January 2, 2010

Year in review (2) Jan. 2, 1931

No Journal was published Friday, Jan. 2, 1931 following New Year's Day. More year-in-review: assorted opinions and forecasts from business leaders and authorities (some repeated from 12/30 and 12/31).

Note: For your convenience, I've marked the ones that are at least moderately pessimistic with [***] - almost all of these still anticipate a recovery sometime in 1931.

Industrial executives:

G. Swope, GE pres., says expects electrical mfg. industry in 1931 should be somewhat better than 1930.

R. Duepree, Procter & Gamble pres.: From history of previous depressions, believes “we must be very close to, if not actually in, a turning point.” Production has exceeded consumption in 1930, and inventories are now low; other good factors for business include low interest rates, low material costs, and increased efficiency

A. Sloan, GM pres.,: 1931 should be met with different approach, "new ideas, new measures, new confidence and new hope ... if our attitude towards the new problems of the new year is constructive, rather than critical, we shall make greater progress in 1931 than we did in 1930."

W. Chrysler estimates 1931 auto production at 4M cars vs. 3.5M in 1930; estimates inventories 35%-40% below a year ago; increased consumption of gasoline shows people have been using up cars and postponing normal replacements; “year just ending has been one of intense preparation for a business revival” that will demand larger volume of production and reward those developing new ideas and better values.

J. Scoville, Chrysler statistician, sees recovery to normal auto production by about Sept., 1931.

W. Teagle, Standard Oil NJ pres.: Cooperation by oil industry will help deal with problems more effectively. Points to sizable reduction in production and inventories during the year; if not for self-regulation producers could have doubled 1929 production. However, sizable additional curtailment needed by refineries.

E. Thomas, US Steel VP: Past pattern of steel industry is two excellent years to one moderate year. Future outlook promising, financial situation stronger than in previous depressions. Temporary restriction in demand leads to accumulated future needs.

E. Weir, Nat'l Steel chair.: Sees 1931 steel production considerably above 1930, general business closer to normal.

S. Ker, Sharon Steel pres., sees steel plants much better employed by mid-first quarter, gradual uptrend in general business in 1931.

[ *** ] Pres. Pelley of New Haven RR: Sees early part of the year probably continuing at low levels, but gradually improving trend leading to definite upturn sometime during the year. Cites very easy money, commodity price stabilization, consumption catching up with production.

M. Friedsam, B. Altman pres.: The boom had accumulated “many evils of extravagance and carelessness” than needed to be eliminated; unfortunately the “cleansing process” of the past year was too drastic, leading to some greater evils. However, “business in general is now in a good position to begin reconstruction, and ... will now start things moving in the right direction.”

D. Knott, Knott Hotels chair.: Currently unable to get normal delivery on large orders, indicating inventories are too low; “the law of demand itself is about ready to put an end to this unnatural economic condition ... It is inevitable that times are going to be better, and that the change is right upon us.”

[ *** ] N. Carlton, Western Union pres., says 1931 may be “very disappointing business year” based on usually accurate barometer of Western Union business, currently 15% below 1929. “ The headache following the late financial spree is far from over ... many inefficient and over expanded businesses which grew like mushrooms in the boom times remain to be liquidated.” The very form of the US govt. is endangered if we put too much of the burden on those least able to withstand the effects of reduced income and unemployment.

Financial executives:

[ *** ] L. Pierson, Irving Trust chair.: business fundamentals sound, but sees slow and irregular recovery; depression may not reach bottom before spring and may persist through 1931.

B. Smith of Cleveland Trust presented new forecasting index to Amer. Statistical Org. annual meeting. Index has been tested over past 30 years and has forecasted conditions a year in advance about as accurately as statistical measures taken in real time; it now indicates an upturn in US business is to be expected shortly (index combines interest rates, bond flotations, gold movements, and rapidity of change in stock and bond prices).

L Harriman, M&T Trust of Buffalo pres., says most drastic readjustments already accomplished; many products are selling below average cost of production, a situation that can't continue indefinitely. Remarkable number of corporations have maintained profits in spite of depression and are financially strong.

L. Wakefield, First National Bank pres., sees country working itself out of depression; “I am sure we can look forward to steady business improvement ... The greatest danger ... is that we may be drawn to unsound economics schemes” or cure-alls.

Central Trust of Illinois Jan. digest: Sees improvement slight early in 1931, unmistakable by end of winter. Smaller inventories of finished goods should improve demand for goods next year and “should mean a volume gain for 1931 almost equal to the volume loss for 1930.” Agriculture has good outlook for 1931.

Union Trust of Cleveland: “Financial situation contains the promise of better times ahead, just as do manufacturing and distribution.” Easy credit should prove real aid to business recovery. Recent decline in high-grade bonds unjustified.

Business associations:

P. Weld, NY Cotton Exchange pres., notes past year's oversupply and drastic price decline, but strongly believes this will be corrected by lower production and increased consumption, leading to price recovery.

J. Smull, NY State Chamber of Commerce pres.: “Tribulations of 1930” will exert influence on the new year; nevertheless, believes “1931 will develop into a year of great constructive effort ... which eventually will bring a safer, happier, and more lasting prosperity than we have enjoyed before.”

W. Booth, Merchants' Assoc. of NY pres.: US is resilient: “give us an orderly stock market and a fair prospect of business and we instantly forget the terrors of the past.” Sees banking situation being rapidly cleared up, possibility of returning to 1927-1928 level of business even before world recovers.

Assorted economists and blatherers:

[ *** ] Sir Josiah Stamp sees recovery in US before Europe; recovery unlikely to start before April, will start weakly and not gain momentum until 1932. Sees some 18 valid causes for the depression; immediate cause was overspeculation on NYSE, next was overproduction of raw materials, but an underlying problem has been the limited quantity of gold compared to production volumes. Calls for continued easy money, govt. economy and balanced budgets, assault on gold problem, and avoiding new Stock Exchange boom.

Harvard Economic Society: Based on historical pattern, commodity prices are unlikely to improve until after general business upturn.

Hornblower & Weeks: “The closing price levels of 1930, taken by and large, offer investment opportunities which will probably be considered the bargain prices of the coming decade.” At previous short-lived bottoms in Nov. 1929, June 1930, and Nov. 1930, dividend yields on high-grade stocks were still relatively low; now, out of a total of 853 common stocks listed on the NYSE, only 42 yield less than 5%.

[ *** ] Abreast of the Market column: Past year's depression has been much worse than predicted a year ago. Commodity prices, industrial activity, and earnings all declined much more than expected. “The deflation has been most complete.” Companies able to weather the storm should be in good position to benefit immediately from any upturn. Most industrial leaders expect considerable improvement in 1931, though possibly not until the second half.


Commerce Sec. Lamont: Elements of recession appears to have “spent most of their force” based on slowing of downtrend toward end of year. Industrial production is down about 20% off peak but only 13% from 1928; trade has fallen 25%-30% in value but only 15%-20% in volume; factory employment fell about 15% but this is much less than in previous depressions. Encouraged by resilience in consumer buying, with value of retail sales only down 7%-10% from 1929. Appear to be in phase similar to recovery from previous depressions where savings are rebuilt and goods are wearing out. “While it is impossible to forecast at what time unmistakable evidence of improvement in business will occur, it is clear that we have reached a point where cessation of further declines and beginning of recovery may reasonably be expected.”

[ *** ] Dr. J. Klein, Asst. Commerce Sec.: European unemployed may exceed 7.5M by Feb.; unless ranks of unemployed decline “we may expect recurrences of political instability.”

[ *** ] C. Snyder of Fed. Reserve NY: Contrary to “phantasies of a 'new era' of unending prosperity so widely prevalent but little more than a year ago,” it's clear that the business cycle is still with us “in all its force.” Nov. was lowest point in the depression, with about the same decline from normal levels as in previous crises including 1921, 1907, 1893, etc. However, while not most severe, depression is clearly most world-wide on record. Part of cause must be accumulation of 2/3 of world's monetary gold in US and France. Disagrees with belief overproduction was cause of price declines, since commodities with no unusual production increases have declined along with those that seemed over-expanded.

1 comment:

  1. Stock Tips European unemployed may exceed 7.5M by Feb.; unless ranks of unemployed decline “we may expect recurrences of political instability.” Stock Market