BUSINESS REVIVAL OF SMALL PROPORTIONS PREDICTED

The following is a condensation of the Advance Letter on General Business Conditions published by the Harvard University Committee on Economic Research. This condensation has been approved by Professor Warren M. Persons, statistician of the committee.

This committee was appointed in 1917 to investigate methods of interpreting fundamental business statistics with a view to ascertaining whether it was possible to treat them in a manner that would make them more valuable both for business and scientific purposes.

In 1919 the committee decided to start a business forecasting service and this advance letter, from which this article is taken, is part of that service.

"The revival of business which we expect to develop during the spring months will be of only moderate proportions. The grounds for this conclusion are found in the continued dragging of the speculative curve, and more particularly, in the comparatively slow easing of money rates. It is the course of the latter which will largely condition the next upward swing of business.

"In January speculation reached a new low point. This change was due to a considerable decline in the volume of trading, both shares traded on the New York Stock Exchange and New York bank clearings having fallen from the December levels. The average price of industrial stocks, on the other hand, showed some improvement. Commercial paper rates rose somewhat, the change in this case being the result of the correction for normal pre-war seasonal variation. it seems probable, however, that the federal reserve system has a stabilizing influence on commercial rates, so that seasonal variations are now less than they were in pre-war times. Actual average rates in January were a shade lower than in December.

"The volume of sales on the New York Stock Exchange last month decreased 29 percent from the December total, compared with an average seasonal increase of 11 percent. New York clearings decreased 11 percent. In the past January clearings have usually, been greater than those of December by about 6 percent.

"During the second half of the month both railroad and industrial stocks lost some of the gains they had made since Christmas, the slump in each group being about two points, but most of the loss has been regained during the past week. We regard recent movements in the security market as a normal minor fluctuation in a generally upward trend Further encouragement is to be drawn from the fact that this recovery took place in the face of a slight stiffening in call money rates.

"The outstanding feature of the credit situation is the comparative slowness with which easier conditions are developing in the money market. The fact of improvement is unmistakable in all fundamental relations--federal reserve ratios, rediscounting, interdistrict borrowing; but the six months which have elapsed since the peak of the credit stringency have witnessed a much less substantial decline in market rates than occured after previous crises in this country. For this there are several reasons. The drastic liquidation in commodity markets and the serious difficulties in certain export markets have made it necessary to "carry" many borrowers for more or less extended periods--a process not yet completed. Moreover since this was accomplished largely with the aid of the federal reserve banks, the extrication of these borrowers from their difficulties does not release an equal amount of funds for other uses; it merely enables the member banks to reduce their liabilities to the reserve banks. And finally, the growing realization that we shall have to draw heavily on our credit resources in restoring our foreign trade introduces a factor not present in previous periods of business recovery.

"The condition of the federal reserve system continues to show improvement. The adjusted reserve ratios of all the reserve banks that have been relatively heavy borrowers are higher than at any time for several months. Richmond, St. Louis, and Kausas City are no longer borrowers, while Minneapolis has reduced its rediscounts with other reserve banks to slightly over two millions."