Review of the Second Quarter of 1934

Abstract

BUSINESS during the second quarter of I934 was more active than during the first. Dollar volumes continued to expand at a rate very like that of the first quarter, and Curve B of our Index of General Economic Conditions (page I53) rose in June above the previous high point reached in July a year ago. June, however, brought a greater-than-seasonal decline in manufacturing activity and employment, while during the quarter speculative activity decreased, with a moderate dedine in stock prices. The extreme ease in money conditions was unbroken. Despite fairly good business performance, business sentiment continued unsettled. Returns were being compared with those when business was showing rapid advance a year earlier, and the period of seasonal slackening after the spring peak was regarded with apprehension. Long discussion of the control of the stock exchanges, which involved many matters affecting business transactions generally, was disturbing. The unfavorable aspects of certain of the government measures concerning business were being increasingly brought to light, and some of the economic developments of the quarter increased the uncertainties under which business was operating. Of the unfavorable factors, severe drought in the farming regions was one of the most important. It was clearly recognized that preexisting surpluses of certain farm products did not counterbalance a loss in crops which meant the destruction of income for a great many individual farmers. The railroads and certain other industries dependent upon the volume of agricultural production to be marketed will obviously be adversely influenced, and an additional burden was .put upon the federal finances by the necessity of relief. A second disturbing element was the multiplication of strikes and threats to strike. This is a usual concomitant of business recovery, but was clearly aggravated by the extent to which relations between employer and employee had been affected by the recovery measures. A third element, to become of greater moment after the end of the quarter, was the evident deterioration in the situation abroad, particularly in its political aspects. Developments in important European countries are reviewed in a later section of this article. The only important further extension of federal control over economic processes came in the Securities Exchange Act, certain provisions of which went into force on July i. This act was the product of prolonged consideration; and whatever its merits or demerits may ultimately prove to be, there can be no doubt that the discussion exerted a depressing effect upon the market. Further attempts to expand credit were made in the housing act and the legislation adopted relating to loans by the Reconstruction Finance Corporation and the reserve banks. The so-called Frazier-Lemke act, on the other hand, providing for a moratorium of farm debts under certain conditions, seems sure to increase the difficulties of extension of private credit to agriculture. The Silver Purchase Act operates to expand the amount of silver certificates in circulation and thus to displace reserve notes with this form of currency. On the whole, developments during the quarter were in the direction of modifying certain governmental measures which were admittedly producing untoward results in business. The amendments to the Securities Act of I933 were the most important of such measures, and give promise of putting to an end the prolonged stagnation of security flotations which has had such serious effects upon activity and employment in the heavy industries. In the administration of the National Industrial Recovery Act, the suspension of the service codes, and the decision to abandon price-fixing in new codes and reconsider such provisions in those already operating, clearly look in the direction of less rigid control. Corporate statements for the second quarter reveal the increased costs attributable in large measure to the introduction of the codes, and suggest that such increased costs probably affect the bulk of goods now being produced. There appeared during the quarter, moreover, an increased tendency toward similarity in fluctuations of manufacture, employment, and pay rolls, indicating that changes in hours and wages attributable to the codes had probably produced their maximum result.