ECONOMIC SITUATION.

New Zealand Herald, Volume LXI, Issue 18711, 17 May 1924, Page 12

ECONOMIC SITUATION.

LOCAL AND REMOTE FACTORS.

INTERPRETATION OF FACTS.

BANKING AND TRADE RETURNS. By J B. CONDLIFFE, Professor of Economics, Canterbury College* No. 1. In attempting to estimate the economic position of the Dominion and the prospects for the near future, business men must tike into account a wide variety of circumstances, affecting both the particular business in which they are interested and economic and financial conditions in general. The estimate finally made in the mind of a businss man is largely intuitive and sub-conscious. As one very J successful merchant expressed it the other day in conversation: " I don't know quite why, but I have a feeling that times are going to be bad." . _ . The circumstances of particular businesses vary so greatly that this almost intuitive judgment of a situation must always remain the most important final consideration in taking business decisions. But it ought to be clear that the successful business man is he who forms this judgment Upon sound impressions, who is not unduly influenced by stray, and unimportant considerations and opinion;, lightly prevailing, or _ by _is the general prevailing opinion of his associates in business. pooling of Knowledge. Concerning the particular circumstances that affect bis own business, no one should ever be such a good judge as the business man himself, and he rightly claims the prestige of the " practical expert " in such matters. Concerning the more remote but not less important influences that affect the whole economic situation— developments of overseas markets, public finance, banking, and monetary developments, the vagaries of foreign exchange, and of price-levels— business man as such has no particular claim to be regarded as an expert. It is, in fact generally the case that when he leaves his own partioular business and discusses the wider problems of industry as a whole he reveals himself as a theorist clinging to generalisations and ideas v the full significance of which he has not worked out. There is room therefore for another type of specialist who can devote himself to the broader, more universal forces that affect business, and can lay some claim to the title of "expert" in that sphere. There is no conflict between the practical business man and the economist if their work is regarded as complementary in this sense, but, on the other hand, each has something to give to and something to learn from the other. Seasonal Movements,

As an example of the dangers that often attend the interpretation of economic facts we may take the recently published returns of banking and of imports and exports for the March quarter, 1924. To take first the banking returns: The bare figures as published show what is undoubtedly • a favourable tendency which, under normal circumstances, would quite rightly bo interpreted as showing a return to a satisfactory state of economic health. Deposits had increased, advances had decreased, and the margin of deposits over advances was quite considerable once again. The tendency shown in the latter quarters of 1923 for increasing importation to cause a strain upon the banks' advances was apparently counteracted by the rise in the price of wool. The apparent recovery is well shown by the following table: —

Excess of Quarter. Dep. Adv. Dep. Aav Millions of £'s. March, 1922 . 40.8 46.5 — 6.2 June . . . . 41.4 46.1 — 4.7 September . . 42.0 48.0 — 1.0 December . . 41.1 43.4 — 2.3 March, 1923 . 43.4 42.5 .9 — June . . 45.7 41.7 4.0 — September . . 43.9 42.8 1.1 — December .. 42.8 46.2 — 8.4 Maroh, 1924 . 47.0 44.4 ' 2.6 —

Closer inspection of the table, however, discloses the fact that, if we except the abnormal year 1922, when the effects of tho slump were still heavy upon us, there is a natural seasonal recovery of the banking position in the March and June quarters, while the later quarters of the year bring strain once again. Obviously th© receipts from wool and most other forms of export produce are heaviest in the early quarters of the year and lighter toward December. - If there is going to be any over-importation and over-trading generally, it will almost always come to a head and strain the resources of the banks in th© last two quarters of the year.

Factors in Exchange. When exports (or Government borrowings) have been heavy so that credits have accumulated in the London balances of the banks, the bankers are naturally anxious to transfer their balances to New Zealand, fend therefore they fix the exchange rates so that they act as a direct encouragement to imports. The optimism created by a good export season does the rest, and heavier imports deplete the London balances of the banks and swell the total of bank advances in Now Zealand.

There has been, as far back as one has been able to investigate, a constant alternation of heavy exporting and heavy importing. This is, in fact, the chief way in which the economic cycle of good and bad trade manifests itself in New Zealand. As long as prices rose year after year and brought continuous prosperity to the Dominion, this alternation was not very serious, but whenever, as in 1908 and 1921, prices fell, a serious financial Stringency quickly developed. In the difficult circumstances that have followed the war, this periodic tendency toward over-importation is likely to carry with it far more serious consequences than merchants had to face before the war, and therefore it is of the utmost importance that, a purely temporary export recovery should not be allowed to lead to heavy Jimportations . which will arrive when the resources with which they were to be met have failed to materialise. The prudent merchant will shorten - his buying instead of extending it under such circumstances.

Early Export Season. There is good reason to believe that the recovery which is apparent in the March quarter banking returns is of such a temporary character. The swollen jfigures tor the March quarter are due in the main to certain quite abnormal factors. The high price of wool is, of course, well known; but it is not as generally known that the wool season, and the other export seasons also, were weeks ahead of the usual dates because of the exceptionally dry season, so that a much greater proportion of the wool clip than is usual lias gona into the March quarter returns. A return obtained from the Woolbrokers' Association shows that up till March 1. 1924, there were sold in the Dominion 57,000 bales more than were sold in the same period last year, the value of the excess sale being estimated as £1,4251,000. It is facts such as this which account for the favourable appearance of the banking returns for the March quarter.