Looking Ahead Can We Control Cycles?

By Alvan T. Simonde, President, Simonds Saw arid Stcel Co.

In the chart below, a dotted line runs upward irom the fall of 1929 to the spring of 1931. This forecasts the revival in business ottti"h is now-und-er way. The volume of industrial produc,tion, i.e., thi production of our-mills, factories and mines in 1930 moved ao*i i."- 93 per cent in September to 78 per cent in December.

Since then, it has moved up to { per cert -in February, -the lat^est *""itt ieobrted in the Federal Reserve Bulletin. At this writing (Mav'8)'available data indicates that March will be higher than Februarv, April higher than Mirch and thafin

BUSINESS ACTIVITY four months the volume of industrial production will have moved uP from the Iow of 78 per cent fullY halfway to the base, 100 per cent. This base is the average monthly production for the years 19231925. We hesitate to call it "normal" for no one knows what normal is. With the indicated April increase, the gain will be greater than seasonal. We have confidence in the forecast made by money rates. It has not failed, as the charts show. since 1884 at least.

For some years we have been trying to sell the fact that business in the United States moves in cycles of about three years and that the two maior swings of these short iy- cles. one of revival and one of decline, are forecast months in advance bv swings in money rates. Wi believe that the charts above prove these contentions, but we are pleased to find recognized authori- ties recently endorsing them. Prof. Willford I.

King. of New York University, in the Annalist of May l, closing an illuminating article, declares, "On the whole then, the evidence appears to favor the validity of the theory that during the last half century at least, the business cycle in this country has been periodic in its movements, with a wave length of slightly less than forty months." In the Jour- nal of the American Statistical Association for June, 1931, Bradford B. Smith of the Cleveland Trust Company explains how interest rates forecast business. He has constructed a composite forecasting index from interest rates which he declares "forecasts business a year in advance about as accurately" as the American Telephone and Telegraph Company, or the Standard Statistics Company "measure it currently." Here is worthwhile evidence from experts of the soundness of the foundations of the forecasts published for several years in "Looking Ahead."

As long ago as the close of the Civil War, there were those who believed that business moved in recurring cycles of ten years. To illustrate, they cited the depressions of 1837, 1847, and. 1857. Later we find the claim made that recurring cycles are of about seven years in length. The charts show some interesting facts about these longer cycles. The short cycle of a little more than three years is evidently the cyclical unit from which the recurring cycles of multiples of three plus are built, e.g., the ten-year cycle is made up from three consecutive short cycles and the cycle of a little less tlun. seven years is the sum of two consecutive shart cycles.

When for three consecutive short cyclef money rates progressivcly increase, then we have an unusually sever-e depr-ession at tle cld of ttre apriroximately ten-year period. This is illustrated by-tbe the by_tbe cvcles 1884-1894 and 1897-L907. When for two consecutive short cycles 1EE4-1894 cyclee money rates progressively increase' we also have a severe depression ai the end of approdrnately seven yearo. This^is illustr;ted bv the cvcles 1908-1914. 1915-1921. and 1924-1930. Of coursc, trated by cycles I 4, 1915-1921, and thJ upward mo-vements of moirey rates ire.not in a straig-ht line but ztrrzee- as the charts show. zigzag, as the MONEY RATES It is remarkable that neither the breaking out of the World War nor its continuance seem to have changed to any considerable degree the regular movement of the short cy- cle, Shall we be reluctantlv forced to believe that t-he regular cyclical swing to depression in 1914 was the last straw that broke the back of the camel named Peace, that it determined the time when the expected and threatened World War should begin? Is there any real significance to the fact that the United States cntered the war in the next regular cyclical depression year, l9l7? Could the probability of these events occurring when they did have been forecast?

Prof.King concludes his article in the Annalist with these words: "If it is true, that as indicated by the accompanying graphs, the major business cycle, at least in the United States, has a wave length of between thirty-nine and- forty months-a wave length which has not changed noticeably in half a century-what is the explanation? At present, few economists feel certain as to the answer to this question. Perhaps the cause lies in some peculiar quality of the human brain. Perhaps as Jevons and Moore have contended, the motivating force is sun radiationthis force controlling rainfall, which in turn governs crops. Fame awaits the man who can find the correct solution to the puzzle and then prove that he is right."

Even this brief study of business cycles hnd the relation of depressions to increasing money rates seems to prove that by preventing money rates from prqgressively increasing for two or three short cycles or from going to an extreme high in any one cycle will diminish the severity of the cyclical depressions. Certainly such an increase warns us of coming depression and gives us an idea of how severe it is likely to be. Can we prevent this increase?

Note from the charts that every one of the five severe depressions has been followed by a sharp recovery to a point considerably above 100 per cent. The revival in ever/ case has been forecast by a vigorous swing to easier money rates, similar to the swing in 1929 and lg3Lthe dotted line. In each case, the recovery has begun a year or less later than the upturn in the dotted line, except in 1914 at the outbreak of the war, when the lag for obvious reaaons was longer. Is the forecast, by the dotted line, of the upward swing in the new cycle to prove false? Let each reader decide this for himself and then act accordingly. This may reqriire courage; but it will pay, if the decision is correct.

Swiags fn Money Rates Forecast Bull and Bear Markets. Dota fr the Fer Chuts in the Art;cle are frm the A*nolist.

In the next issue of "Loo'king Ahead," July 15, in addition to the regutar business forecast, we shall comment more fully upon what these charts show us. We shall also give charts showing the correlation between movements in business activitv and movtments in stock prices. In the meantime, we urge our ieaders to study the charts carefully. We shall gladly welcome any information dCrived from their studies or their experience that they believe may be of value to others.

We chart back only to 1890 simply because we did not find reliable and comparable monthly data for the earlier years. We are convinced, however, from incomplete data at hand that similar se-

Plywoodexecutive Visits California

Bruce Clark, of the Oregon - Washington Plywood Co., Portland, left San Francisco for the Nbrthwest on May t4'after a two weeks' visit to San Francisco and Los Angeles.He conferred with Frank G. McPherson, district manager for the company in San Francisco, and with W. W. Wilkinson, district manager in Los Angeles.

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Mlssion 7920 quences occurred in these years.

"Looking Ahead" is published on the 15th of every other month, six issues a year, Beginning with this issue, there is a nominal annual subscription charge of two dollars. This is to cover clerical and postal costs. "Looking Ahead" is not published for proft in dollars, but to increase general economic intelligence. Mail check or two dollars in bills to "Looking Ahead," Box 486, Fitchburg, Mass. We shall not acknowledge the receipt of checks, for the return of a cancelled check proves it was received and cashed. Please inform us if for any reason copies subscribed for are not regularly received.

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J. E. PEGGS BACK FROM NORTHWEST TRIP

J. E. "Eddie" Peggs, sales manager of W. R. Chamberlin & Co., San Francisco, returned May 23 from a lGday business trip to the Pacific Northwest. He visited the company's omces in Portland and Seattle, and called on sawmills in these cities and in Hoquiam, Aberdeen and Tacoma.

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