Evening star., 1939-01-01
|nventoriiesCut
To Best Point
In Many Years
Forward Buying Drops;
Activity Tied Closely
To Consumption
By Cambridge Associates.

" >Os'S0sss PNsOil
BY Cambridge Associates.
Regarded by many as one of the
prime causes of the 1878 recess
sion, excessive inventories appar-
emily will not be major disturbing
factor in the present recovery. So
far, speculative activity in commod-
tiles has been completely lacking,
despite the fact that armament de-
mands threaten a possible restric-
ton of supply.
Surplus conditions exist for most
agricultural commodities, which
makes for hand-to-mouth buying,
and as for other materials and sup
plies it is generally conceded that
they can be produced SO much more
rapidly than at any other time in
the previous recovery that there is
little cause for concern.
The spring of 1887 may we'll prove
to be historic in the record of in
ventories and prices. 1t marks the
possible conclusion of an era in
which violent fluctuations of prices
made it necessary for the average
businessman to be phenomenally
astute in the purchase of supplies
and in which inventory policy often
played dominant part in determln-
ing profits or losses. 1t will not be
forgotten that the keynote of de-
mands made on politicians in 1882
and 1888 was the restoration of the
pre-depression price level. Despite
the fact that this level has never
been reached, the great majority of
businessmen would be satisfied to-
day to build up volume at present
prices and count on mass-produc-
ton economies to effect profits.
Charges to Bear Traffic.
In the face of almost uncertain
recovery of volumes last fall, the
steel industry made an unprece-
dented move, reducing prices OF i'm
portant lines. This confirmed the
determination of important indus
trialists to make charges which
would bear traffic instead of charg-
ing what the traffic would bear. The
result has been favorable and it now
appears likely that other industries
will follow suit.
Inventory accumulation is almost
never the result Of attempts to in
crease the margin of profit under
present economic conditions. 1t is
generally undertaken to guard
against the hazard of having to re-
place supplies at higher cost. Sharp
fluctuations in prices of basic COM
modities stimulate this fear motive
and rush to stock up ahead of real
need intensifies the movement.
This is what happened in the latter
stages of the recovery which ter
minated in the early part of 1887.
Inventories Declining.
Since there is little prospect for
a sharp increase in prices Of agrl-
cultural commodities, industries
which depend on these have little to
fear in this direction. Their inven-
tories will be purchased as they
need them. And now that industries
producing basic commodities OF
other types are apparently deter
mined to hold their prices within
reasonable bounds, the fear motive
should not impel purchasing agents
to accumulate unwarranted in
ventories.
Throughout 1888 inventories were
declining and in the closing months
the movement was accelerated by
an increase in the movement of
goods at retail. 1t is estimated that
the average industrial company
reached the end of the year with 30
per cent less stock than was held
at the beginning Moreover, while
it is difficult to set normal level
for this index, it stood, at the close
of the year, near the average levels
of 1856, which in retrospect ap-
pears healthy in relation to the
volume of business. In order to
reach the scant proportions of 1882
d 4ul tllCl SollIi dStloAl VI etNONo ~
per cent would be necessary. At
that time, however, business was
hampered by lack of sufficient
supplies.
Looking forward into 1889, 1T
seems likely that the volume OF
business will depend almost wholly
on the rate of consumption, with
average inventories neither expand
ing nor contracting very much.
And if this is so, greater stability
in business levels is likely than has
obtained in the past several years.