The Business Outlook

Some Obstacles in the Way of a Return to Normal Industrial Activity and Parliament’s Duty in Regard to Them

JOHN APPLETON April 1 1914

The Business Outlook

Some Obstacles in the Way of a Return to Normal Industrial Activity and Parliament’s Duty in Regard to Them

JOHN APPLETON April 1 1914

The Business Outlook

Some Obstacles in the Way of a Return to Normal Industrial Activity and Parliament’s Duty in Regard to Them


Not for some years has Canada experienced so marked a depression in business as during February, and at the close of that month the indications are that March will not witness much improvement. The easier tone of money has not as yet stimulated commercial activity, but has made the stock markets livelier. Continued caution of buyers in practically every line of industry caused a marked falling-off in demand upon Canadian manufacturers, resulting in larger stocks in warehouses and smaller stocks in stores. Shelves of the latter will, however, sooner or later have to be re-stocked. A favorable seed time, and less timid credit after April will bring better business, as the needs of the producers will be heavy. Mr. Appleton has, in this article, examined the business situation and given reasons for the slow return of business to normal activity during 1914.

FEBRUARY is Canada’s dullest business month. It brings with it not only the depressing effects of winter but also the quietest days at the clearing houses all over the Dominion. This year it has been unusually depressing in every department of commercial activity with the exception of a slight flurry in the stock market. Broadly speaking, transactions on our stock exchanges have every right to be classed as being “commercial,” although some of the best of industrial leaders hold stock exchanges and the men who deal there as being more of an hindrance to sound commercial progress than an aid. If we eliminate from the record of February the activity in the trading on the stock exchanges nothing but dullness is left.

Foremost amongst the »business indices of Canada are the returns of her railways, and of these, those of the Canadian Pacific are the most reliable. That road taps and serves every portion of the Dominion where business activity has attained to important dimensions, and what reward, or tolls, are obtained for that service may be taken as a very accurate barometer of trade conditions. At the moment of writing the figures covering the month of February are not to hand. On the eve of the close of that month the revised figures for January were issued and showed a decline of $1,763,391 gross. Weekly traffic returns show a contraction during the first three weeks of February quite as striking, or more so, than in the previous month. For the three weeks to the 21st, the actual gross decline is $1,620,000. For the entire month the total will exceed $2,000,000.

Freight Traffic Declines

To account for this unusual contraction we must naturally look for some unusual cause. The latter is to be found in a very acute decline in traffic offering— especially grain for through shipment from the West to Eastern points. A year ago the crop of 1912 was being taken out of the West in the early months of 1913 and a very considerable quantity was carried all-rail. This year the bulk of the crop was out by the close of navigation and for all-rail haul there

was but little available. For the contractionin through traffic business, between the Eastern and Western portions of the Dominion, it would not in our opinion be correct to place entire responsibility upon the lack of grain traffic; there has been a decided falling off in the more profitable classes of freight which originate with the industries of Eastern Canada.

Confirmation of this view, to some extent, can be obtained from a study of earnings of the other lines which as to through traffic are not in the same position as the Canadian Pacific. Their business is more of a local character and it has not suffered, as to volume, to the same extent. Just before the third week of February both the Grand Trunk and the Canadian Northern systems maintained a volume of gross earnings approximately equal to that of the corresponding period of a year ago, but both showed a tendency to contract at the close of February. The fact of this local traffic being maintained so well during a depressed period is a very hopeful indication, but when all the lines began with the close of February to show decreases as compared with a year ago, it did not augur well for the immediate future of business generally. Through traffic as well as local indicated further contraction of general business.

Bank Statement

It is regrettable that the monthly bank statement does not get into the hands of the public until practically a month late. On the last day of February the public first learned of the January figures. When they did make their appearance they very clearly indicated that liquidation had not run its course. The prediction is ventured that when February figures are available they will show still further liquidation. Canada’s bank statement is not as well understood, or appreciated by the business public, as it ought to be. If it was better understood the hankers would have less difficulty in dealing with customers who cannot get all the credit they want and the customers themselves would have a clearer idea as to the trend of conditions on which the success of their business depends. January figures usually show

some contraction of business activity, but not so marked a contraction as that of this year. At the close of 1913 the banks had $108,020,000 outstanding circulation and a month later, $90,611,000, a decline of over $12,000,000. Commercial loans dropped by approximately $11,000,000. These exceptional declines are well worth noting, especially in view of the fact that the same tendency was evident in February. Bank clearings have steadily diminished in volume since the commencement of the year, a tendency more marked in the West than in the East.

We might add to these evidences of business contraction the various statements made during recent weeks at annual meetings with regard to the accumulation of stocks by industrial companies. Still more definite are the figures in annual statements indicating a larger proportion of assets in the form of stock on hand. Clothe all such facts with the rosiest spirit of optimism: they will not down and challenge serious consideration from business men.

Why is Trade Depressed?

Traders in staple necessities report business as being quite as large in volume as at any time. Their opinions vary about such matters as collections, but not as to volume of business. Trade cannot be considered as being depressed in so far as embraced in the supplying of the current necessities of the people. Where the “shoe pinches” in Canada is obviously in industries engaged in turning out highly-durable utilities. Pullman cars are very desirable, but of little use when those already in operation are not used to their average capacity. Structural steel is also highly valued, but if the primary production of the country does not warrant its employment there will and should be no demand for it. If from our lande, mines and forests more wealth of an exchangeable character is extracted there will very soon be a demand for steel products and for so many commodities and conveniences into which they enter. But at the present moment Canadians are not buying anything they can do-without. They are economizing. A general state of mind exists which fears liability and seeks to liquidate that already being borne. This is a normal reaction from a period when credit was easy and demand was strong, and its effect will be to bring both credit and demand back to normal. After the severe contraction of credit at the close of 1913 came the singular monetary ease of January and similarly the restriction of industrial output will be followed, though not so quickly, by normal if not abnormal demand.

Some economists hold that depression in trade is a “state of mind.” That can hardly be true as applied to Canada where the people are always optimists, and in some sections “over-optimistics.” Being always in a perennial state of optimism they nevertheless are subject to trade re-actions. Despite every effort to buoy up optimism depression came. Steel men feel keenly the dropping off in orders for rails, for cars, and other

ilway equipment; implement manucturers find it necessary to restrain oduction and turn more of their outanding accounts into cash, and farmers ,ve been compelled to pay up, causing em to economize desperately. These are rcumstanees that cannot be entirely gretted as their influence will be lutary. They were, however, brought •out by a contraction of credit, which as not due to any cause originating in añada. There were contributing uses, but the chief was of external igin.

Has There Been Over-production?

One of the benefits which Canada will |ceive from the prevailing depression is gulation of production. In some lines industry more plant has been put iwn than present or immediately prosictive needs call for. When credit was sy unnecessary and wasteful changes id additions were made possible. This ndeney has been effectually checked. It is quite evident, however, from the ilance sheets of so many industries at productive capacity has been ought up to a point quite equal to deands. A short season of depression is witnessed the accumulation of stocks id the cutting down of working hours our factories. Under the cireumanees, it would be idle to look forward expansion of industry for some time. rhat can be reasonably hoped for withthe course of a few months is that •esent industrial plant will be put into otion up to a normal proportion of its .pacity.

Why Trade Should Improve For the remainder of the present year ) boom can be looked for, but a great iprovement over present conditions ay be. Our reason for this view is íat at no time was Canada extravagant her demands; when analyzed they are gitimate needs. The first essential to roduction are transportation facilities, id to provide these our demands for •edit are exceedingly heavy. The arkets for credit have improved 3ry considerably, and after the irn of Spring they will be better ; is reasonable under the cirimstances to anticipate that our railays will get what money they require >r this year’s development and equipient plans. Parliament will have it in s power to lend assistance in this re>ect and there is but little fear that the olicy followed for so many years, praccally since Confederation, will be reersed. There may be disputes as to ;rms, but not as to the necessity of arrying present transcontinentals partilly built to a state of operative tficiency.

! If through Parliament the nation excesses its confidence in the future by iarnishing the necessary credit to carry > completion the approximately competed transcontinental railway systems mch of the present uneasiness and oubt in business circles would be removed and the course for more active usiness conditions would be made very luch clearer.

The Iron Industry Hampered

There is another condition incident to better business which is in the power of I Parliament to modify, and it has reference to the condition of the iron industry. If free trade conditions obtained in Canada, with wages corresponding to those of competitive countries, the industry would have an equal chance of working out its own salvation. At present, it has to pay high wages incident to protection without having in its home market corresponding advantages. If the tariff generally forces up wages then the products of the wage-earners should have, within reasonable limits, the home market reserved. Steel producers claim that the existing tariff does not do them justice, hence their difficulties. This fundamental industry is at the present time not in a healthy condition and while it remains so it will be no mean obstacle in the way of returning industrial prosperity.

Tn these two respects, that of tariff adjustment and the completion of rail-

way projects. Parliament can either retard or accelerate the return to normal of business conditions.

Accumulating Demands As already stated there has been for some months, and very properly, verygreat caution in buying. Eastern manufacturers have not been urging sales in the West, and in the East they have not found it possible to do more than a normal business. Nevertheless consumption has been proceeding. Exhausted stocks will have to be replenished sooner or later. When the productive agencies become active in the Spring, and by that time credit will have lost some of its present sensitiveness, there will be, if no untoward circumstances develop, a sufficient demand to enable the manufacturers to reduce materially their accumulated production. With a normal harvest in sight the demand will be accentuated and this will set in motion generally the wheels of commerce. There will, however, be no boom this year.