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Published online by Cambridge University Press: 07 November 2014
There have been numerous studies of Canadian cyclical experience during the Great Depression beginning in 1929. Similarly, the cyclical experiences of 1937–8 in both the United States and the United Kingdom have been fairly popular subjects for examination. However, it is interesting that no intensive analysis of Canadian experience during the 1937–8 recession has been made, but rather it has been treated as an afterthought to studies of the 1929 downturn instead of receiving the specialized attention which it merits. As a result there are doubts about its exact timing, about the magnitude of the fluctuations involved, about the influences exerted upon Canadian activity by the comparable American and British recessions, and certainly there has been a tendency in some recent works to provide a very facile interpretation.
The 1937–8 recession is a subject of interest for several reasons. It is the last pre-war cyclical movement, and roughly coincides with similar economic changes in Canada's major trading partners. Cyclical movements in Canada do not always coincide with those in the United States, as was evident in 1948–9 and 1926–7, but when they do, a close examination of what has happened in Canada and of possible interrelationships between the Canadian and American experience may improve our understanding of Canadian cyclical patterns. This paper first represents a modest attempt to single out those sectors of the economy in which the cyclical downswing was concentrated, and second offers a tentative interpretation of the causal elements at work in this particular cycle.
The views expressed in this article are the author's, and do not necessarily reflect the views of the Department of Trade and Commerce.
1 See Marcus, Edward, Canada and the International Business Cycle, 1927–1939 (New York, 1954), 149–63Google Scholar, and “Cyclical Turning Points in an ‘Open’ Economy: Canada, 1927–1939,” American Economic Review, 09, 1953, 581.Google Scholar
2 See Bryce, R. B., “The Effects on Canada of Industrial Fluctuations in the United States,” this Journal, V, no. 3, 08, 1939, 373–86.Google Scholar
3 See Canada, Dept. of Labour, Seasonal Unemployment in Canada: A Survey of Seasonal Industries in Canada (Ottawa, 1953).Google Scholar
4 For an opposite point of view see reply of Marcus, E. A. to comments by Barber, C. L. in the American Economic Review, 06, 1954, 389.Google Scholar
5 The index of the physical volume of business was a composite of 45 selected series covering all sectors of the economy. Compilation was discontinued in 1947.
6 Dominion Bureau of Statistics, Monthly Review of Business Statistics, 05, 1947 Google Scholar, and Summary of Monthly Indexes of Retail Sales in Canada, 1929–1941 (Ottawa, 1942).Google Scholar
7 Budget Speech of Hon Charles A. Dunning, Minister of Finance, Feb. 25, 1937 (Ottawa: King's Printer). “Viewing the situation broadly, however, in the light of the progress of the past year and the major underlying forces at work, I believe I can fairly say that since 1929 no New Year has dawned with brighter promise for Canada.”
8 In terms of its own specific cyclical downswing, the manufacturing index in the third quarter of 1938 was fractionally lower than in the second quarter. The same is true for the industrial composite of employment which declined by 7½ per cent between the fourth quarter of 1937 and the third quarter of 1938.
9 See Table III.
10 As an example, between 1937–III and 1937–IV the U.S. industrial production index fell 18 per cent. In Canada from 1937–IV to 1938–I the comparable Canadian index fell 7 per cent. See Tables I and II for the total fall in each index. The decline in American activity at that time was the sharpest on record and much more precipitate than that in 1929–30.
11 The wholesale price index fell 15 per cent between its peak in the third quarter of 1937 and its low point in the first quarter of 1939, or from a quarterly average index (1926=100) of 86.1 to 73.2. The period of most rapid decline was from the second to the fourth quarter of 1938 when the index fell from 80.9 to 73.6, or by 9 per cent.
12 The actual quarterly index for this period is as follows: 1937–III, 109.5; 1937–IV, 108.4; 1938–I, 109.3 (1935–9=100). D.B.S., Monthly Review of Business Statistics, 05, 1947.Google Scholar
13 Canada Year Book, 1946, 321.
14 Ibid., 306.
15 Ibid., 332.
16 “Base Metals Take the Lead in the Mineral Industry in 1937,” Monetary Times, Annual Review Number, 01 9, 1938.Google Scholar
17 Canada Year Book, 1946, 331–5.
18 “Foreign Trade and the Level of Economic Activity in Canada in the 1930's, this Journal, XVIII, no. 3, 08, 1952, 343–4.Google Scholar
19 The volume of newsprint exports in 1938 was much lower than indicated by the value figures. In anticipation of a rise in the price of newsprint from $42.50 to $50.00 per ton in New York, effective the beginning of 1938, American publishers built up abnormally large stocks during 1937. The volume of newsprint exports was drastically reduced in 1938.
20 D.B.S., Prices and Price Indexes, 1913–1938 (Ottawa, 1940), 53.Google Scholar
21 The 1937 wheat crop amounted to only 180 million bushels of poor quality.
22 Total investment expenditure by government-owned enterprises and government-operated institutions amounting to $80 million in 1937 and $82 million in 1938 is not included in this figure since the construction component cannot be isolated.
23 D.B.S., National Accounts, Income and Expenditure, 1926–1950 (Ottawa, 1952)Google Scholar; and Dept. of Trade and Commerce, Private and Public Investment in Canada, 1926–1951 (Ottawa, 1951), 149.Google Scholar
24 D.B.S., Monthly Review of Business Statistics, 02, 1944, 31.Google Scholar The index of construction is a composite series of contracts awarded and building permits issued, deflated by indexes of the price of building materials and wage rates.
25 Within manufacturing, the decline in outlays on construction was quite general, though the sharpest decline was in the wood and wood products group where, after rising from $2.8 million in 1936 to $14.1 million in 1937, construction expenditure fell to $1.2 million in 1938 ( Dept. of Trade and Commerce, Private and Public Investment in Canada, 1926–1951, 160 Google Scholar). The number of dwellings completed fell from 48,600 in 1937 to 44,000 in 1938 (ibid., 180). Again monthly data would suggest that this decline was largely due to reduced activity in the first half of 1938. See Budget Speech of Hon. Charles A. Dunning, June 16, 1938, 7 (Ottawa: King's Printer); and D.B.S., Monthly Review of Business Statistics, 02, 1944, 31.Google Scholar
26 Dept. of Trade and Commerce, Private and Public Investment in Canada, 1926–1951, 187, 191, 199.Google Scholar Provincial outlays on construction declined from $103 million to $73 million, while federal and municipal outlays increased from $39 million to $50 million.
27 These are changes in year-end book values for business inventories and the value of physical change for farm inventories. D.B.S. National Accounts, Income and Expenditure, 1926–1950, 65, 112.Google Scholar
28 Ibid., 29.
29 The book values of inventory changes in these sectors were as follows: in forestry from +$17 to −$25; in manufacturing from +$107 to −$18; in wholesaling from +26 to −$25; in retail trade from +$31 to −$9 (figures in millions of dollars). Ibid., 57.
30 The author suspects that when a complete study of Canadian cyclical experience is made, the lower volatility of the Canadian compared to the American economy will be apparent, and this will be traceable in no small measure to Canada's import safety valve in a period of inventory liquidation.
31 In current dollars, consumer expenditure in 1938 amounted to $3,815 million compared to $3,777 million in 1937. In constant dollars, the figures are $3,718 million in 1938 compared with $3,747 million in 1937. Ibid., 27, 29.
32 Expenditure on durables rose 13 and 20 per cent on a year-over-year basis in 1936 and 1937, while spending on non-durable goods rose 7 and 10 per cent respectively. Ibid., 75.
33 The actual percentage rises were 10, 9, and 13 respectively.
34 Dept. of Trade and Commerce, Private and Public Investment in Canada, 1926–1951, 180.Google Scholar
35 Ibid., 180.
36 Ibid., 164.
37 Budget Speech of Hon. Charles A. Dunning, April 25, 1939, 8 (Ottawa: King's Printer).
38 The Marcus-Barber controversy in the American Economic Review, 06, 1954, 385–92.Google Scholar
39 “Cyclical Turning Points in an ‘Open’ Economy. Canada 1927–1939,” American Economic Review, 09, 1953, 581.Google Scholar
40 Marcus, , Canada and the International Business Cycle, 162.Google Scholar
41 Budget Speech of Hon. Charles A. Dunning, April 25, 1939, 7 (Ottawa: King's Printer).