The Bismarck Tribune Newspaper, December 31, 1937, Page 2

Babson Predicts Business Will B THE BISMARCK TRIBUNE. FRIDAY, DECEMBER 31. 1987 Rural Outlook Is Fair, Declares — Noted Economist Sees National Income Slightly Under 1937, Waning of Labor’s Power, Lower Retail Prices, Stock Revival, Inflation By ROGER W. BABSON Babson Park, Massachusetts, Dec. 31, 1987.—We are not entering a major depression; 1938 will see a resumption of the upward trend which began in 1933. The first quarter may be poor—much worse than the early months of 1937; but later in the year I look for a substantial revival. this current sharp recession with a major depression! Do not confuse Pay- rolls, prices, stocks, real estate, and jobs should all be on their way to new highs by the end of 1938. This December presents a tremendous contrast with a year ago. Then, the old year was riding into the history books on a great wave of optimism and hope. “Good times” lay over the horizon of 1937. The dark years of 1929-1935 were drowned out in a hurricane of wage boosts, dividend extras, and gigantic Christmas trade. be the first year of real prosperity since 1929 . My forecast at that time was: “1937 will + The entire year's gain should average seven to eight per cent above 1936. Prosperity did come. Business did average 7 per cent above 1936. This past August the Basonchart stood at 8 per cent above normal, higher than it had been for seven years. But af- ter Labor Day the squall, which had been brewing all year, suddenly struck. High taxes, political muddling, labor agitation, and thin stock markets cre- ated a tornado of distrust and fear. The result has been one of the sharp- est business declines on record. The Babsonchart is now 19 per cent below normal, ‘The current gloom will continue to hurt business during the early months of 1938. But while activity will aver- age at least 15 per cent below the first quarter of 1937, it should not fall muck below current levels. During this dis- couraging period the base for a re- sumption of the upward trend will be laid. The spring rally in 1938 will be much stronger than seasonal. Good 1938 Trend By next Fourth of July, business should have recovered from a third to a half of its late 1937 loss, The re- vival will pick up momentum during the second half. How far it will go, it is, of course, impossible to say now. Nevertheless, as a long shot, it would not surprise me if the 1937 peaks were equalled before next Christmas. Because of the poor first quarter of the new year, the average of general business for 1938, however, will be Slightly under — roughly 10 per cent below—the average for 1937. The im- portant point next year is the trend. A poor start (but not much lower than LOGAN’S “We Thank You” 118 Third Street current levels), an improving second quarter, and then a sharp upward surge during the final four of five months is my idea of the 1938 business pattern. Business Needs ‘Relief’ In making these estimates I am counting on co-operation from Wask- ington. A year ago my optimism for, 1937 was tempered by the labor issue. I said: “If this issue (labor) is not, | handled properly, business could re- jceive a very rude setback.” Now I am tempering my 1938 optimism by saying that congress must co-operate with business or this present slump cotld continue for some time. Many of our current troubles come from fear and distrust. They are largely psychological, Congress today must treat business as a doctor should treat a neurotic patient. Scolding, harsh diets, enemas, and the like are “out.” A few sugar-coated pills in the garb of kind words and a complete rest from new laws is the prescription which congress must write for busi- ness. Congress Will Help will move upward somewhat from Present quotations. Farm Outlook Fair Nineteen hundred thirty-eight will see sharper control over cotton, corn, and wheat acreage. Prices will end the new year well above today’s levels. Without a crop failure, however, pres: ent carry-overs are 80 large that they can prevent any wild boom in quota- tions, Moreover, I expect to see further drop in beef, hog, and lamb prices. Butter, milk, eggs, and poultry also will be cheaper next year, due to lower feed costs. It would be foolhardy to attempt any fixed forecast of farm income. Barring crop disasters, however, my estimate is for total agricultural re- ceipts next year to drop 5 to 10 per cent under the 1937 figures. Profits are also going to average below those for this past year. The goods which farmers must buy will not be much cheaper than.they were in 1937, while! farm prices will actually average lower than they have during the past 12 months, Because of the above situation, farm land values will show I am confident, too, that Doctor Congress will help his patient. No one is quite so shrewd an appraiser of public sentiment as the average con- gressman. When he has his “ears to the ground,” he is as keen as a robin hopping about a lawn listening for worms, The solons were home for sev- eral months this fall, getting their constituents’ reaction to “reform legislation. So with every congress- man and every third senator for re- election this coming autumn, I believe that business will be given the psycho- logical relief that it needs from Cap- itol Hill, The biggest aids could be tax re- vision and a utility “armistice.” The undistributed profits tax will be thrown out in everything except name. New tax measures will be passed, easing up on capital gains levies and perhaps cutting down on the high in- come bracket. A lot of talk will be heard about a general sales tax, but it will not be passed. Extending the in- come tax into lower brackets will be I look for a truce between the gov- ernment and the utilities. farm control legislation will be passed, con- tinuing the huge federal farm outlays. Wage and hour legislation my go on pease ri but in g milder form proposed. The presi- dent will get only crumbs from his government ‘reorganization proposal. Generally speaking, the marital status of Mr, Roosevelt and his big Demo- cratic. congress will reach the legal separation stage—Just short of Reno divorce proceedings. The increase in unemployment re- lief and new pump-priming measures will keep public expenditures at a high leyel.. Budget: balancing cannot now be hoped for until the end of the 1939- 40 fiscal year at the earliest. Hence, the trend of the past five years toward inflation will continue. It is vital that everybody remember this, Just because inflation is not making head- lines now, do not conclude that it is not making headway. Inflation is the biggest factor in the long-pull business and investment outlook today! Prices to Increase Inflation is not simply a. domestic issue. It is a world wile influence. It is one of the reasons-why I look for some increase in prices in 1998, The sharp drop in both farm and industrial commodities since August makes it easy to forecast the trend next year, Sensitive commodi- ties shoild begin their rise some weeks before business. They are at, or close to, their bottom now, But I doubt if the 1937. commodity price peaks will be broken next year. In fact, next December an index of 174 raw and finished materials should average only around 5 per cent. above the current level. Industrial commodity prices will be the strong- est. Farm. products prices do not promise as: much action, the rise will be’ non-ferrous metals, steel scrap, and hides. The readjustment between supply and demand is quick- er in these industrial materials than it is in farm products. But the latter HAPPY NEW YEAR from your friends at Montana-Dakota Utilities Co. BIEMARCE — MANDAN — HEBRON — DICKINSON . little change for the year. Wages and Strikes? workers, after getting away to a poor start, should have a fair year. During the first few months unemployment will be serious. Hundreds of factories have slowed down or closed completely. There are probably a million more jobless since last Labor day. But the unions are clinging to their wage desperately as an antique d @ family heirloom. Despite poor ness in the first quarter, I do foresee any material change in in- dustrial wage rates next year—cer- tainly none on the upside. One of the features of 1938 will be a sharp decline in labor's influence. After a year of almost constant bick- ering and turmoil, workers will quiet down. The labor cycle has passed its peak. Just as 1936 saw the zenith of the high-grade bond market, so 1937 witnessed the pinnacle of labor's power for this cycle. The reaction of the public and the current slump in business have given the labor move- ment a rude set-back. More Jobs in Fall Employment will improve as 1938 works along, but should average less than in 1987, The reason? First, business activity opens the year 23 per cent below last January. Second, la- bor-saving mechinery is being install- ed everywhere. Third, the railroads will employ less workers. Finally, “merit rating” systems in state unem- ployment insurance laws will militate against hiring temporary help. Hence, by next December, the number of job- less should total about 6,000,000 against 6,500,000 now and 5,500,000 at the 1937 business peak. Taken as a whole, 1936 will not be as good a year for salesmen, mer- chants, and advertising people as 1937. Things are pretty slow right now and will continue poor into 1938. How- ever, as the months tick away, the re- sistance clouds should blow off and by late next year the seller's market should be on the way back. Then ad- vertising linage will have another surge and commission checks will again bulge. © The 1937 national in- come—estimated at $70,000,000,000— will not quite be equalled despite 1988's strong second-half sprint. Retail Sales, Living Costs Lower The national income roughly deter- to drop until after business has begun, to retrace its steps late next spring. Sometime next year, however, home building should again be humming along. The 1937 peak may even be topped so that the average volume of new homes for the new year could be above last year’s level. The new gov- ernment housing program could also give the industry a big lift. It is even possible that the home building boom which I really expected to develop in 1937 will start late this coming year. Real Estate More Active Private non-residential construc- tion, on the other hand, will be lower. I now see little incentive for new plant expansion next year. Public utility work, however, may take up the slack caused by PWA pulling in its horns on public works projects, A decline in building costs should hélp volume in the early months; but before 1938 closes costs will reverse their field Hull have done more for world re- lations in the last five years than all the international peace conferences of the past two decades! In spite of terrific pressure from groups at home, the state department has pushed steadily ahead with its trade agree- ments. They have negotiated sixteen treaties and are now working on the most important of all—with Great Britain. Vast amounts of data have ben culled over and the treaties have had as their sound goal “the most good for the biggest number.” World Trade Outlook As a result, our siiare of foreign commerce has shown a much sharper increase than that of the world at large. In 1937, for instance, our ex- ports and imports were 34 per cent higher than in 1936, while total world trade was up only 25 per cent. This year there should be modest gains in overseas commerce, but the rate of increase will slow up. I expect that again and be on their way to a new ak. * PrThese higher costs will help real estate values, New home prices, which are now being shaded here and there, will strengthen. However, I hold little hope for an increase in old house values, barring drastic infla- tion. Good vacant property and mod- est well-laid-out modern homes are among the best investments a person can make today. For that reason I feel that 1998 is going to be a good year for realty men—with a slow start and an active finish. ‘Stocks to Rally This same rough plan should also makes little difference whether they do or do not, for good stocks at cur- rent prices, in my opinion, offer ex- cellent profit opportunities. : Furthermore, while selection will again be important, diversification will be the vital point in 1938. Some groups will, of course, do better than others. If I,had to guess the out- standing industries of 1938 from a market standpoint, I would pick the metals, oils, building materials, air- craft makers, steels, chemicals, elec- trical equipments and mail orders. investors The bond market will be influenced more by business in 1938 than it has been during late years. Medium grades have registered a terrific drop! this fall and I look for price in- creases in this group to feature the bond market in 1938. Gilt-edge issues are down much less medium grades. i ‘This situation offers a good oppor- tunity to make a few trades to im- prove yields and increase profit pos- sibilities, I make this statement for | , I believe that the long-term trend of high-grade bond prices is definitely downward, bonds should be a -better purchase for the next few months than senior obligations, ‘When money rates start rising, high-grade bond values sre going to filter away slowly. ‘Trend Toward World Inflation One of the major reasons why I .}am so confident that higher money rates are inevitable is the world out- than mee) Sound medium-grade, Scandinavia, South America, Great Britain and her Dominions will again be our best markets. International relations will not im- prove noticeably in 1938. I think that gangster diplomacy will continue in vogue for another year at least. But I am convinced from my trip abroad this fall that 1938 will see no general war. I am not very hopeful over the long-term future, however. A bitter conflict seems inevitable unless a new Christmas spirit invades the hearts of men all over the world. Great Today ‘The above is a good outline of what I feel readers can expect in 1938. We |. have come over a long hard road look, None of the major nations and few of the minor powers are today operating on a balanced budget. Bil- lions of borrowed dollars, yens, marks, ort {and francs are being spent in mad Bol ins cy inhe armament race, National currencies ate destined to become steadily cheaper in terms of goods. Further- It_ and Secretary GOLDEN WEST LAUNDRY (Mandan) It is our sincere wish that each moment of the New Year be happier and bet- ter to you and yours, Otto Dirlam 218 Main Phone 251 . \° Steaks, Fish; Fowl They’ve nothing to do with the New Year, except in- directly. They’re the kind of things that will give the youngster some backbone— pull him through the tough spots. Practical that’s us. But pretty pleased, never- - theless, at a chance to say Happy New Year to you all. Central Meat Market. ‘M3 Fitth st. Bilemarek, N, Dak, — Phone 143 since 1933, I am confident that we are not going back to those depths this year! America is suffering just now from an attack of business in- digestion complicated by a severe case lof jitters, The ups-and-downs of growing business seem to have been deeper rather than shallower dur- ing the past ten years, , This is jeause the country is swept by suc- ceeding waves of emotional distrust land confidence, due to a weaker spir- itual foundation. Just as in the fall of 1937 optimism changed overnight into black pes- simism, so the current gloom can be transformed into confidence again by the I believe that there are now some wonderful buying opportunities. Stocks and bonds, homes SHARK’S suit and overcoat | CLEARANCE starts Monday. of a pen. For that reason, and fur- OUR CAPABLE STAFF of crag CONVERT man apne ’ ounce Back in 1938 A bat, with its eyes covered by ta) cam oti catch fnssots in maid-cir, a SHARK’S suit and overcoat CLEARANCE starts Monday. ' a ae mae ean you for your patronage. May we continue to serve you in 1938. Bar-B-Q-Lunch 618 Bawy. Phone 301 We take this means of express- ing to you our sincere good wishes for the coming year. It has been a pleasure to be of service to you during the year now closing, and we trust we have served in a man- ner to deserve your continued patronage and good will. - May the New Year bring you all the joys of a happy life. Dakota National Bank and Trust Company Bismarck, N. D. Affiliated with the Northwest Bancorporation Member FDIC ~ TO ONE AND ALL FROM H. A. Thompson & Sons of nearly three decades. skilled’ workmanship by The opening of the the year 1988 marks the advent of our 30th year of continuous business in-Bismarck.- Thys our wish for your prosperity and health during 1988 comes from one of Bismarck’s pioneer institutions, one which has stood the test We resolve to continue to sell quality merchandise and “men who know how.” VISIT OUR NEW SHOW ROOM! TO BETTER SERVE YOU DURING 1938 AND THE YEARS TO COME, WE HAVE JUST BUILT A MODERN NEW OF- FICE AND SHOW ROOM ON THE SITE OF OUR FORMER BUINESS HOME AT 205 SEVENTH §T. THE NEW BUILD- ING WILL ENABLE US TO EVEN IMPROVE OUR.SERVICE OF THE PAST, AND WE. EXTEND A CORDIAL INVITA- TION TO THE GENERAL PUBLIC TO PAY US A VISIT IN THE NEAR FUTURE TO INSPECT OUR NEW PROPERTY. H. A. Thompson & Sons Plumbing - Heating - Gas Fitting - Air Conditioning Headquarters for YORK Air-Conditioning and Commercial Refrigeration We stock only the highest grade materials, including Standard Sanitary Plumbing Fixtures, Amer- LaFrance Fire-Fighting Equipment, Etc. 205 Seventh St. ' Telephone 64