 181 prices of copper for ten years, 186 prices of corn for ten years, 177 prices of cotton for ten years, 178 prices of pig iron for ten years, 185 prices of rubber for ten years, 184 prices of sugar for ten years 182 prices of wheat for ten years, 176 prices of wool for ten years, 180 production and exportation and wheat, 69 production of bituminous coal, 88 production of pig iron in United States, 85 production of gold, 220 public debt of United States, 222 railroad mileage 1840-1900, _ 250 rate of growth of population in United States, 13 ratio of cash reserves to Federal Reserve notes and deposits, 204 ratio of gold to silver, 1840-1895, 253 relationship of farm products to other commodities, 116 relative production of winter and spring wheat, 71 shares traded and average price, 167 shares traded on New York Stock Exchange, 166 statement of condition of Federal Reserve banks, 197 statement of condition of reporting member banks, 206 unfilled steel orders, 86 value of United States farm crops according to States, 79 verification of American experience table of mortality, 9 verification of estimates of reve- nues of United Kingdom, 15 verification of estimates of revenues of United States, 16 verification of weather forecasts, 11 verification of winter wheat fore- casts, 18 weekly car loadings, 120 wheat crop losses, 71 Taxes, possibility of reduction in, 221 Tides, prediction of, 6 Transportation, a barometer of busi- ness, 118, 121 barometer of marketing, 231 during period of depression, 24 during period of prosperity, 34 during period of recovery, 29 during period of retrogression, 40 idle car statistics, 117 Treasury Department operations, 188, 221 barometer of business, 224 barometer of financial conditions, 234 U Unfilled steel orders, 86 United States, public debt of, 222 United States Steel Corporation, divi- dend record of, 156 net earnings of, 154 unfilled orders of, 86 United States Treasury, table show- ing daily statement of, 223 Veblen, T. B., cited, 23, 51 "Visible" items of foreign trade, 215 270 INDEX w Wages, 141 Wages and prices, 142 Wages, as barometer of business, 143 barometer of labor conditions, 232 chart showing comparison of prices with, 144 during period of depression, 25 during period of prosperity, 35 during period of recovery, 30 during period of retrogression, 41 Weather forecasts, 10 table showing verification of, 11 Wheat, acreage, production, value, 72 chart showing annual production and December 1 price, 68 chart showing effect of prevailing prices upon acreage planted, 77 chart showing trend in prices of, 179 condition of winter and spring, 70 countries producing, 69 crop losses, 71 government reports on, 69 per capita consumption of, 73 percentages harvested monthly, 71 prices for ten years, 176 production of, 66 relative production of spring and winter, 71 table showiiig production and ex- portation, 69 Whitehead, A. N., cited, 5, 17 Wholesale prices, index number of, 100 Williams, J. S., cited, 210 Wool, chart showing trend in prices of, 183 prices for ten years, 180 Mi! ^iiiiJ!^