The Business Situation

Improvement is Forecast in Budget—No Obstacles to Return of Greater Activity

JOHN APPLETON June 1 1914

The Business Situation

Improvement is Forecast in Budget—No Obstacles to Return of Greater Activity

JOHN APPLETON June 1 1914

The Business Situation

Improvement is Forecast in Budget—No Obstacles to Return of Greater Activity

JOHN APPLETON

Editor of Financial Post

In the accompanying article, Mr. Appleton points out the promise o] improved business conditions held out in the budget speech of the Finance Minister. While expressing the view that Hon. Mr. White has been a little too optimistic, he presents facts which point to an undoubted early improvement. The importance of a settlement of the railway Question is shown.

FINANCE ministers in British Parliaments once a year have to review business conditions and estimate what, in their opinion, will be the trend of business during the ensuing twelve months. On trade outlook and anticipated monetary conditions they have to base calculations of revenue. They are not always correct, but they never fail to meet with severe criticism from opposition benches. In one particular, however, the budget speech of Mr. White has not met, as yet, with any effective opposition. We refer to that portion of bis address which forecasts the trend of business during the fiscal year of the Government, from April 1st, 1914, to the end of March, 1915. It may be assumed, therefore, that Mr. White’s forecast represents the general, and the best opinion, as to what is likely to happen, or what are likely to be the business results of the year.

During the last fiscal year the total revenue of the Government amounted to $168,689,903, and of this $111,764,698 was derived from Customs. The country’s revenue, therefore, largely depends upon the extent to which merchandise is imported into the country. Mr. White expects that the amount of imports will be less during the current fiscal year than during the one preceding. This means, of course, that trade will not be so brisk. It may be well worth while for business men to give some attention to Mr. White’s reason for assuming that trade will be quieter. As to the outlook for the year he said:

WHAT IS THE PRESENT OUTLOOK?

“Bankers and business men unite in the opinion that while it is a time for prudence and caution it is also a time for confidence and courage. The strength of Canada lies in her vast natural resources. That is the rock upon which our prosperity is soundly based and founded. Any depression, generally speaking, can be but temporary in character until such time as normal money conditions, joined with business confidence again restores the wonted activity of the nation. While this is so we must not close our eyes to the fact that we have been passing through a period of considerable inflation. Our railway policy has resulted In the construction of two vast new systems within the past dozen years. Construction upon the main iines of these systems is nearing completion. It must, however, be borne in mind that railways are never completed, are always building and rebuilding, always extending their branches and feeders. I do not therefore look for any abrupt cessation in connection with our railway construction. There lias been in real estate throughout Canada a long-expected setback in values of speculative suburban properties. On the other hand, the values of farm and central business and residential city properties are, generally speaking, not onlv being maintained, but will undoubtedly with the growth of tile Dominion tend to appreciation. On the whole, the readjustment which is going on in real estate conditions throughout Canada is recognized as inevitable and salutary. Commercial prospects for the im-

mediate future seem to me to be encouraging. Conditions will, I think, gradually improve with returning confidence and easier money. By reason of the autumn conditions of last year which permitted soil preparation on an unusual scale in all parts of the Dominion, the outlook for agricultural production this year is most favorable and we may look forward to increased production in those other great departments, our fisheries, forests and mines.”

If the Hon. Mr. White is correct in his calculations, business conditions for the balance of the present year will improve materially. He estimated the revenue at approximately six millions less than in the preceding year. This will not represent a very material reduction in imports. In 1907, a boom year, the revenue of the Dominion reached $96,000,000, and in the following year, 1908, a quiet year, the revenue declined $11,000,000, or practically eleven per cent. Customs receipts at the present time, as compared with a year ago, show a decline of approximately twenty per cent. Business will have to improve considerably therefore, if the revenues of the Dominion turn out to be as large as Mr. White anticipates. We are inclined to the opinion that Mr. White is too optimistic.

The year, however, has many months yet to run. We are on the eve of another year of production. The seeding season has opened up favorably, and more land than usual has been prepared. Our mines are also producing more than formerly. As against excellent indications in this respect, we have to set a very unsettled state of the financial markets. Before another year’s production can infuse greater activity into trade the present calendar year will have passed away, but the first months of 1915 may witness a revival that will bring up the Government’s revenue (its year ends March 31st next) to the amount estimated by the Finance Minister.

At the present moment the chief factor in re-establishing business confidence is that of production. We have maintained consistently that it will steadily increase. The whole country will note with satisfaction that the minister himself drew attention to the satisfactory way in which the exports of Canadian produce were increasing. For the first eleven months of the current fiscal year the value of exports amounted to $440,631,000, a sum $50,000,000 greater than the total value of exports for any previous year, and there is still another month’s exports to add to that amount. The principal increases have been in agricultural products, manufactures, fish and products, and animals and their produce. These are Canada’s fundamental industries and on these the business future de-

pends. Of course, the increases in the export of agricultural produce has been the most marked, the figures of which for the last five years and a portion of the last current year, together with the percentage of the total they represent, are as follows:

11 mos.

Agricultural Produce .. 66,069,939 .. 71,997,207 .. 90.433,747 .. 82,601,284 ..107,143,143 . .150,145,661 ' .191,707,887

Total % of Agri. Canadian to Total

Produce

246,960,968

242,603,584

279,247,551

274.316,553

290,223,857

355,754.600

404,887,448

Produce.

26.00

29.00

32.00

30.00

27.00

42.00

47.00

•Eleven months ending February, 1914.

In the above figures are to be found ground for hope in so far as business is concerned. During the past two years the nation’s credit has been attacked because of the alleged disproportionate increase in production as compared with the amount of money that had been invested in recent years in fixed forms. That criticism was effective and one of the factors causing the price of money to advance. It is pleasing, therefore, to note that a larger amount of our increased produce of the field is being exported. In conjunction with this aspect of the situation it may be added that the entire West appears to be turning very rapidly to mixed farming. Tangible evidence of this is to be found in the fact that already during the present year the Canadian West has shipped to Eastern Canada no less than 100,000 live hogs. This is but the beginning of things in so far as mixed farming is concerned. It indicates the possibility of varying and extending the sources from which Canada can produce wealth and produce it in such quantities as to establish in the minds of investors greater confidence than at present exists.

Our Manufacturers

Perhaps the most depressing factor of the business situation at the moment is the inactivity of the larger industries of the Dominion A month ago we pointed out that one of the disturbing features of the outlook was uncertainty as to tariff changes. Those uncertainties have now passed away, but up to the time of writing the industries affected by the changes made, principally steel, have not felt any change. One of the largest industries in that business closed down a furnace subsequent to the announcement of the favorable tariff change. The price of shares in practically all the companies concerned, since that event, declined materially. We do not attach much importance to this temporary depression of the month. It was but the culmination of a very dull period. Share price decline is due more to general financial depression than to actual business conditions. Tariff changes could not tum lack of, into plenitude of business. Our chief competitors in the steel trade are from across the United States boundary line, and there the dearth of orders for steel has been as pronounced as in Canada. We cannot come to any other conclusion, therefore than, that the steel trade, like so many others at the present time, is suffering from lack of business.

The change in the tariff, however, is an important step in the direction of recovery It has placed our steel plants in the position of being able to get orders when the demand arises, and this brings us to the question as to when this demand will arise.

Generally speaking the steel trade in any country is the first to feel the effects of any improvement. It is a fundamental industry and its condition may be taken as a fair barometer of other manufacturing. It is too early to look for very definite results from the slight changes in the tariff. As already stated tariff tinkering does not create business Before more orders will be offering we must have greater confidence established and less anxiety as to money. The first step to rehabilitate confidence is to produce more. We have indicated that steps have been taken in this direction, and steps that are very decided. Reference was made to the increase in agricultural products and the growing proportion exported. Strides have also been made in the proportion of manufactured articles exported by Canada. During the fiscal year ending March 31st, 1913, the amount of manufactured goods exported was $43,692,000, and for the first eleven months of the last fiscal year the amount exported was $51,204,000. An increase of $8,000,000, with a month in hand, is a fair index of the substantial progress being made in our industries. We have all the natural advantages for the production of paper. In 1912 the value of the exports was $3,881,063, and in the following year the amount reached $6,327,774, and during the year just closed the amount will reach still higher figures.

We need therefore entertain no fears as to the growth of our production. There may be off years, but on the whole the swing will be decidedly upward.

We believe that the country as a whole generally expected that Mr. White, when he gave us the Budget, would at the same time announce the settlement of the railway question in the Dominion. We have reference here to the completing of the transcontinental lines to which the country is directly pledged. That he did not do so was a general disappointment. At the time of writing, the close of April, it is understood that some plan has been evolved to clear the atmosphere with regard to the future of railway development. On the character of this depends to a very large extent the return of greater confidence. When the investors of the world are quite confident that the people of the Dominion, as a whole, stand at the back of the railway projects which they have subsidized so liberally, their confidence will return. At the present time it is somewhat disturbed by the enormity of our borrowings, by exaggeration of results from real estate speculation, and by the decision of the Railway Rates Board. To these local causes must be added the world-wide depression, resulting from so much loanable capital going into fixed plant. The outsider will, no doubt, interpret the temper of the Canadian people by their attitude towards the railway situation. It will be quite obvious that if they exercise good

judgment in handling their credit, and if they take every legitimate means to re-assure lenders that the money provided by them will be secure, will yield fair returns, and will be utilized for legitimate and productive purposes, there is little doubt but that confidence will very soon return. If, however, the Railway Board of Canada by its attitude on rates becomes “a bear” on Canadian rails as the Interstate Commerce Commission is to United States rails, there is no doubt, but that depression in Canada will persist. More railways are an essential to the development of Canada. If through shocks to credit progress in railway building at the present time is stopped then a very long period of commercial depression may be looked for. We anticipate, however, that the Canadian Government will clear the atmosphere of doubt and also clear the way : for a return of general business confidence.

Banking Situation

With prospects of greater production, and of the railway situation being cleared up, local causes of depression are being moved out of the way. Our banks appear to be ready to take care of more active business. March bank statement indicated that liquidation was still in progress. Stocks are being reduced and i buying is obviously down to a minimum. It seems to be the general rule to collect —to reduce liability Has this policy now done its work? Has liquidation been carried far enough?

It will be noticed from the Government bank statement which appeared at the end of April that commercial loans in Canada amounted to $855,381,265. In March a year ago they were $890,513,000 and in March two years ago, $850,157,000. Within the past twelve months there has been a contraction of $35,000,000. At the same time there has been a considerable increase in savings deposits. Call loans elsewhere than in Canada are at the present time at the highest point they have ever reached. In 1909 they reached $138,505,000, and they did not again touch so high a mark until February of the present year. It would appear therefore, that our banks are in a fairly normal position and quite equal to taking care of current needs of more active conditions than at present prevail.

When external conditions which depress the world’s money market become more settled there does not appear to remain any great obstacle to the return of greater activity to trade in the Dominion. We are assuming, of course, that the Government will settle the railway question in a manner that will re-establish some of the lost confidence. Given a normal seeding and harvest season and more settled world conditions, it would not be at all surprising if during the closing months of the present year our industries found themselves again fairly well pressed with orders and our tradesmen again replenishing their shelves with the view to coping with better demands.