How’s Business?

KENNETH R. WILSON October 1 1934

How’s Business?

KENNETH R. WILSON October 1 1934

How’s Business?



EVERY DAY lately, someone in Canada has been

crossing “recovery line”—getting into better times after the struggle and worry of the last five years.

Today it may be the owner of your corner drugstore who finds himself "out of the red" for the first time in two or three years; next week, that big factory down the street which used to fill fat pay envelopes for a thousand or more people before times got bad.

Not everyone stays on the right side of the line once he gets across. Saskatchewan farmers, for instance, thought they were crossing it last year when early crop prospects were rosy and wheat prices on the mend. But drought changed the picture overnight, and by Iasi February there were 236,000 people in that province on relief against 144,(XX) the year previous. This year their outlook is no better may even be worse—with almost 190,(XX) people getting relief right in mid-July.

But on the whole, we in Canada have been making much progress in the past year and a half. In fact, the Economic Intelligence Service of the League of Nations revealed recently that the rate of industrial progress in this Dominion

from the middle of 1933 had been the Ix'st. of any nation of major importance whose figures were available to that office. For statistical evidence, they showed that since the low point of the depression the gain in industrial production (according to I .cague figures) had been 64 XT cent in Canada, 50 IXT cent in United States, 14.6 per cent in Great Britain, 47.4 X>r cent in Germany, and 12 per cent in France. To Canadians, this is one of the most impressive facts of the world depression.

And since most of us want to know the answer to the query7, “I low’s business?" it seems about time we took a trip up and down this “recovery line” to see just who has crossed to the right side, who is still lagging behind, and what this talk about better business really means.

A good bird’s-eye view of the recovery picture in Canada is the following paragraph taken from the monthly letter of one of our leading chartered banks. It says:

“The turn to improved business came early in 1933. The most striking feature of this upward movement is that the physical volume of business was restored practically to the 1926, or normal, level by May of this

“But this betterment, with an acceleration of industrial operations as the most influential factor, should not lead to the belief that Canada has won its

way back to prosperity. Actually, certain industries have made such great progress as to overshadow the slow headway of others, and to obscure particularly the continued misfortunes of agriculture, which, although occupying a better place than in the 1929-33 period, is still far short of the position necessary to provide a wellbalanced national economy.”

Statistics Show Improvement

TF YOU ARE statistically minded you could amplify this -*• statement a hundred ways.

You could find, for example, that accredited indices of the physical volume of business in Canada are currently forty |x>r cent above the depression low of March, 1933. That railway carloadings in the first half of 1934 were

twenty-one per cent ahead of 1933, and that commodity prices at wholesale are 12.5 per cent better than their depression low. You could discover that foreign trade in the first seven months of this year was thirty-eight per cent up over last year; that employment generally throughout the country was eighteen per cent better than in 1933; that high-grade Government bonds were selling at the highest level in twenty years, and common stock prices half as high again as they were this time last year.

With perhaps a little more difficulty—since most of us like good news rather than bad -you could discover that there are still, this summer, about 990,000 persons (almost one-tenth of our population) on relief in Canada at a cost of approximately $75,(XX),OCX) a year. That somewhere between 100,(XX) and 200,000 head of cattle face death from drought in Western Canada this year. That our nationallyowned railway, despite a seventeen per cent improvement in gross earnings as compared with last year, is still running into debt to the tune of $1,600,000 a week. That Canadians are staggering along under a total indebtedness in respect of their homes, their factories, their farms and their govem-

ments, of more than ten billions of dollars, or $4,500 for every single family in the country. That if we were to harvest this year a normal crop of our greatest single article of commerce, wheat, we would have over half a billion bushels of it to use in the present crop year—as much wheat as the entire world imported to meet its requirements in 1933-34.

Or perhaps you are the sort of person whose mind recoils at the thought of statistical indices, and figures with nine or more ciphers on the right-hand side. In that case you will appreciate the viewpoint of Ix-on Henderson, chief of the research and planning division of the N.R.A., who uses homely barometers to test business weather. He likes to know, for instance, whether sales of living-room rugs are getting better or worse; whether there is less doubling up among city homes; whether many or few bachelors are taking the matrimonial plunge, and whether the small persona! loans and debts of those who are married are being repaid rapidly or not.

In Canada the answers to his problems are part good, part bad. Thus, while living-room rug sales are apparently better in Canada, social workers report little evidence of less doubling up among families—at least in the big cities. On the other hand, marriage figures for Canada—which mean fewer bachelors, of course—were twenty-five per cent better in June than a year ago, and a leading small-loan company

Unfavorable Factors

1. Volume of construction in 1934 to date, only one quarter of those of 1928-1930.

2. Wheat sales are small—200,000,000 bushel carry-over is six times normal.

3. Unemployment relief—1,000.000 people on relief, at a monthly cost of between $5,000,000 and $7,000,000.

4. Railway deficit —Canadian National Railways still costing $75,000,000 to $80,000,000 annually despite 1934 improvement in revenue.

5. Drought—100,000 to 200.000 head of cattle face drought in the West.

6. Agriculture—buying power still greatly re-

7. Total Canadian debt burden—$10,000,000,000 ($4,500 per family).

tells me their collection picture is improving every month and "has been really no problem this year at all.”

At any rate, there is no dearth of statistics. The problem is to keep them in their place: weed out the misleading ones, tally up the sound ones, and attempt to achieve some kind of order and common sense from themassof informative but, at times, conflicting facts which they bring us.

There is, however, one starting point in this quest which is a thoroughly good one. In fact it is much more than a starting point; it is a good yardstick to keep in mind any time you are attempting to appraise the business situation in Canada.

This yardstick is simply the break-up of what sort of work people in Canada do for a living, in other words, the chief occupations of Canadian producers and wage-earners. Thus, if we analyze Dominion census figures of 1931, we find that out of every 100 "gainfully employed” Canadians, the distribution is something like this:

29 are farmers.

16 are engaged in the “services” and professions.

16 are engaged in manufacturing.

10 are retail and wholesale tradespeople.

8 are in transportation and communications.

6 or 7 are from the building and construction trades.

3 are employees of governments or public administration.

2 or 3 are engaged in forestry, fishing or trapping.

2 in finance.

2 in mining.

The remaining five are largely unclassified.

Two examples will show the significance of these figures. Thus, when the League of Nations talks about industrial production in Canada having risen something like sixty-four

per cent from the low' point of the depression, the statement ignores the fact that "industry” in Canada means directly not much more than one-third of the population. To overlook this in the light of actual developments of the past eighteen months, is to distort the general picture by one rather dazzling situation.

Again, we hear loud and very proper applause at the tremendous growth of mineral production and development in the past year or two, yet the figures show that there were, in 1931, actually more carpenters in Canada than there were persons gainfully employed in the mining industry. And since building is one of the trades which has definitely not crossed the recovery line in Canada as yet, we see again the need for getting in proper perspective the workaday habits of Canadian citizens.

Let’s take a look, then, at the different sectors of the recovery front to see just what they are doing and how they are getting along.

What About Agriculture!

"\4"OST IMPORTANT, of course, is agriculture. As we 4-V-L have seen, it employs directly twenty-nine out of every 100 Canadians. It constitutes considerably more than half the primary production of the country each year, and its products represent regularly from one-third to one-half our total export trade.

Favorable Factors

1. Physical volume of business in Canada up forty per cent from depression low.

2. High-grade bond prices are highest since before war.

3. Newsprint production up forty-one per cent.

4. Electric power production at new record high.

5. Employment in metal mining industries up thirty-six per cent over last year; eighty per cent over normal level of 1926.

6. Foreign trade up thirty-eight per cent.

7. Lumber exports in first seven months more than double those of 1933.

8. Automobile sales, domestic and foreign, double those of last year.

9. Wholesale commodity prices up fourteen per cent. Wheat prices up one hundred per cent.

10. Railway earnings fifteen per cent better than a year ago; carloadings up twenty-one per cent in first six months of 1934.

The best post-w’ar years for Canadian agriculture were 1927 and 1928, w hen the value of agricultural production in the Dominion was valued between $1,900,(XX),000 and $2,000,000,000. The slightly smaller 1928 figure meant a gross annual revenue for each farm in Canada of about $2,600.

By 1932 a combination of drought, falling prices and restricted demand had cut this almost sixty per cent to $1,100 [XT farm. From this latter figure, Canadian farmers had to meet every item of expense taxes, mortgage and other interest, operating costs, food and clothing, seed and supplies.

The answer is, of course, that for most farmers it simply couldn’t be done; and to already high fixed costs was piled further debt, incurred to keep the farm operating.

A fundamental problem, too, was the fact that the prices of farm products started tobogganing in the autumn of 1929 and kept on going almost steadily until the beginning of 1933. By that time the dollar bill which a farmer got for his products in 1929 had shrunk to forty cents. Even this wouldn’t have been so bad if other prices had deflated at the same rate, but many things like taxes actually kept going higher instead of lower, and the dollar charged in 1929 for manufactured goods, for instance, never came lower at any time than seventy cents.

The turn almost came in 1933. For many farmers, it did.

Prices were a good twenty per cent better than in the preceding year, and the gap between what farmers got for their produce and what they had to pay closed considerably. But drought, plus continued restriction in demand for many farm products, threw thousands of farmers back once more into hard times. Actually the sum total of estimated farm production in 1933 broke slightly behind the corresponding figure for 1932.

Since the summer of 1933 some progress has been made. Thus in twelve months the price of farm products has climbed a further thirteen JXT cent, while the prices of manufactured gxxls are staying reasonably firm with consequent benefit to farm purchasing power. On the other hand, drought has again ravaged most parts of the country and reduced prospective yields in many provinces, particularly in the West.

’Fhe premier agricultural commodity is, of course, wheat; it is likewise Canada's best single business barometer. Three factors are equally important the size of the crop, the price, and the export demand. Despite drought, it is probable that the 193-1 crop will be as large if not slightly larger than last year’s total of 271,(XX),000 bushels. Grade should be slightly better. If price levels of July and August are maintained when marketing begins, it will mean a return of twenty to twenty-five cents a bushel more than at the sixty to sixtv-five cent level of last autumn. On a 300,000,000 bushel crop this would mean almost $100,(XX),(XX) more for farmers to spend this year as compared with last.

Such good fortune would be even more important than the above statement indicates, because when wheat was selling to net forty and forty-five cents a bushel back at the farm (most wheat costs fifteen to twenty cents a bushel to haul to sealxrard, which must be deducted from the daily

quoted price at Winnipeg), the actual out-of-|X>cket expenses ate up all but five or ten cents of this return, without any allowance for depreciation, living costs and so forth. Thus, an added twenty or twenty-five cents a bushel means not only an additional $100,000,000, but actually a three or four-fold increase in spending money compared with a year ago.

The final big question mark in the wheat puzzle is world demand. We all know how the world has been glutted with raw commodities which no one seemed able to market. This has been particularly true of wheat, and world stocks have kept soaring year after year in nearly all parts of the world. Ten years ago a normal wheat surplus or "carryover” for Canada at the end of a crop year would have been thirty or forty million bushels. Last year it was six or seven times that figure at 220 million bushels, and even when the new Canadian crop year started on August 1, 1934, we still had 203 million bushels of wheat lying unsaleable in our granaries.

The big hopt* it might almost be called Canada’s National Hope is that the world-wide drought which this year affected other nations much more seriously than Canada, will cause the wheat-using nations of the world to buy most of this wheat, together with what we produce in our 1934 crop. If that comes true, then agriculture in

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Canada will feel with reason that it has crossed recovery line.

Actually in the past few months, although the world wheat outlook has become considerably brighter, our sales of wheat have not improved, and in July they were twentyone per cent lower than a year ago. This is attributed largely to the fact that the Canadian Government, through its agency, has been supporting the wheat market with a view to aiding Canadian farmers, but with the net result that Canadian prices are out of line with the world market at Liverpool.

Which means that if you want to know whether Canada is finding a solution to her wheat problem, find out whether Canadian wheat prices are on a competitive level and if we are actually getting our share of the world demand for wheat at any given time.

Industry is Improving

T ET’S TAKE a look now at industry. It Lwas the industrial barometer, you remember, that was quoted by the League of Nations as having shot up sixty-four per cent in Canada since the depression low of last year. This is the indicator maintained monthly by Dominion Bureau of Statistics, and it measures the physical volume of industrial activity for thirty-five separate items in four main groups—manufactures, mineral production, construction and electric

The two industries which led the industrial advance were metal mining and forestry. The former got a primary fillip at the end of 1931, when the spectacular abandonment of gold by Great Britain led the way to higher prices for the precious metal and started Canada along the colorful road to a goldmining boom. The accelerating demand for armaments which has been gaining momentum for nearly two years now, was also an important factor in stimulating production and prices of the base metals. Metal mining is still one of the brightest spots in the business picture, with employment having increased almost steadily each month since September, 1932, and now reaching a point nearly eighty per cent above the “normal” level of 1926.

Forestry had for several years been a Cinderella of Canadian industry, due to the collapse of building and construction at home, the closing of key markets for timber such as United States, and the fatal overproduction of the newsprint industry. In March, 1933, coincident with the inauguration of the New Deal in the United States, this industry came rapidly to life.

Many factors were responsible, among them are undoubtedly the Empire trade agreements: the upturn in commodity prices in the “sterling” group of countries and others which had abandoned gold; the building boom in Great Britain. At any rate, lumber exports from British Columbia in 1933 were nearly double those of 1932, with Africa, China, South America, Europe and Great Britain, all reporting greatly increased purchases.

An equally impressive recovery occurred in sales of Canadian newsprint, and by May, 1934, Canadian mills were operating at withinseven per centof the all-time record of November, 1929. The unsatisfactory feature of this recovery has been the continued low and unremunerative level of prices. Newsprint prices are still little better than half what they were in 1926.

With these two industries taking the lead and with the “flight to commodities” which followed the United States New Deal in the spring of 1933, industrial activity in Canada started marching forward. When prices are rising, business is invariably profitable, and the steep ascent of commodities in 1933 turned frozen inventories into valuable assets and gave much needed impetus to demand and production. The presence of the Ottawa trade agreements also opened new avenues for both our raw materials and

manufactured goods. One important feature of the upward trend was the comparative steadiness of the advance as contrasted, for example, with the erratic trend in the United States.

By the summer of 1934 almost every industry had more people at work than at the same time last year, while the general level of employment in the first half of the year was eighteen per cent better than in the same period of 1933. If the Dominion Bureau of Statistics figures are taken as a base, it is found that within a fifteen-month IXiriod jobs had been found in Canada for upwards of 400,000 workers.

In the vanguard was the automobile industry with output more than doubled. Iron and steel boasted once more of being out of the pauper class despite little or no help from railroads. Textiles retried a splendid recovery, and electric power production broke all previous monthly records for a general gain of almost thirty per cent from last year.

The weakest key group is still construction, which, while showing substantial improvement over last year, is still operating at unprofitable levels. Much private building is undoubtedly waiting to be done, but more business confidence and clearer monetary skies are needed to put this key industry on firm recovery ground. Typical of its status is the fact that employment in the building trades and in the rough and dressed lumber industry is still less than half what it was back in 1926. On the other hand, most industries are almost at the 1926 level, though notable exceptions are makers of musical instruments, agricultural implements and railways. Actual monthly volume of construction contracts awarded, though better than a year ago, is only one quarter of the total of five years ago.

Gains in Income Returns

T OOKING OVER the recovery picture in ■L* the chief economic areas of Canada, we find Quebec in the best relative position at the present time, with the Maritime Provinces a close second. Ontario and British Columbia are close together, with the Prairie Provinces hardest hit by the depression due to their greater dependence on specialized agriculture. Actually the best gains have been made in Ontario, that province having recovered almost forty per cent since its low of last year.

Even more interesting ups and downs are seen when we attempt to analyze the picture more closely. Such scrutiny is difficult in Canada, for we have few reliable statistics to show current trends in local areas. One reliable indicator available annually is the income tax returns from nineteen districts into which Canada is divided for taxation purposes. Preliminary figures for 1934 returns (1933 income) show very marked changes within the larger provincial or economic areas.

Thus, returns from Charlottetown district are this year 145 per cent higher than a year ago, while gains ranging from ten to two per cent are shown at Halifax, Toronto, Hamilton, London, Regina and Vancouver. The names in each case refer to the “area” rather than to the municipality itself. The sharpest declines were at Quebec, Fort William and Saskatoon, which reported returns twentyfive per cent below the previous year’s figures. Kingston returns were down thirteen per cent and Edmonton eight per cent, while smaller declines were reported from Saint John, Montreal, Ottawa, Belleville, Winnipeg and Calgary areas. These wide variations are borne out by figures of bank debits from the thirty-two clearing-house centres of the Dominion. The Dominion total shows total debits seventeen per cent, higher than last year, but in thirteen centres the 1934 figures are actually below the 1933 mark.

What does it all mean?

Simply this, that though business activity is at least a third better than a year ago, the country as a whole is still far from a normal or prosperous state.

Take for instance the position of the ordinary working man. True, his weekly budget for rent and food is thirty per cent less than four years ago, but in the meantime his earnings have been cut practically in half by reason of short time, unemployment and wage cuts. That it is taking many years to restore him to his former position is indicated by the fact that in no month since the autumn of 1932 has the number of persons on direct relief dropped below the million mark; that national purchasing power, as estimated by The Financial Post Business Year Book for 1933, was actually three per cent less in 1933 than in 1932; that retail sales in leading Canadian chain and department stores were only four per cent better in 1934 than in the previous year.

Then, too, the depression has taken heavy toll of financial as well as mental and moral reserves. Savings deposits in chartered

banks have been steadily eaten into until by October, 1933 (the depression low), they were back at 1926 levels. Life insurance companies have been called upon to distribute in Canada $430,000,000 in policy loans and cash surrender values to needy policyholders since 1929. The depression bill for unpaid depreciation is a colossal one which will have to be met sooner or later.

It is the exhaustion of these reserves that is one of the most serious features of the current situation, social workers reporting that much of the increased demand for j relief comes from families and individuals whose reserves after two, three and four1 years of strain, are petering out

There is, of course, much to be thankful for. Wage scales are no longer being reduced but in many cases are being increased. ! Furthermore, the Canadian labor picture: has, so far at least, been exceptionally free from the strike and lock-out troubles which have taken such a heavy toll in the United States. Then, too, dividend payments by

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Canadian corporations were forty per cent higher in the first seven months of this year compared with 1933. High-grade bonds are selling at the highest prices since pre-war days—good evidence of confidence in Canadian institutions. An even better sign will be when this confidence is translated through to other types of securities, indicating that money is again being put to work for constructive purposes.

Recently I asked a leading Canadian businessman about the outlook for recovery in Canada. The two places where he looked anxiously for constructive gains were the building industry and the market for our | wheat; the two fears he had for the future, as far as Canada herself was concerned, were I our railway problem and inflation.

A word about these two last and very vital matters.

Possibilities for the Future

A/fOST PEOPLE feel that because railLY! way earnings are improving (they are fifteen per cent better than a year ago) that we are on the road to a solution of the problem. It would be nearer the truth to say that business recovery is giving new evidence every day of the magnitude of the problem which still lies ahead, and which must be solved satisfactorily before Canada can again achieve balanced prosperity. The out-of-pocket expense of the Canadian National Railways System to Canadian taxpayers will be between $75,000,000 and $80,000,000 in 1934.

The railway problem is important for another reason in that it typifies on a grand scale the wider problem of governmental debt and taxation to which a solution must also be found with urgent haste, if Canada is to make a healthy business recovery. Thus although Dominion Government revenues were higher by twenty per cent in the first four months of the present fiscal year than they were in 1933, expenditures were still slightly higher than a year ago, when the budget failed to balance by $135,000,000. Nor are we making any progress toward reducing a net debenture debt burden which increased $767,000,000 or 26.4 per cent in the ten-year period ending March 31, 1933. The figures are from a special study by the Citizens’ Research Bureau, which reveals that in the same period provincial debt increased ninety-six per cent and municipal debt 42.5 per cent. In the same period our population increased by only eighteen per

The inflation problem which my friend feared for Canada is important, for its own ! prophetic significance and for the due it j gives to the outside forces which will undoubtedly play a vital part in the trend of Canadian business in the next twelve months. His viewpoint was simply that he feared the possibility of a Government being elected at the Dominion contest in 1935 which would introduce unstable and inflationary monetary principles into our fiscal economy.

It is the same fear that is causing apprehension in the United States and in many j other leading nations of the world at the present time; a fear that still plays havoc with foreign exchange and dams up channels where confidence and trade might otherwise

freely flow. Along with political unrest in Europe, it is perhaps the most potent single influence retarding recovery in the world

So far, Canada has had conservative guidance in its fiscal policy. Our Government debts have been quietly converted to lower interest rates as they mature rather than cut down by repudiatory methods. Private debts, where not frozen by moratoria, are being tackled by special legislation known as Creditors Arrangement Acts, originally applied to companies and now extended to farmers. Similar problems have been handled in a dozen different ways in

various countries in the past few years— sometimes with disastrous results, but usually with the same primary purpose, namely to restore equilibrium to a deranged world price mechanism.

What Canada may do toward this end in the future will doubtless be determined in part by the pressure of world conditions in the next few months. Though she can do little toward stemming what many feel to be a rising tide of world inflation, she can insist on clinging steadfastly to the one secret of her success so far, namely, ability to weave the priceless quality of confidence into her business and economic fabric.