INVESTMENT BAROMETERS 1. Gauging business conditions.—In the study of the cycle of trade it is necessary to select certain sta tistics which reveal money and banking conditions, business conditions, and investment conditions. These statistics are used as barometers and inferences are drawn from them about the conditions which can not be measured directly, or for which measurements are not available to the student.
Leading barometers for the measurement of busi ness conditions are those representing especial groups of industries, such as the crops, railroad statistics and statistics of the steel trade; those having to do with phases of general business, such as building opera tions, employment statistics and immigration; and comprehensive barometers of business such as com modity prices, bank clearings, statistics of imports and exports, and statistics of commercial failures.
For measuring the conditions of money and bank ing there may be mentioned interest rates, the quan tity of money in circulation, gold production, the im ports and exports of gold, the relation of bank loans to bank deposits and the ratio of cash reserves to loans and bank deposits.
Some barometers of the security market are the average price of selected lists of bonds, of railroad and industrial stocks, transactions on the New York Stock Exchange, and the amount of new securities is sued.
2. Crop statistics.—In all calculations of the fu ture movement of the security market, the crops are important. They affect the cost of living, the cost of labor, the cost of many raw materials entering into manufactures, the size of the exports of merchandise and the prosperity and purchasing power of the ru ral population. They affect the traffic of the rail ways, not only thru the direct crop movement, but in the return flow of merchandise purchased by farm ers. The railroads which have over 25 per cent of their total tonnage in the products of agriculture are the Atchison, the Chicago and Great Western, the Chicago, Rock Island and Pacific, the Minneapolis and St. Louis, the Texas Pacific and the Union Pa cific. The movement of the crops absorbs a great deal of bank credit during the fall and early winter months.
The effect of the crops upon the cost of living may be illustrated by the fluctuations of the index num ber compiled by the United States Bureau of Labor Statistics. It is based upon forty-eight food articles, and is given as a percentage, the average prices of being taken as 100. The statistics from 1900 to 1913 are as follows: The effect of crops upon the farmers' prosperity can probably be measured best by the annual figures compiled by the Department of Agriculture, giving the value of ten crops per acre. This figure repre
sents the average value of the produce of one acre combining ten crops—wheat, corn, oats, barley, rye, buckwheat, potatoes, hay, cotton and sweet potatoes. These crops include about 95 per cent of the total crop area of the country. The figures for recent years are : The influence of crop conditions upon the cost of doing business may be illustrated by examples com paring the fluctuations of raw materials with those of finished products. The illustrations chosen are wheat and flour, cotton and cotton textiles, and twenty pairs of raw materials and finished products. For each column 100 is the average price of 1890 1899.
It will be observed that the tendency of the prices of raw materials is to crowd upward toward the prices of finished products. In this way the gross convert ing profit or spread is gradually reduced. The nar rower this spread, the more disturbing become the fluctuations of raw material costs.
The gross amount of crop fluctuations in quantity and value may be illustrated for a few of the leading crops by a little tabulation.
The security market does not wait for the crop record. It discounts its effect, taking crop reports as its basis. The system of making comprehensive crop reports was inaugurated by the United States Department of Agriculture in 1866. These statis tics, which are carried along for several months for each important crop, and which give not only the fig ures for the country but figures for each state exert a great influence upon the market. They are given as percentages of the normal yield which may be ex pected if no change in the condition of the crop oc curs between the date of the report and harvest time. A normal yield means the yield a region would have if there were normal weather, and no unusual loss from disease, insects or other unfavorable influences. A normal yield is more than the average yield, but less than the maximum possible yield. The decline of the security market which is typical for May, June and July, is chiefly a process of discounting crop un certainty. The decisive effect exerted by a crop may be seen in the fact that 40 per cent of the yearly high or low records made by a long list of individual-listed stocks were in the months of November, December and January, after the year's crops became known. With crop report statistics and the current quota tions of futures, the student can form an estimate of the probable value of any crop of a state for the cur rent season.