Production Costs Must Decrease

June 1 1921

Production Costs Must Decrease

June 1 1921

Production Costs Must Decrease


BUSINESS is being conducted along restricted lines. Retail prices are still regarded as high in comparison with the cost of all basic commodities. The work of deflation must be still more evenly and equitably distributed. The consumer is still required to pay what appears to him as a high price for his goods, and he wonders why this should he when he reads that prices for farm produce and raw materials generally have slumped on the whole well down to pre-war levels. He criticizes the retailer on the ground that he is unduly bolstering up prices, and is making a tidy profit at the public expense.


While the criticism may in some cases tie warranted, as the situation now stands the retailer is not in a position to cut his prices immediately to correspond with the decline in the cost of basic or raw materials. There are many and important factors which enter into the process of production which must be reckoned with when he is adjusting his prices for the public. Production costs are still excessively high, and there must be an extensive readjustment here before retail prices can come back to a more normal level.

The immediate duty of the manufacturer is to reduce to the limit the cost factor in production. Prices cannot come down until production costs are reduced, and business cannot revive until some definite basis has been established for the cost schedule, when commodity prices will no longer be subject to fluctuation from day to day or week to week.

When prices are unstable the buyer cannot be encouraged to enter the market readily. He pursues a conservative policy, and buys in small quantities only. The general policy of the moment, therefore, is to buy sparingly, for immediate needs only. When however, some degree of stability has entered the market buying will be more free and this tendency followed in every branch of trade will materially stimulate industry and business on the whole.

Production Costs too High

AT THE moment the cost of production is out of proportion to the cost of raw materials, and the consumer has to bear the burden. There are various devices open to the manufacturer for reducing the expenses of production and operation in his particular plant. As labor is probably the more expensive item, labor can assist by displaying more industry, by increasing output per man. Of late, however, employers in a number of lines have entered seriously upon the task of cutting costs, and to this end have required their employees to accept a lower scale of wages. Labor naturally resents this movement, and holds out the argument that as the cost of living is still high his wages should not be interfered with.

Present conditions, however, scarcely hold out convincing support of his contention. Thousands of men are out of work. Industry is running at part time. The factory that is now running overtime, or even full time, is the exception rather than the rule. The manufacturer has suffered heavily during late months, and from present indications is due for a further period of adversity before the turn has been reached. Lower wages do not necessarily mean permanent hardship or inconvenience for the workman. A general lowering of production costs whether through increased efficiency of labor or machinery or by a reduction of wages, cannot but have the effect of hastening the reduction of retail prices and living costs to normal, and the workman will thereby he enabled to maintain the standard of living adopted when wages were at the peak, and commodity prices correspondingly high.

A GENERAL reduction of wages, amounting to 20 per cent, has been introduced by the United States Steel Corporation, and some 150,000 employees are affected. This corporation is the largest single employing institution on this continent, and the move will have widespread influence. The reduction in wages follows a cut in the prices of steel products.

On the whole the business horizon is clouded with uncertainty. The road to normal activity promises to be beset with many obstacles. The individual will be faced with many problems, the solution of which will call forth all his surplus ingenuity and resourcefulness. There is little doubt that we have now entered upon a long era of declining prices. For years before and during the war, prices continually ascended. It is evident that the peak was reached a year or two after the dose of the war. However, experience of history has definitely shown that a country may enjoy a period of prosperity during a period of falling prices. The immediate turn is proving difficult, but the readjustment may be reasonably expected to be followed by a period of industrial activity and prosperity.

Keen World Competition

COMPETITION will without doubt be keener than ever before. Both the workman and his employer will have to display the highest type of efficiency to keep in the race. The firm which produces the highest type of goods will lead its field. There is the possibility and very likely prospect of keen foreign competition, too, particularly from German sources. Charles M. Schwab, former director-general of the United States Emergency Fleet Corporation, and a keen student of economic and business conditions, commented on his return from Europe recently upon the spirit of industry manifest in Germany. Germany had gone back to work, he stated, as had no other nation in Europe. Her working people were economizing, sacrificing and throwing themselves into real production. At this rate of progress Germany will without doubt in time become a potent force in the commerce of the world, when through industry she has rehabilitated her tottering finances.

No Immediate Improvement in Credits

THE credit situation in Canada at the moment does not hold out any prospect of immediate improvement. There is a dearth of funds for industrial as well as investment purposes.

The building situation throughout Canada has proven a disappointment to the early optimists who predicted a revival of construction on a large scale when the spring months arrived. The promised development has not materialized in any conspicuous degree, and the prospective builders are still pursuing a waiting game. There is a fair volume of residential construction under way at the moment, due largely to the ahnormaljhousing^shortage in practically every important centre in Canada, hut the supply of houses thus made available will he entirely incommensurate with the demand.

Builders are receiving many inquiries, but the actual building undertaken is on the whole of disappointing volume. Industrial construction is practically at a standstill. This is the natural outcome, however, as a result of the unfavorable turn of business. With many firms running on part time only there is not the same need for additional factory accommodation as was felt a year ago. In fact many firms have more factory and warehouse space than they require. A large boot manufacturing industry in Eastern Ontario added extensively to its plant a year ago when the boom in the boot and shoe industry was at its height. This year the plant has been practically shut down, and the manager made the statement that more space was available than would be used for years to come. Business at the close of the war had a false perspective, and in many instances, judging that the era of prosperity would last for years, expanded rapidly in preparation. There is, however, a large volume of legitimate building held up, and the delay can be conveniently made at the present time, when the need is not so pressing. The reduction of building costs, both in the matter of materials and wages, will have a stimulating effect, and there has been a decided improvement in these factors of late.

Retailers’ Turnover

THE retail trade on the whole gives peculiar cause for reflection. The retailer is selling more than he is buying. His turnover is keeping well up to the normal of the past year, and in some cases is even greater. His margin of profits has been reduced, however, by the lower prices which he has been required to take for his commodities. But the fact that he is able to unload his goods is a favorable feature. The retailer on the other hand is buying sparingly, as is the wholesaler, and the manufacturer bears the brunt of the burden.

At the beginning of the turn of trade the volume of cancellations was heavy, many retailers and even wholesalers resorting to this avenue of escape which was open to them.

A buyer for a large Toronto retail drygoods store reports extreme difficulty in purchasing high priced goods. There is an abundance of the cheaper grades, but the manufacturer is content to follow a policy of prudence in the production of the highpriced goods rather than run the risk of overloading the market. The problem of buying for the fall trade is calling for some careful consideration. The markets are unsettled, with prospects of lower prices. The dealer is called upon to decide between the problem of making commitments for goods now in the expectation that he would not be able to purchase at a lower price in the fall, or wait, and run the risk of getting ample goods in the markets later at the prices then prevailing.

While many lines of industry have been fairly well adjusted, is evidence that additional and radical steps are under consideration in many instances. A Canadian firm engaged in the manufacture of farm implements has followed the practice, for a number of years, of closing down for a week or so in the midsummer, for the purpose of checking up on inventories. This year it is reported on reliable authority that this firm will close as usual but will not reopen until two or three months have elapsed. During the interval active steps will be taken to dispose of the now accumulating stocks. There is the possibility, too, of the markets for raw materials becoming adjusted upon a normal basis.

Reports from implement dealers in various parts of the country indicate that sales have fallen off in recent weeks. The farmer, too, is looking for lower prices. He has been forced to accept heavy reductions on his produce, and therefore he feels justified in expecting reductions in the prices of equipment for his farm. There is , evidence, however, especially in Eastern Canada, that it is not for want of funds that he is keeping out of the_ market, dealers reporting that the farmer is buying freely of automobiles, pianos, etc., articles which in no sense could be designated as necessaries. The explanation is probably found in the fact that in the case of the average individual his own inclinations are strengthened by the fact that he has the moral support of the entire family upon this venture, whereas, when purchase of equipment for the farm is under consideration he alone is the interested party, and if opportunity affords, he will put off the purchase until the need becomes acute.

Some Bright Spots

THERE are a few bright spots in industry at the moment. The automobile trade has picked up within the past few weeks, and a number of companies are gradually increasing output. This condition is being reflected upon the tire industry. The clothing trade offers some cause for optimism. It will be recalled that firms engaged in the manufacture of clothing were among the first affected, and the reaction as it applied to them was of a drastic nature. Stocks were liquidated at heavy loss, but now such firms are able to approach the market with goods priced at the lower replacement values, and for this reason are getting orders.