Evening star. [volume] (Washington, D.C.) 1854-1972, 1957-09-08
Failure Rate
In Business
Is Watched

By SHIRLEY II. SCHEIBLA
The White Houses economic ad-
visers are keeping q close watch
on the rising rate Of business
failures across the Nation. They
do not feel that there is cause
for immediate alarm over the sit
uation--an increase Of 8.4 per cent
for the first seven months Of 1857
as compared to the same period
in 1856. But they see the rising
rate as q pulse point useful in
appraising the health Of the econ
orny generally.
Business failures for the first
seven months Of 1857 totaled g.
LAB compared with 1874 for the
first seven months Of 1856 and
6.487 for the corresponding period
Of 1855. There are more than
four and oTle-quarter million busi-
nesses In the Nation. Since the
number Of firms going into busi-
ness is increasing all the time, the
rising number Of failures is not as
alarming as it might seem with
out considering the number of
new businesses. But the rate is
also increasing, and that is what
mas the economists interested.
The Government economists at
tribute the increasing rate of
business Shutdowns to four main
factors: ID increased buyer re-
sistance; (2) the return Of tough
competition; CD SHINING profit
margins, and "a shifts in demand.
Adding up these factors, they
arrive at this conclusion about the
economy in general: While still
healthy, it is no longer booming.
In the lingo Of the analysts, It has
reached plateau which finds
some industries in dificulty and
increasing active jockeying for
competitive position among the
companies in any given industry.
On the basis of present infor-
nation, the economists are trying.
to predict the economic future as
q guide to administration policy.
They now expect business failures
to continue to rise for the rest of
this year, but not to the point
where general prosperity is threat
ened.
The Expectations
Specifically, they expect home
construction to improve q little
although the recent easing Of FILA
down payment requirements won't
bring q boom. They expect the
new model automobiles to attract
q fair but not spectacular number
OF buyers. And In the retail field.
they expect q continuing rise in
the proportion Of sales going to
chain stores, with resultant busi-
ness failures among small indie
pendents.
The Presidents Council Of Eco
nomic Advisors Is the agency
studying business failures most
intently. COther agencies working
on them include the Commerce
Department. Treasury Department
and the Small Business Admins
tration.)
CEA oficials say they believe
that the present rate Of business
failures. while not alarming, indi-
Gates that the economy today
could not stand any abrupt cessa-
ton OF defense spending such as
was made after the Korean war.
They are going on the assump-
ton, however. that q cold war does
not end abruptly like q hot one
and that any disarmament that
might be agreed upon would be
cautious and piecemeal. They feel
this would give only a series Of
small shocks from which the econ
omy could emerge in q basically
healthy condition.
Seek Potterns
In addition to studying the
overall picture, Federal econo-
mists are looking for patterns ard
trends in the statistics on busi-
ness failures. Although they have
been unable to turn up any re-
gional patterns in the failures.
here are some trends they have
| found:
COnStructi0n-For the first sew
en- months Of this year construc-
ton business failures were 22.5
per cent higher than for the cor
responding period of 1856. Sew
eral factors are said to be respon-
Sible for this rise. For one thing.
it signifies the end of the build
ing boom. For another, it shows
the effect Of the shift in con-
struction from residential to in
dustrial, commercial and highway
construction.
The majority of the failures
were small builders who were un-
able to shift from home building
to other types Of construction
where there was greater demand.
Small builders also were less able
to hold their houses very long
waiting for a sale.
Small firms - These always
make up the majority Of business
failures. Several new develop
ments are affecting the small bus
mess failures, however. Federal
economists say little companies
are having a tougher time under
present tight money" conditions.
In addition many Of them are
unable to meet the new product
competition which is emerging as
big factor these days. The small
firms simply cannot affoud the
research to bring out new prod
,ucts and the promotion to put
them across.
Another new development is
that small business now is getting
a smaller amount Of Government
defense business because Of a
change in the kinds Of items being
purchased. The Government is
buying more big items like mis-
siles, planes and ships. Small bus
mess can't supply these. and there
Is a limit to the amount Of sub