THOR HULTGREN, National Bureau of Economic Research
This paper is based on a study of the quarterly profits reported by large corporations. The number of companies it was possible to study rises from 17 in 1920-23 to 244 in 1933-38. The findings suggest that at the bottom of a business cycle the percentage of companies with growing profits, although low, is rising. It continues to rise during the earlier stages of the following business expansion, but reaches a peak, and begins to decline, before business activity reaches its peak. The percentage continues to decline in the earlier stages of the following business contraction, but reaches a trough and begins to rise before business activity reaches its trough.
The aggregate profits of all companies, however, increase both in the earlier and in the later stages of a business expansion, and fall both in the earlier and in the later stages of a business contraction. But in most cases the rise in the earlier stages of expansion is more vigorous, and the fall in the earlier stages of contraction more severe, than in later stages.
At every stage of the cycle there are always some companies with rising and some with falling profits.
After 1938 unusual and abruptly changing influences connected with the war affected profits, and the relations observed in 1920-38 between the percentage of companies with rising profits and the level of business or of aggregate profits were disturbed, although they may recently have been re-established.
The material in the paper is pertinent to the study of cycles in several respects. It reminds us of the diversity of experience that occurs in a cycle and hence adds realistic detail. It has some interest from a forecasting point of view, since turning points in the number of companies with rising profits are found to precede turning points in business. The interval varies a good deal from cycle to cycle. By the standards prevailing in the physical sciences, the existence of so variable a lead may not be a very useful discovery. In his paper, however, Mr. Wright reports that a forecast not more____________________