4. Seasonal this country, with its un usually prominent agricultural and raw material in dustries, the sharply marked and extreme climate of our continental area causes the changes of the seasons to exercise an important influence over business and finance. The economic year begins with the Jan uary balance sheets which reveal many weak spots among industries. Failures are consequently heavy. It is a period of assured farmer's profits, with the gradual flow of money from the West to New York City. There is a large distribution of funds in the form of interest payments and dividends, and this causes a demand for investment securities. Building and business are below normal. Interest is low and stocks are low also. February and March see prep arations made for spring trade. Imports are large, building becomes active, railroad traffic increases, interest rates advance a bit and there are fewer fail ures. April finds building at a maximum. May is a month of reaction. Building declines and imports are less. Commodity prices decline, stocks and interest are low. June continues the reaction. Altho rail way earnings are large, bank exchanges are low. Commodity prices and security prices are the lowest of the year. July begins the crop movement which compensates for the slackening of building opera tions. Interest rises slightly. Railroad earnings de cline. Stocks are low but rising. Failures are few est of the year. August sees a further decline of building and finds clearings lowest of the year. How ever, there is some evidence of the coming fall boom. Railway earnings are above the average. Money flows Wrest. Interest rises and securities rise. Sep tember finds the moving of the crops in full swing. Railroad earnings are high; bank exchanges are ris ing; exports are large, and they are paid for partly by large gold imports. Interest rates are higher and stocks also are high. In October, the crop and mer chandise movement is at its maximum and railroad earnings reach their maximum. Bank clearings are very large. Interest moves up. Failures increase and commodity prices are rising. In November, oc curs the climax of the autumn boom. Clearings and railway earnings decrease, but interest rates and stocks advance. December sees the crop movement declining. Railroad earnings are less than in Oc tober and November. The holiday trade increases bank clearings, and the financial settlement character istic of the end of the year has the same effect. In terest is now at its maximum with money flowing from the West to New York. Stocks and bonds rise to their highest points.
It is necessary to correct most financial and trade statistics for seasonal fluctuations before the influence of the trade cycle can be clearly seen.
5. Underlying the ripples of the day or week, the monthly change of the seasonal adjustment and the larger changes of the trade cycle, are slowly operating forces which mark the gradual change from one epoch of business to another. The most important of these changes is the one due to normal growth. By reason of this growth the totals of all cumulative records are being increased slowly. as the country increases in population, wealth and productive power. Another underlying change, which has now been operating with marked force for fifteen years, is the decline in value of gold, and con sequently of money, with an attendant increase in the prices of most goods and services. A third cause of underlying change is the evolution of the arts and the invention of new goods and new productive proc esses, by which all industries are being steadily trans formed in character. While some of them are push ing forward into prominence, others are sinking into the background.
In preparing figures for the study of the cycle of trade, financial statisticians usually consider it neces sary to make a correction only for normal growth.
6. Cycle of remains to consider what has been referred to as the cycle of trade. In those countries which possess modern credit and financial machinery business passes continuously thru the phases of a succession of cycles. The use of the word cycle is meant to imply that there is a tendency to repeat a series of steps over and over again in the same order, in an analogous, tho not in an identical, manner. These steps, stated in the sim plest form, are: 1. A period of improvement and expansion.
'2. A period of over-development and speculation. :3. A crisis or reaction.
4. A depression or period of retrenchment, ending again in a period of improvement and expansion.
The steps are fully discussed in Babson's "Business Barometers Used in the Accumulation of Money." Adopting his nomenclature we can represent a trade cycle in the form of a diagram, somewhat resembling the face of a clock. The pointer moves continuously in the same direction as the hands of a clock. The places in the clock where we find the hours are repre sented here by a series of letters, the significance of which is given below the diagram.
7. Three investor is concerned pri marily with the market upon which securities are bought and sold. There are two other markets which exert an important influence upon this one. These are the money market and the market for goods pro duced by mercantile and manufacturing trades and the mining and agricultural industries. The various phases of the interaction of these markets upon each other constitute the cycle of trade. What occurs on any one of these markets cannot be understood with out examining the condition of the other two markets.
Business requires capital assets from the investor, and liquid funds from the banker. The investor de pends upon business management for the safety of his principal and the stability of his rate of income, but he finds both may be endangered by derangement of the market for liquid funds. The banker's funds are replenished from business profits, and his com mitments are successful if business maintains a due proportion of assets. He suffers if the investor does not do his part, and so forces him out of his proper field into that of capital investment.
8. Period of. improvement.—In a period of im provement, new courage and enterprise manifest them selves in the business world. In the recent past such periods, following upon depression and stagnation, have occurred_in the last quarter of 1904 and the first part of 1905, the second half of 1908 and the first half of 1909, the first half of 1912 and the first half of 1915. In such a period, the equipment industries sup plying the railroads with rails and cars and meeting the requirements of factory construction are among the first to become active. Building operations, which have been almost entirely suspended, now in crease rapidly, passing their average, and sometimes even setting new records. Pig-iron production in creases rapidly, while the prices of foundry grades still remain moderate. The unfilled orders of the United States Steel Corporation remain small, but earnings advance from the previous minimum. Com modity prices which have been low advance somewhat. Railway traffic is still small with a record of many idle cars. The improvement of conditions is revealed in the advance of bank clearings, which now come back to normal. Failures usually decline somewhat below the average. In short, business in this period is not large, but it is promising and it comes up from a state of depression to about normal.