Evening star., 1940-02-03
Drop in Business
Activity Expected
To Continue
inventories Kept Under
Control and Demand
Should Hold Up
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, Feb. 3.-During the
last month and more, readings on
the business barometer have been
falling. However, this Is not to be
taken as a general storm warning,
although passing squalls may be ex-
perienced in several individual lines,
observes the Standard Statistics Co.,
in current survey of business.
Underlying conditions are still too
favorable to permit major dis
turbance in business.
The decline In business activity,
which had been fully expected, has
been accentuated to some degree by
the unusually cold weather prevail
ing over most of the country during
recent weeks. Among the major
industries, retail automobile sales
have perhaps been most affected by
the inclement weather.
However more basic factors than
weather have been making them
selves felt. Most important among
these is the indication that produc-
ton in many lines is outstripping
not only new orders, but also actual
consumption. This is true, for ex-
ample, in the steel industry, the
metal fabricating trades and cotton
goods.
Curtailment Necessary.
The answer to a situation of this
sort is obviously a further lowering
of operating rates and cautious for
ward buying, implying that indus
trial activity, as a whole. will con-
tinue gently downhill at least dur
ing the remainder of the first
quarter.
The question recurring daily in
businessmen's minds is whether we
are in for collapse such as occurred
in 1887 after the short-lived inven-
tory boom. The answer would seem
to be no. In general, raw material
supplies have not reached excessive
heights. Many manufacturers are
carrying larger raw material stocks
than usual because of the special
conditions brought about by the war.
There are no indications that such
producers are in any hurry to use
or liquidate such stocks.
Latest estimates collected by the
Bureau of Agricultural Economics
show smaller year-to-year increases
in inventories than in sales of man
ufacturers, wholesalers and depart
ment stores. Thus, it is unlikely
that a long period of adjustment
will be necessary. A sudden de-
crease in consumer demand is not
expected. as employment and pay
rolls should not 60 into a nose dive.
Finished goods prices may start
edging higher now that supplies of
low-cost raw materials bought be-
fore the war squirt in commodity
prices are pretty well consumed.
Waiting Encouraged.
AS for commodity prices, weak
ness has encouraged waiting policies
on the part Of prospective pur-
chasers. With untitled orders dwin-
ding in many industries and gen.
eral business activity declining, the
current reaction in commodity
prices may carry somewhat further.
However, no bottomless pit yawns
beneath commodity prices.
A severe dislocatlon might result
from sudden peace, which is be-
coming less and less probable. The
more likely event is a continuation
of the war and a long-term infla-
tionary trend in commodity prices.
The recent softness in commodity
prices has carried many of them
down close to their pre-September
lows. Development of secondary
war boom could easily push up
prices substantially. Business man
agements realize this, and so any
frantic efforts to work down present
inventories of either raw materials
or finished goods is not to be looked
for.
Business activity may fall off
somewhat more in February, and
little change is expected in March
After that, the outlook is less clear,
as no one knows exactly what will
turn up in the way of war orders
Now that the Anglo-French Pur-
chasing Board has finally been set
up here. perhaps more orders, Ger
tainly better co-ordinated orders,
will be coming through from the
allies. Much will depend on the
intensity of the war in the spring.
1t would require relatively
drastic further decline in the spring
months to prevent industrial activity
for the first half from averaging
close to Is per cent above the first
half of 1889.
No~. VorL RrnL CA>-L~