BUSINESS & INVESTMENTS

Indications of Probable Decline Are Steadily Growing

August 15 1920
BUSINESS & INVESTMENTS

Indications of Probable Decline Are Steadily Growing

August 15 1920

Indications of Probable Decline Are Steadily Growing

BUSINESS & INVESTMENTS

THE steadily growing feeling that the peak of prices has been reached is being gradually confirmed. Not that it Is intended to suggest that there Is any immediate prospect of spectacular declines, nor yet that there may not be further advances in individual lines, but merely that taking the field of commodities as a whole the average of prices a month or more hence will probably show at least a modest decline on the prices in existence to-day.

The factor that has done the most to force prices up was, of course, an unprecedented demand coming on an inadequate production. That is the phase of the situation that is gradually being remedied. It is true that a good many manufacturers are still proclaiming a record demand, and in some cases no doubt this contention is justified, but in others there is a definite policy being adopted of more or less limiting production, which is evidence enough that there is a tendency for the production to exceed the demand.

At the present time of course all business is faced by an unusually dull period. The refusal of the banks to extend long credits to merchants whether retail or wholesale, and to go even farther and exert pressure to collect outstanding loans, has forced many merchants who were carrying heavy stocks to consider the necessity of liquidating these stocks at the earliest possible moment. As a matter of fact, the practice has grown in the past years of carrying stocks far in excess of what was considered wise or safe a few years ago. The continually mounting prices have given at least a semblance of justification for such practice, but it has also resulted in producing a demand in excess of normal. Not only have merchants bought for their actual needs, but they have continued to discount the future by buying not only for their present needs but for their probable needs of the future, when possibly stocks would not be available.

The result has been that many merchants have been carrying during the past years stocks three or four times heavier than they were accustomed to carry prior te the war, and these idle stocks were part of the demand that was gradually forcing the prices higher.

Sooner or later such a condition of affairs was going to end disastrously, so the banks adopted the wise policy of forcing this excess stock into circulation, by refusing the financial assistance necessary to carry it. The result is that retailers are selling from stock and have been for some time. That means dull business for the wholesalers, who have therefore adopted the same policy and have discontinued purchasing from the manufacturer. The manufacturer as a matter of fact is overtaking his demand, if it is not already overtaken. And unquestionably there is being gradually built up a surplus that will mean a gradual recession in price. Of course raw materials continue high, and in so much provide a firming factor in the situation. But even here there is a growing tendency toward declines. Sugar is easier and is declining week by week, not to a spectacular extent hut still declining. Coffee is showing a similar weakness. There are marked declines in rice, and so it goes in the food list. There are certain instances like teas, where the indications point to slight advances, but this is generally in lower grades that have to the present been selling well below the general market figure, but the general tendency is lower, while the promise of bumper harvests has caused material breaks in the grain market, that will eventually have their influence on a wide range of other commodities.

In hardware lines, it is true, there is a general slackness. As a matter of fact stocks are so low that in some warehouses they are almost non-existent. This is largely due to the scarcity of steel, which of

course is the dominating product in the great bulk of hardware lines. But steel is not actually scarce. The great steel plants are overloaded with reserves sufficient to meet all the demand, but the trouble is that it is impossible to move this production to the points where it is needed. The shortage of railroad rolling stock would have been a serious enough factor to face in itself, but the imperative necessity for moving coal with rapidity has necessitated the devotion of a large part of the rolling stock to this service entirely, thus removing it from general service. When this crisis has been passed, there will be a rapid change in this situation.

In the drygoods and clothing lines the tendency for the retailer to live off his own fat is more acute perhaps than anywhere else. The clothing manufacturers have faced a serious situation in the number of cancellations that have come to them. Now with the prospect of a bumper crop in the West and elsewhere they are coming to a new feeling of confidence. They see a possibility of many of these orders being reinstated, and of business returning to the happy position of a year ago. While this is so, however, they have taken to heart the indications, that are about them everywhere, that the public is tired of high prices. They are not blind to the fact that at the moment the disfavor of the public would be a more serious factor than a loss of business, and they are honestly doing their best to maintain prices at figures, at least no higher than their present levels. True, much of the orders for delivery up to next spring’s stocks, were made on a basis of raw materials that were at their very highest, and therefore there is little probability of any marked decline before a year from this Fall, but unquestionably declines will be in order then. The cloth mills of both Britain and the United States, instead of turning down orders, are looking for business, and have stocks to spare. The day of advances is over and the day of recessions is at hand.

There is another factor that is going to be of paramount importance in the merchandising situation of the country this year. It will be remembered that, in addition to the set price on wheat, the farmer selling through the Canada Wheat Board was given a participating certificate that entitled him to share in the profits. The first disbursement on these certificates is to be made on August 1st. There were 500,000 certificates issued in the West and 100,000 in the East. Each of these certificates represents some hundreds of bushels of grain, and they are to be redeemed at 30 cents a bushel. In other words there will be many millions of dollars disbursed to the farmers of the country in the next month or so. This money, coming as it does as a kind of “gentle rain from heaven,’’will unquestionably be a large factor in business. It is nioney that will be going into circulation instead of being tied up at the command of the Wheat Board. Just what the effect of this disbursement will be it is.impossible to say, but unquestionably it will mean an increased buying movement that will mean improved business in a wide variety of industries.

ANSWERS TO INQUIRIES

Answers will be given freely to subscribers to MacLean’s Magazine in regard to industrial investments (if a stamped addressed envelope is enclosed) by addressing H. H. Black, Resident Editor “The Financial Post,” 128 Bleury St., Montreal.