The Evening Star FRIDAY, DECEMBER 21, 1928. WHY BUSINESS IS SLACK.

Evening Star, Issue 20055, 21 December 1928, Page 4

The Evening Star FRIDAY, DECEMBER 21, 1928. WHY BUSINESS IS SLACK.

i It is one thing for the cheerful econo- j mist or politician to point to certain j trade or banking statistics and assure us that vve have “turned the corner" j or reached the end of a slump. It is j quit© another thing for the community at largo to enjoy a plentiful supply of ready money and other actual conditions of prosperity. It is now some months since we were shown that exports not only balanced but considerably exceeded imports, that bank deposits were well ahead of advances, and that prices were again rising. But the ordinary business man has been only too conscious that trade has still remained very dull, labour lias still faced a constant danger of unemployment, and many other difficulties have by no means vanished. So it was quite incumbent upon the Canterbury Chamber of Commerce in their usual bulletin this month, issued in conjunction with the Economics Department of Canterbury College, to offer some explanation of this present state of affairs, as well as supply the latest figures. These, wo may note in passing, show that the excess of exports noted earlier in tho year has been well maintained. From Juno, 1927, to September, 1928, bank customers have paid into their accounts £3,800,000, plus £8,600,000 (excess of deposits), or £12,400,000 more than they have paid out. This amount represents, broadly, the favourable balance of the dominion’s payments during tho period, and it shows that the purchasing power is now held much more strongly than in 1926 or 1927, Yet there is general belief and considerable evidence that business activity in the dominion is very slow in responding to the greatly improved financial situation. Tho bulletin goes on to suggest that one reason is that the increased funds now available are being directed rather towards debt reduction and tho accumulation of reserves—that is, to the establishment of a sounder financial basis for private business in general—than to such immediate consumption as would increase local demand and stimulate internal business activity. To support this theory it is shown that at present in tho banks much larger sums than usual are being held on lixed deposit. At no time since 1920 during tho September quarter has tho percentage of freo to fixed deposits been so low as at present. Some part of the change may bo accounted for by differences in the inducements offered to place money on fixed deposit, but it is true also that when business confidence is high a greater proportion of deposits tends to bo kept on current account; but when confidence is low the proportion kept on fixed deposit tends to increase. Since tho top period of 1920 there has been a gradual drift towards conservatism till to-day, from being 219 per cent., free deposits are only 80 per cent of fixed deposits, the lowest position for twenty-five years. A largo amount of money is thus nob being invested in tho usual way. This accumulation may lead to increased competition for investments, cause thus a further decline in the bank rate of interest, and eventually stimulate borrowing and expansion in ordinary business ventures. Another sign that is pointed out is the increasing flow of New Zealand savings into Australian securities, particularly financial securities, which are apparently considered more attractive by many investors than those offered in the dominion. This means that part of our own savings that would normally be used for expansion and development at home are being sent overseas. Further, there has been a pronounced flow of investments into local body debentures, and the authors of the bulletin consider that “ part at least of the money so raised has been spent for purposes less productive than if devoted to the expansion of ordinary business.” There has also been a general turning away from mortgages on land, which for long was the most important single avenue of investment. “ Land speculation, overvaluation, over-borrowing, tho moratorium, marked changes in produce prices, uncertainty about future prices, high costs, narrow margins of profit—■ all have had their effect in breeding this distrust in the security of farm lands.” Though gradually a better feeling Is now beginning to prevail, the consequence to date has been that the fanning industry has not expanded as it might have done under healthier conditions. in burn the farmers’ demands for other commodities has been similarly affected, especially those not saleable outside the dominion, and it is pointed out that as long as farms fail to attract sufficient capital for normal expansion then industry must continue to stagnate, and depression and unemployment continue. A reduction of costs bringing about a great margin of profit would show up faming in a more favourable light. However, tho bulletin is able in conclusion to show certain definite signs of improvement in business activity. Dairy produce figures to date are higher than usual, as are prices compared with the same period last year; beef and lamb exports are well ahead of the usual, and even the wool clip seems to be on the increase. Again, coastwise shipping freights, also railway freights, for the first nine months of the year show » satisfactory increase. Tho returns showing the bank note issue indicate a recent increased circulation of both cash and credit. And the expansion of imports during the September quarter shows that an increased tkrnand is being felt, as goods are nob at present likely to bo ordered otherwise. Such signs as these are considered to point the way towards the rapid resumption of normal conditions of nrosneritv.