Evening star., 1927-08-22
ACTIVE BUSINESS
IN FALL FORECAST
Bank Group Cites "Money
and Crops" as Factors
In Estimate Outlined.

Banks of Chicago, in a comprehensive
report on The Trend of Business"
cite money and crops as two important
factors in the situation. The predic-
ton is made that business will be
active this Fall"
The aggregate money income Of the
American farmer this year will be
over twelve billion dollars, it is esti-
mated. This estimate, based on an
analysis Of this seasons crop pros
poets and price trends, is slightly
larger than the figure for last year.
1t clearly bespeaks good business.
Gross farm income for the year
ended July l, 1927, was AT per cent
smaller than in the preceding crop
year, but was 8.8 per cent larger than
the average of the five preceding
years. Our estimates in this publica-
ton for 1925 and 1926 have erred on
the side of conservatism. If anything.
we are Understanding the increase
in the farmers money income this
year.
The composite condition of all crops
is virtually the same as the 10year
average. Corn is the outstanding
| crop below normal. Hay is decidedly
above normal. Illinois shows the
| poorest crop condition and Montana
the best.
Wheat, Corn and Cotton.
The wheat crop should be some 20
| million bushels larger than last year
| Wheat growers should get at least
| 40 million dollars more for this crop
| than for last years
A poor corn crop stands out as the
| most unfavorable item in agricultural
| production. The price increase, how
| ever, should mean an increase of some
| so million dollars in the aggregate
value Of this short crop.
Cotton promises to run between IA
and Is million bales, against nearly
| IS million last year. The cotton situa-
ton is healthy both from the point Of
view of the planter and of the manu-
| facturer.
| Income from hogs is likely to be
some per cent smaller than last year.
| Beef cattle will continue profitable.
| The fruit grower is out of luck as
| to size of crop but higher prices will
| largely offset the crop shortage.
/ The big cotton crop last year-near-
| ly 100000 bales-was less profitable
| to cotton growers than the smaller
| previous crops, averaging 11,518.000
| bales for the five years preceding.
| But the 20 crop was a godsend to the
| textile industry of foreign countries,
especially England and Germany, as
we'll as to New England mills.
In the year ending June 80 the
| total export Of cotton, II, ,281 900 bales,
was 3171 900 bales, or 80 per cent,
more than in the preceding year. But
the total value, S660,000, 600, was S54,-
| 900, 900, or 6 per cent, less than the
smaller number of bales exported the
preceding year. Nineteen twenty
seven promises to be more profitable
| to cotton growers.
| We are inclined to view the present
| situation as promising 100000 to
| 14,500 900 bales. This, with the in
| creased carry-over of about 1000 900
from the previous crop year, gives a
| healthy situation, whether regarded
from the point of view Of producer or
| manufacturer.
| Money Tells Business Story.
For years rising prices accompa MED
business expansion and falling prices
| went along with business contraction
But last year and so far this year the
| price barometer has been a flop, for
| falling prices have accompanied a
record volume of business activity.
But money still tells the story of
business.
The simple formula is that tight
| money regularly precedes business de-
preston, while easy money either
| stimulates or sustains business activ-
ity. The only problem, then. in apply
| ing the formula, is to determine what
the state of the money market will be
| this Fall. To do this it is necessary
to analyze the three most important
| influences in the money market,
namely, gold, the discount and open
| market policies of the reserve banks,
| and the demand for funds.
| First as to gold. Everybody knows
that the United States has the largest
stock of monetary gold of any coun-
try in the world.
| The huge amount Of gold in the
| United States has made for relatively
low money rates and adequate credit
| during a period when business has
been extremely active. The old notion.
| still held by some business men, that
| easy money is a sign of poor business
| dates back to the time when it was
| often necessary to think in terms of
| gold deficits That money can be easy
| when business is active is explained
| largely by the magnitude of the pres
| ent gold surplus.
| The other conclusion to be drawn
from the gold statistics noted above is
| that the continued importation of gold
| has made for the continuation Of easy
| money. Indeed, gold holdings are now
| so large that a siZeable amount could
| flow out of the country in the course
| of foreign trade without causing any
marked tightening of money. But in
| the Fall exports Of merchandise-par
ticularlv wheat and cotton - usually
mean net importation Of gold.
Second Important Factor.
| The reduction in the rediscount rate
by the Kansas City Reserve Bank,
| followed by the st. Louis, New York,
| Boston and Cleveland Reserve Banks,
while made possible by the easy state
of the money market, was the cause
| Of extended newspaper comment.
| Since then the Dallas. Atlanta and
Richmond Reservs Banks have joined
| the procession. And the rate on
prime commercial paper in New
York-the best indicator of the condl-
ton Of money market-soon after the
first reductions declined to 3A to
per cent This decline was unsea-
sonal, just as 4 to 414 rate In May,
June and July had been unseasonaL
In August money should show signs
of becoming firmer, while from March
10 July it should ease off. SO COM
mercial paper rates aren't behaving
as they should. And the lowering of
rediscount rates is part of the story.
OF course, in the matter of redis-
counts member banks take the
initiative by offering eligible paper.
But by lowering the rediscount rate
at a period of the year when an in
crease in discountable paper is likely
to occur the reserve banks are able
to exert more than moral pressure.
Collateral evidence as to the prob
able strength of the commercial de-
mand for funds this Fall can be
found in a comparison of certain busi-
ness indices this year with the same
figures for last year. This evidence
has to do with trade, industrial pro-
duction. building and agriculture.