FORECAST BUSINESS PROSPECTS FOR YEAR OF 1922-1923

The University Committee on Economic research has authorized the Crimson to print the following extract of one of their weekly letters forecasting the business prospects for the coming year.

In 1918 the committee was formed for the purpose of investigating existing business conditions, collecting statistics, and applying them to the principles of scientific business fluctuation, so enabling them to forecast business depressions. For the first time this year the committee is issuing weekly letters to those who subscribe to its service, and this extract is taken from the fourth of this series.

In forecasting the 1922-1923 business conditions the committee has found it necessary to weigh the principle factors, favorable and unfavorable, which will control the course of business this year and next, and second to determine how they will affect the new business cycle which is now developing. Illustrated by statistical and graphical charts the bulletin thoroughly reviews the situation in agriculture, manufacture, money, and credit, general business, and treats on the European conditions which are affecting business in the United States.

Of the agricultural situation the committee states that the drastic declines of 1920-1921 in prices of farm products have made such commodities as grain and live stock cheap when compared with coal, building materials, machinery, and other manufactured goods. This is obviously proven by the fact that the wholesale farm products are below the prices of 1918, while the average of all commodities is about 50 per cent above the level of that period, and the prices of many of these manufactured articles are double the pre-war prices. This drop in agricultural products is due to the general collapse of business and to the unusually large crops in 1920. But this situation is not serious, as a great deal of this stock has been exported and now the surplus has been nearly liquidated, so there are no excessive stocks to block recovery of prices in the coming months.

Decline in Factory Products

The manufacturing situation however, presents a different aspect. The main feature is the sharp fall in prices beginning in the spring of 1920 which was accompanied by an equally sudden drop in the output of manufactured goods. This decline can be fully understood when it is stated that the period January-October 1921 is to the same period in 1920 as 79 is to 108. But notwithstanding this decline in output there has been an increase of 21 per cent in shipments, showing that this extra shipping must have come from the manufacturers surplus. It is true that during the last few months there has been a marked increase in output, but it would be erroneous to interpret this is a readjustment in prices. Labor is a most important factor in the manufacturing market and wages are an almost inflexible element. In other words the retail price situation and present absorption of goods, seem to be such as to offer much resistance to radical reductions of modities.

The European situation directly affects business in the United States through the channel of international trade and exchange. The actual value of our foreign trade in 1921 was about half of what it had been the previous year, while the actual volume decrease in 1921 showed a 6 per cent decrease. The year 1920, however, brought an increase in value of exports over 1919 and this resulted from an increase in prices, whereas the pronounced decline of the value of our exports in 1921 was for the most part the result of falling prices. Last year Europe was financially unstable, and the progress in restoring economic stability was slow, but in England, France and Italy the situation has passed the climax. There will not, however, be any extensive change in the present balance of trade until the first payment on the allied debts are made, and there is no evidence that the present purchasing power of Europe is likely to result in further radical declines in our export.

Credit Improved

The credit situation in the United States is much better than a year ago, and this is one of the most encouraging promises for business expansion and rise of commodity prices. This increased credit is due to the excellent condition of the federal reserve banks, and this in turn, is the result of a decrease in federal reserve notes in circulation and a large increase in gold reserves. With the increase of credit comes the decline of money rates and a strong banking position, a strong bid for an upward trend.

Though there are many obstacles, incomplete liquidation, excessive taxes, a critical European situation, and so forth, which tend to retard business activity, when both sides are compared it is most probable that 1922 will be a year of easier money, better business, more stable prices, and higher profits than was 1921; and there is evidence, also, that the general movement of business and wholesale prices will be upward. There is no reason, however, to anticipate a boom in 1922