R ECENTLY we have made two important changes in the Index of General Business Conditions. These include: a revision, involving a change of one of the constituents, in Curve B; and a revision, involving a modification of the secular trend and standard unit for each constituent, in Curve A.1 Both of these changes have been occasioned by the extraordinarily vigorous, remarkably sustained and widely prevalent public participation in stock speculation. The change in Curve B, which is discussed first below, comprises merely a refinement, in the bank debits data, intended to eliminate from the curve some of the confusing effects of the speculative outburst. The change in the Curve A is much more radical; and, since it may cause difference of opinion, we shall seek to explain in considerable detail the justification and implications of our substitution of the new results for those heretofore used.

CURVE A, speculation, now appears in the index of general business conditions, substantially as developed in the I923 revision.' The curve is obtained by averaging cycles for bank debits in New York City and for the DowJones average of industrial stock prices. It did not appear in I923 that any secular trend was present in these two constituents; and, although the accumulation of data since that time has rendered the presence of an upward secular trend in each series increasingly evident, it is only recently that we have become confident of the possibility of measuring even approximately such trends. In Curve A as it has been appearing, therefore, no correction for trend has been made; and, for each constituent, the actual items are expressed as per cent deviations from assumed horizontal lines. These deviations are then used in determining the cycle figures. In the case of the'New York bank debits an adjustment is necessary because of the presence of seasonal variation.2 The seasonal correction for the bank debits figures allows not only for annually recurrent fluctuations which are essentially seasonal in character, but also for the effect of extraordinary financial transactions which take place quarterly. It is believed that the present Curve A gives a substantially accurate record of the short-time fluctuations of the speculative type since the war. The fact, however, that this curve is not corrected for secular trend accounts for its extraordinary elevation during the last three years, and leaves room for a misunderstanding of the current position of the curve because of its apparent extreme departure from a supposed horizontal normal. It is therefore desirable to revise the curve by making due allowance for secular trend, so far as it is now possible to measure such trend. Moreover, it has now become apparent that Curve A can be improved by excluding from it the series for New York bank debits. Finally, it is desirable to replace the Dow-Jones average of industrial stock prices by new averages which rest upon a wider sampling of market transactions. It is the object of the present article to discuss these several changes by which the revised Curve A is substituted for that heretofore used in the index chart.

THE comprehensive and representative character of bank debits -bank clearings, before the commencement of reports for debits as a measure of business volumes is becoming more fully recognized with accumulating experience. There is, to be sure, some difference of opinion concerning the adequacy of debits as a measure of the physical volume of business.' Concerning the fitness of debits as a measure of the money volume of business, however, there is no considerable controversy; and the doctrine that debits furnishes the best single measure of the aggregate value of business transactions lacks little of being fully established. Moreover, it is now generally held that the fluctuations of debits in New York City reflect speculative movements in addition to business variations; and it is therefore customary to use debits New York City as more truly indicating the business transactions incident to industrial and commercial operations. That some portion of the variation in cities outside New York is speculative cannot be doubted, and that a large part of the variation in New York City arises from purely business transactions is also evident. The effect of speculative operations on outside debits is less clearly apparent than in New York, however, and a record of such debits may be accepted as a general measure of business activity. With the growing emphasis, in the study of business conditions, upon prompt information concerning brief developments, it becomes desirable to trace weekly figures for outside bank debits. The interpretation of such figures, with a view to appraising current tendencies within a particular phase of the business cycle, encounters serious obstacles. These obstacles are not identical with those which impede the use of aggregate monthly bank debits.2 For monthly data, the principal difficulties include: the making of allowances for holidays, the adjustment of figures for months having five Sundays, and the allocating of weeks which extend from one month into the following. Of these, only the first is of consequence in the study of weekly data: the irregular number of reporting days per week due to the very existence of holidays, the lack of uniformity in the observance of holidays in different cities, the uncertain effect on business volumes (both as respects extent and timing) of the observance of holidays, and the possibility that a particular holiday may at times fall within the same week as some other date (such as the first of the month) having a peculiar effect upon debits all these facts help to explain the effect of holidays upon the weekly figures. There are difficulties met with in the analysis of weekly data not encountered at least directly in the study of monthly aggregates. Chief of these arises in the custom for certain payments to be made on or about particular days of each month, with the result that there are considerable temporary expansions and contractions in debits at more or less regular times within the month. The fact that a particular day of the month does not fall on the same day of the week in each of several years implies an annual shifting of the weekly manifestations of these expansions and contractions. The effect upon the actual weekly figures for debits is most perplexing. It should be noted, moreover, that this intramonthly variation is not uniform for the twelve months of the year. In one month it is relatively intense, in another relatively slight; and this lack of uniformity is emphasized by the existence of certain large-scale financial transactions which distort the debits figures in particular months of each year. A further special difficulty encountered in the analysis of weekly data is due to the very detail sought in the weekly picture. The monthly aggregate marking the peak whether cyclical or seasonal in debits does not disclose the location of the peak within that month. This location becomes of moment in the study of weekly series; and the possibility that the peak effect as a whole is distributed, in unknown and perhaps unknowable proportion, between two adjacent weeks constitutes a serious obstacle in the analysis. 1 See Carl Snyder, this REVIEW, October I924, p. 256, and April I926, p, 85, for presentation of the case for the deflation of debits in order to measure physical volumes of business. 2 See this REVIEW, April 1926, p. 66.

except that cycles (reversed) of reserves of New York Banks are omitted from the present B curve. A revised graphic presentation of the prewar cycles in business is afforded by the chart on pages I94, I95 of the REvIEw for July I923. Chart 2 reproduces the I903-I4 portion of this second, group of curves, and Table 2 gives the corresponding numerical data. The purpose of this note is to compare the summary pictures, of pre-war business conditions, furnished by the old Index Chart and the revised Index Chart. An outline of the compositions of the curves of each index appears in Table 3. In addition to the obvious dependence of each curve in the revised index upon fewer components than the corresponding curve of the old index, it should be remarked that the elimination of secular trend from two components in the revised index rests upon a special statistical device. All twelve components of the old index, and the price of industrial stocks, New York bank clearings, and outside bank clearings, in the re-

THE purpose of the following study is twofold: to examine the nature of the cycles in interest rates and to criticize the application of the periodogram method to economic statistics. As for the particular series under investigation, it may be said at once that no uniform periodicity is revealed. If we confine the analysis to those portions of the entire time interval which are fairly free of extreme deviations, we discover however a cyclical movement which conforms moderately well to the average found by the periodogram. This average cycle has a length of about 40 months, and its form may be described as that of a sine curve distorted so that the time interval from low to high considerably exceeds that from high to low. It is found that, because of the presence of a marked seasonal variation and of irregular extreme deviations in the economic statistical record, the blind application of the periodogram method is likely to yield results which are illusory. Even after the results are checked by the usual tests available for the criticism of the findings of a periodogram analysis, a thorough examination should be made of the actual cycles found by eliminating the seasonal variation from the original data. It is probable that the summation process involved in the periodogram method will be of considerable value in studies of the length and form of the cycles in those portions of a statistical record which are clearly free of irregular extremes, but it is very doubtful whether the attempt to analyze the form of the cycle by the Fourier method will assist in describing or understanding the cycle. The average form of the cycle is at best not very precisely determined, and its breaking up into a group of harmonic components of differing periods and amplitudes is certainly bewildering and probably furnishes no true insight into the nature of economic fluctuation.