Contrasts of 1927 with 1926

SOMETIMES, in the full sweep of prosperity or of reaction from prosperity, scattered events of a single season cause thoughtful reconsideration of the position. It will often be only a momentary shift of wind; the ship may presently be moving ahead again under full sail. But for the moment, the financial navigator will take his bearing carefully. The autumn season, which always tests the question of trade activities as compared with a preceding year, has this year shown perceptible slowing down. Quickening of the pace from that of the summer months has occurred in most departments of distribution and consumption, as it always does at this season, in "good years" or in "bad years." But it has been less rapid than in 1926 or 1925, and it has left volume of production and trade very considerably under that of twelve months ago.

The weekly reports of the American Railway Association on tonnage of freight loaded for transportation, which have for half a dozen years been the most accurate weather-sign of the trend of trade, and which in every autumn since 1921 have increased over those of the year before, averaged in July 53 per cent less than a year ago, and in August 34 per cent, and fell 4 per cent below 1926 in the first half of September. Railway net earnings have been running some 10 per cent under

1926; employment in industry as a whole has been considerably reduced. Steel production, the other familiar index to activity of general industry, was estimated at the end of September to be running 20 per cent below the same month last year. It had hardly changed from its midsummer dulness. It compared less unfavorably with 1925; indeed, the autumn's general picture of industry has suggested rather reaction from a recent abnormally high pitch of trade activity than relapse to the subnormal. Nevertheless, the view of some observers close to various industries was expressed in the remark regarding transportation made by President Storey of the Atchison, Topeka & Santa Fe, that the peak for several years." earnings in 1926 had probably "reached

LACKENING in the pace of trade

SLACK

and Flow

and industry is synonymous, so far as mere use of language goes, with "trade reaction," and trade reaction has become associated in the public mind with the confusion, disappointment, and business losses which used The Ebb often to mark pre-war epi- of Industry sodes of the kind. That is one reason why business men in general, and Wall Street in particular, will sometimes express dislike at reports such as this present season has presented. The association of ideas is apt to be misleading, but it is not the only reason for hesitancy in accepting such information.

There are occasions when prolonged and continuous trade expansion is taken

as in itself proof that another and much more rapid advance must inevitably and immediately follow and will continue indefinitely. In so far as this idea existed in the recent high activity of trade, it was emphasized by the evidence which all of our past industrial history provides, that in the long run the course of trade in the United States will always present a picture of expansion. With the country's growth what it has been and still is in population, wealth, and inventiveness, with its progressively intensive exploitation of undeveloped natural resources, no other result was reasonably to be expected.

any warrant.

Even the lately familiar theory of "stabilized industry" does not assume perpetual speeding up of trade activity on the scale of a particularly fortunate year. It does not take for granted immunity from unfavorable accidents of a given season, or from change in mood or capacity of the consuming public. There have always been incidental normal years in which the forward movement was checked; something which happened as recently as 1924, whose traffic-though it came between two other years, each of which surpassed all previous achievement—was greatly diminished from 1923.

IN

tainties of a "Presidential year" had made the purchasing public cautious. At the present moment, theories propounded to account for the Causes slackening of trade have va- for Smaller Assigned ried similarly. Last June's de- Trade structive inundation of the Mississippi basin is one of them. Nobody knows exactly how much potential buying power was cut off by that disaster. But when 700,000 habitations are known to have been submerged, when actual loss of property has been estimated well up in the hundreds of millions of dollars, and when the season's earning capacity of a multitude of thrifty communities has necessarily been paralyzed, the effect on the

country's total trade must have been at least considerable. Even the soft-coal miners' strike has been adduced as a contributory cause, on the ground that suspension for six successive months in the earnings of 200,000 working men must affect the aggregate demand for goods.

With full employment at high wages elsewhere, however, the disposition has been to minimize such special influences. It has commonly been answered that we always have dark spots somewhere in the industrial organism. In 1926 and 1925 there was insistent complaint of hard times in the Western and Northwestern grain belt, yet without arresting the forward surge of national trade activity. been drawn that, so long as the From this the inference has repeatedly great bulk of the laboring community was busily at work for unprecedentedly high wages, increased buying of goods by that important part of the consuming population would far more than offset an incidental and temporary decrease in other quarters.

T

has certainly done so in our recent past, even though it failed to do so in 1924. Yet it is also best to recognize that, in this very matter of consumption of goods by a superprosperous laboring community, we still have in hand

The

N 1924 it was commonly said that production and consumption had been temporarily overdone, also that uncer

(Financial Situation, continued from page 642) hitherto confined itself to only two aspects of the problem-the safety of the practice for the seller, who may have to foreclose on used cars and partly worn furniture if the buyer defaults on payments, and the longer effect on the buyer's own condition.

Opinion expressed on these two questions by the chambers of commerce, trade associations, and bankers' conferences which have discussed instalment purchases, and by the high commercial experts who have answered “questionnaires,” has varied widely. It has by no means been preponderantly unfavorable. On the whole, the weight of judgment has reflected belief that the instalment-payment plan is safe for the producers who sell and for bankers who finance "instalment paper," always provided that the restrictions marked out by experience-in motorcars, for instance, 30 per cent cash down and a twelve months' limit for the remaining payments— are rigidly observed. Opinion has diverged more widely in the matter of the purchaser; ranging, in a comprehensive summary published by the Farmers' Loan & Trust Company, from the view of one wellknown manufacturer that the practice has become "a normal and healthy development" and of another that it is "one of the greatest economic forward steps that financiers have devised," to the judgment of yet another, equally eminent, that it is "the vilest system yet devised to create trouble, discontent, and unhappiness among the poor." Yet even in regard to the instalment buyer's welfare the preponderating judgment, assuming reasonable prudence on his part, has not been unfavorable.

THIS would seem to indicate that no disturbing results from instalment-buying should be traceable in present-day trade. But the discussion rarely con

cerned itself with a third consideration, which had obvious bearing on trade activities. If consumption of goods in a given year or series of

years has been speeded up beyond nor- Divided mal volume through instalment pur- Opinion on chases, will or will not the time ar- "Deferred rive when such anticipating of future Payments " earnings would leave the available in

come of another year proportionately reduced from normal? Despite the very rapid extension of the practice, no such result seemed to be indicated in the trade of 1925 or 1926. Nevertheless, one high commercial expert in the recent Farmers' Loan symposium suggested that, while instalment-buying had undoubtedly stimulated present sale of goods at that particular period, "it has at the same time weakened the financial position of the consumer." Another intimated that, while instalment-buying might postpone a business down-turn, its excessive extension must inevitably mean that "the ensuing depression will be more acute and of longer duration than it otherwise would have been."

The reasoning was evidently based on assumption that continuing aggregate expansion of trade on such a basis had some necessary limit. For an undetermined period, arrival of new instalment purchasers would more than offset decrease in buying capacity of consumers whose present earnings had been mortgaged in advance. But why, it was asked, must not nation-wide extension of the practice lead at some time to a situation in which immediate purchases would have to be substantially reduced, at least until actual income had again been accumulated in excess of past engagements? Whether this consideration has played any part in the seemingly slackened con(Financial Situation, continued on page 80)

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