STATISTICAL INDICES OF BUSINESS

CONDITIONS

SUMMARY

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Exports of

Importance of studying statistical indices of business conditions, 522. -I. Available Statistics: Imports of merchandise, 524. merchandise, 525. — Immigration, 526. Bank clearings, 527. — Railroad gross earnings, 528. — Idle cars, 529. New building, 530. Commodity prices, 531.- Business failures, 531. Stock market, 532. - Money rates, 534. Bank loans, 534. — Pig iron, 535. - Copper, 536. — Print cloth and cloth margins, 537. - Silk, 539. — Tin, 539. Hides and leather, 540.- Crops, 540.- Other items, 541. — II. Some Methods of Business Forecasting: Babson's Composite Plot, 543. Brookmire's system, 552. — III. Suggested Method of Obtaining Indices: explanation, 554. - Need of more comprehensive statistical records, 562.

It is the purpose of this article to discuss the use of statistics for indicating the trend of business conditions. The first task is to ascertain what available statistics are symptomatic of business changes; the second to examine critically some of the methods by which statistics are being used at the present time for business forecasting; and the third to suggest an improved method. The subject is large and the work is still in an experimental stage; hence all conclusions must be considered tentative.

This subject obviously is not merely academic, but of large practical interest. Bankers, financiers, and the heads of manufacturing and mercantile enterprises must constantly study present conditions and future prospects. Many manufacturers, for example, buy raw materials and start manufacturing operations months before the finished goods are placed upon the market.

Plans must be made and production regulated according to the conditions which such producers expect to encounter at a later time. If they err in judgment, they are placed at a disadvantage which may prove serious. The maladjustment which occurs during a period of crisis may be disastrous. If manufacturers and merchants can be forewarned, fewer will be caught unawares and the severity of the shocks will be alleviated.

It is now generally agreed by students of the subject that the ups and downs of business prosperity are due to deep-seated influences, and business men are more and more giving up the long persisting notion that changes in business conditions are caused primarily by tariff acts, political happenings, or court decisions. More attention is being given to the symptomatic statistics currently published in the financial journals, trade publications, and daily papers. Some executives have statistical reports carefully prepared for their own businesses in order to make comparisons with previous periods and with the external statistics for other industries and trade.

The published statistics, altho inadequate for a complete analysis, furnish ample material for experimentation. Each set of statistics, however, requires careful examination; some are worthless. Moreover, of those statistics which appear to be reliable barometers of business changes, only those which are available daily, weekly, or monthly can ordinarily be used. A business man wishes current information; for him statistics which are a year old are more or less antiquated. And in studying long time fluctuations and the large trade cycles, annual figures are unsatisfactory because of the impossibility of determining to what extent the figures represent the antecedents and to what extent they represent the effects of important events happening

within the calendar or fiscal year. The annual statistics for the years 1873, 1893, and 1907, for instance, are not properly comparable in a study of crises, since the panic of 1873 began in the middle of September, that of 1893 in May, and that of 1907 in October. In the annual figures for these years the antecedents and the effects of the panics are thrown together in unequal proportions. In most instances a monthly basis of comparison seems to give the best results. With these considerations in mind we can proceed to an examination of the statistics.

I. AVAILABLE STATISTICS

(1) Imports of Merchandise. The statistics for the value of merchandise imported into the United States correlate with business conditions. During periods of prosperity more raw materials are bought for our manufacturing plants and the imports of finished goods for immediate consumption are also larger. During periods of depression, on the other hand, our purchases in foreign markets fall off. Altho the import statistics are affected by general changes in price level, short time comparisons can safely be made. Their most serious defect is in their susceptibility to the influence of tariff changes; but this does not destroy their worth as an index to general conditions.

In order to show the course of imports during a portion of a typical business cycle, the monthly statistics for the years 1903-08 have been plotted on Chart I. Final conclusions cannot, of course, be drawn from statistics for so short a period, but for experimental purposes these years seem to be representative. The

1 Import and export statistics are published in the Monthly Summary of Commerce and Finance and in various financial journals.

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general upward trend of the curve during the years of prosperity immediately preceding the crisis of 1907 is noteworthy. The effects of the crisis are shown in the ensuing decline. It is to be noted, also, that these statistics show a seasonal fluctuation, with a peak in March, due presumably to the importing of merchandise for the spring trade, a sag in the summer, and

another upward movement in the autumn caused by imports of merchandise for the holiday trade.

(2) Exports of Merchandise. For judging business conditions, the export statistics of the United States 1 are much less useful than the import statistics. The export statistics are, in themselves, less reliable because of the greater percentage of error in the returns; they are not scrutinized by the customs inspectors and there is no adequate check upon the accuracy of the exporters'

The export statistics for Great Britain, on the contrary, are a particularly good index of conditions in that country, since the British manufacturers are so largely dependent upon foreign markets.

manifests. Furthermore, because of the predominance of raw materials and foodstuffs in our export trade, the volume of our exports depends largely upon conditions affecting demand from foreign countries. The move

ment does not necessarily indicate the strength or weakness of the domestic situation. The exports of manufactured goods tend to fall off with improvement in domestic demand and to increase during depression, when our manufacturers show their greatest interest in developing foreign trade. The course of the export trade, 1903-08, is also shown on Chart I. The marked seasonal fluctuation is due to the heavy exportation of raw cotton and other agricultural products during the late autumn and winter months.

Balance of trade statistics, which show the difference between imports and exports, seem to me to have little significance. There are so many invisible exports and imports that the balance of trade figures always involve a large element of uncertainty. How great is the foreign indebtedness upon which interest payments are due? Is the investment of foreign capital increasing or is the foreign indebtedness being paid off? What shipments of securities are being made? What transportation charges are to be paid? No record can be kept of all these transactions, which have just as much influence as the visible merchandise shipments upon foreign exchange rates and the movement of specie.

(3) Immigration. The statistics for immigration fluctuate in a general way with business conditions in the United States. An upward tendency was indicated, for example, during 1905, 1906, and 1907, and a marked reaction in 1908. The immigration figures are of especial interest to certain manufacturers, since they give some indication of the increase in the supply of unskilled labor. Their significance as a general index,