Looking Ahead

By Alvan T. Simonds, President Simonds Saw bnd Company

Since the war there have been seven major swings in business in the United States:

1. Upswing L9I9 and pn.

2. Downswing through t92t.

3. Upswing to Spring of 1923.

4. Downswing to fall of 1924.

5. Upswing to spring of 1926.

6. Downswing to fallof 1927.

7. Upswing since fall of 1927 to date (April that the present upswing will continue to in the spring of. l9D; there may, however, be a considerable falling ofi in the surrimer of 1928..

Each of these major movements in business has been preceded by a similar movement in credit in building contracts awarded and in volumeofmanufacture. To show this clearly we are presenting charts of the five with the revival or rez2. rn.

up.#l;"Tfib1n

and the downswing of I92L are omitted simply because of lack of space. Charts of these two movements would show similar stquences in credit, building contracts, volume of manufacture and sales to those shown on the five charts presented. For clearness and emphasis, we have separated on the charts each movement from the one which preceded it and from the one which followed it.

The lines on the charts are to be compared only for trend and for length of time that trend continues. The scale selected for each line on Chart 1 is used for that line on the other charts. The horizontal line indicates money rates at4%/o. The dotted line represents commercial paper rates in New York, as reported in the Federal Reserve Bulletin, reversed. The dash and dot line is building contracts awarded in dollars, as reported by the F. W. Dodge Corporation. The light solid line is the volume of manufacture from data published by the Harvard Economic Service. The heavy solid line is the sales of the Simonds Saw and Steel Company. In each case, the straight lines are made by connecting low and high points of major movements and neglecting minor ups and downs. It is evident that this cannot be done on Chart 5, which shows the present movement up to the end of March, 1928. The final trend of slant and the length of the lines cannot be accurately 'determined until the extreme high points for. the movement are reached and the lines turn down. Study these five charts. Notice the sequence shown in all of them between sales and the forecasting factors, i. e., money rates reversed, building contracts awarded and the volume of manufacture. The sales of the Simonds Saw and Steel Company move up and down with the major swings of 4924 1925 | 925 t927 business. For the lines on the charts representing these sales, thelines representing business *.y be subslituted without altering the sequerices. Draw in your own sales on each chart and note their relation to th-e forecasters.

It seems to be the general opinion that the cost of credit is a minor or a negligible fictor in forecasting business. But these charts are not opinions ot gue.sej; they record what has happened. Anyonl of ordinai! intelligenci can examine them and draw his own conclusions. Hi will not, however, be able to get away from the fact that, since }h" yll bus-iness (from twelve to eighteen months later) has followed the movement of mone/ rates reversed; tha't lowering cost-for credit has stimulatid building and manufacture and thus increased general business; ind that increasing_ cost of credit has had the opposite efiect. Many reason that decreasing business with liss demand for credit brings lower money rates, and increasing business with greater demand for credit brings higher money rates, i. e,, that changes in business cause chinges in credit iathei than the reverse. The movements shJwn in anv one chart do have an influence in bringing about the 'movements shown on the following chari and to cause business to move in cycles-changgs i,n business cause changes in credit yhi+ cause changes in business, etc. Which- came first, the hen or the egg? A new chick comes from an ese after three weeks' hatching, and since the war we cou-lE d.epend upon improved business coming about a year after the cost of credit began to _move lowir. So long as the sequence- holds good, let us be guided by it to oui advantage in -business. The story as to "w[y,, and .,how,' is long and technical and full of disputed points.

In "Looking Ahead" many months ago we forecast the upswing in business which is now takinf place. If the cost of credit, which at the present writ-ing has increased somewhat, continues-to increase in a majoi swing, we shall be very sure that the present upswing in buslness will,