BUSINESS FORECASTING

By Lewis H. Haney 1903. Boston: Ginn & Company, 1931. pp. xiv, 378.

Much has been said and written against business forecasting. To be sure, ample grounds for such criticism have existed and the effect has been wholesome. The boom in business and the security markets not only created a lucrative field for a mushroom growth of prognosticators of all sorts, but caused most forecasters to lose their sense of balance. So-called fundamentals were lost sight of or were thrown overboard and replaced with"new era" principles. Indeed, it was extremely difficult for anyone to resist the influence of the "new era" philosophy; just as it is hard to see now how anyone could have fallen prey to such ideas. But the important fact is that much has been learned, if only it is not too quickly forgotten when good times heal the wounds. Business forecasting has been purged of much of its unhealthy development, and like most business, is doing serious thinking. Dr. Haney's book is evidence of this and that the study of business forecasting is making progress in the development of a distinct scientific method and of a body of practically applied principles.

The first five chapters contain a compact discussion of the more elementary aspects of normality, statistical method, and the more familiar series of business measurements. Thereafter follow several chapters on the business cycle. The causal factors are summarized briefly; emphasis being placed on the forces of human nature, price momentum, profits, credit, invention, errors of judgment, and over-expansion of plant in generating maladjustments. The latter are to Haney the outstanding features of cyclical disturbances. The reader is warned against reliance upon purely mechanical sequences and mathematical projections in approaching the problem of forecasting. Attention is directed to the significant relationships among various economic factors capable of measurement and to the problem of judging accurately the phase of the cycle in which current business finds itself.

The two chapters on forecasting general business trends are followed by a presentation of methods valuable in dealing with special" cases, such as individual industries, illustrated by iron and steel, sugar, copper, cotton, silk, wool; also for interest rates, building, automobile production, commodity prices, and retail trade. The last three chapters discuss the forecasting of the major and intermediate movements in the stock market.

Dr. Haney emphasizes the need for discriminating analysis of adjustment and maladjustment among the many complex forces operating in the intricate mechanism we call business, rather than reliance upon any single factor, if business forecasting is to achieve effective results. In examining these forces he pays very little attention to their international ramifications and seems to consider the role of agriculture to be of only incidental importance. The business processes and the economic factors which constitute the basis of his discussion are those of the United States, as is also the illustrative material. This may be quite adequate in dealing with depressions (or recessions) such as occurred in 1924 and 1927, but it is difficult to see how the major cycle which culminated in the 1930-32 depression could have been forecasted or can be interpreted without going beyond our own borders in analysing the operation of vital economic forces. Influences from abroad—financial, commercial, and agricultural—are certainly bringing greater pressure upon our affairs and will surely influence their future course. With the current economic conditions of the country so intimately tied up with, and the outgrowth of, forces that have not respected national boundaries in their origin or their operation, the reader of Dr. Haney's book will lay it, down with the feeling that a broader approach is needed to satisfy the craving for an understanding of the major ecconomic convulsions of history, especially the present one.

The danger of reliance upon any one factor in business forecasting is well brought out in Dr. Haney's criticism of the part played by cheap money in bringing recovery and dear money, recession. He points to the events of 1929 and 1930. At the top of a boom the internal momentum of speculation and security distribution can prolong the rise for quite some time after money rates have reached dangerous heights. Furthermore, as was well demonstrated in 1930 and 1931, cheap money may for a long time be the symptom of general prostration and the existence of unliquidated conditions. When really severe declines take place in certain parts of our price structure, such as commodities and listed securities, readjustments must then follow in its other branches, such as wages, salaries, real estate values, etc. In the face of such a broad revaluation of incomes and assets, cheap money cannot be counted upon to bring recovery. In the opinion of Dr. Haney money and credit conditions are primarily resultants of the business complex rather than motivating factors. The latter are numerous and vary from time to time.

In chapter VIII Dr. Haney presents for the first time a comprehensive discussion of his P/V line. In the opinion of the reviewer this chapter adds little if anything to the book. To many readers the prolonged explanations of demand and supply and their varying relationships will not only be confusing but will certainly leave the impression that the author also is left somewhat tangled. The ratio of average prices to production volume is valuable as a sensitive indicator of maladjustment, but it rests on the imperfectly established assumption that commodity prices are always sensitive in preceding the broad movements of production. It hardly provides, a priori, a dependable all-around forecasting instrument. If the line is valid, it should be tested over the years prior to 1921 and its relation to important series set forth clearly.

If discriminating analysis of various critical relationships is the correct method of obtaining accurate conclusions regarding the future trend of business or prices, then each of these analyses must be made as clear-cut as possible. More definite quantitative degree and probable time intervals must be determined. It cannot be said that this has been done systematically in this book. However, for the lay reader the relationships presented and the analyses made are valuable in providing him with a working basis and an approach to such study.

The chapters dealing with the stock market are interesting and valuable. Although much of the material will be familiar to security analysts and experienced investors, the interpretation of the principles is well done. Careful distinction is made between the socalled fundamental factors, such as earning power, interest rates, and those which develop from manipulation or speculative enthusiasm and discouragement, and which appear at the extreme ends of major swings. But here as also in forecasting turns in business conditions, sufficiently definite indications are lacking for determining where within a period of a year or so the really crucial time has come.

It is, of course, too much to expect that the first book to attempt a more scientific approach to business forecasting should be free from many short-comings in such a difficult field. For the person who is not working with the problems of the business cycle this book will be of very great value in presenting the framework of the problem of business forecasting. Much helpful information and many valuable analytical approaches are available in it. For those wishing to learn something of the factual information and of the types analyses necessary for careful work in regard to this problem, the reviewer knows of no better volume.