Signs ‘Bullish’ on Continued Economic Rise
Two months after the October crash on Wall Street, most economic indicators are continuing to point up and few economists now expect even a mild recession for at least another year.
“Almost all the signs are bullish,” said Jerry Jordan, chief economist for First Interstate Bank in Los Angeles. “Business firms say they are doing well. Demand is up, orders are backlogged, they are not cutting back on capital spending plans. When you ask for the big picture, they say: ‘Somebody must be getting squeezed because of the crash--but my own company is doing well.’ ”
Information Preliminary
To be sure, the available information on the economy’s post-crash performance is only preliminary and economists are still hedging their bets. After the market crash of October, 1929, they recall, the nation enjoyed an apparently prosperous Christmas.
But in recent days the government has issued an almost uniformly cheery series of reports on the post-crash economy:
--Unemployment declined to 5.8% in November--matching its lowest level in eight years--and 275,000 new payroll jobs were created, more than one-third of them in manufacturing.
--Industrial production in November increased 0.4% after a strong 0.9% increase in October. Industrial strength, covering producers of both durable and nondurable goods, included particularly strong increases for business equipment and construction materials, signs of future growth.
--Despite widespread expectations that consumer spending would dry up, retail sales actually increased in November by 0.2%. That figure, moreover, masked a 0.5% decline in car sales, which have been dropping since the summer’s promotional sales. Without autos, all sales increased 0.4% and sales of big-ticket durable goods increased a strong 1.8%.
Consumer spending was the indicator that economists watched most closely.
Most economists, believing that a decline in paper wealth would translate into consumer behavior, had been predicting a November spending decline of at least half a percentage point. Irwin Kellner, chief economist for New York’s Manufacturers Hanover Bank, had warned that anything worse than a 0.5% decline in November retail sales would signify “a serious reaction” to the October crash.
When consumer spending rose instead, economists reacted cautiously. David Wyss, a senior economist at Data Resources Inc., in Lexington, Mass., noted that the early retail sales report is often revised substantially as more complete data becomes available.
Report Called ‘Pretty Good’
Even so, Wyss said of the consumer spending report: “That’s pretty good, considering what happened Oct. 19, and suggests that people haven’t thrown away their charge cards yet. There’ll be some presents under the tree this year, and it’s consistent with a slowdown in the first half of 1988 but no recession.”
David S. Levine, an economist with Sanford C. Bernstein & Co. in New York, warned: “These numbers are volatile, and even if December bounces back even more strongly, there is still no guarantee. But I think we have some real evidence now that the crash will have only a temporary effect.”
Allen Sinai, chief economist at Shearson Lehman Bros. in New York, pointed out that since World War II, serious stock market reversals have not usually been followed by steep declines in consumption leading to a recession.
“Normally, in fact, when you get a bear market, the effects on spending don’t show up immediately,” he said. “After four of the last eight bear markets, spending was quite healthy. The greatest weakness in spending to show up within 12 months of a bear market occurred in 1961-62, and no recession ever happened then. As a rule, more than a bear market has to happen before you get a recession.”
Cloud Has Silver Lining
The one recent piece of bad economic news was the report last Wednesday that the October trade deficit hit a record $17.6 billion. But even that cloud had a silver lining.
On a Wednesday in mid-October, it was a report of a deeper-than-expected trade deficit for August that helped trigger a 508-point plunge in the Dow Jones Industrial Average on Oct. 19. On the Monday after last Wednesday’s trade report, by contrast, the Dow rose an encouraging 65 points and fears of a 1929-style economic collapse seemed remote.
More than that, for 18 months the mounting trade deficit has masked a steady increase in U.S. manufacturing exports, a key factor in the recent recovery of industries such as steel, equipment manufacturing and electrical machinery fabricators, which not long ago had been given up for lost.
Many economists regard the trade deficit as primarily the consequence of persistently increasing consumption by an economy that has been growing steadily for five years. Some now think that a spending slowdown in the United States could hurt foreign manufacturers more than domestic industry.
‘Quite a Cushion’
“If people buy fewer TV sets and VCRs, it hurts Japan and Korea (but) it doesn’t hurt us,” Wyss said. “That could be quite a cushion.”
“We expect growth of about 2% next year, and about 1% of that will be from improved exports,” Sinai said. “And if the crash does cut back spending, imports will go down. In fact, without that offset, we might very well face a recession.”
Jordan said that some of his bank’s healthiest clients are in the Midwest. “Most of the heavy manufacturing states in the Middle West had very slow growth in 1985 and ‘86,” he said, “but this year and next, in our forecast, they are going to have a much larger share of job growth.”
Jordan is a past president of the National Assn. of Business Economists, which announced this week that it had cut its 1988 economic growth forecast from 2.7% to 2%. In a survey of 200 of the group’s economists in November--before most of the recent upbeat indicators were available--43% said that they expected a recession next year, compared with only 30% in August.
But at the same time, 65% of the association’s corporate economists reported that their own companies were doing fine and expected to produce and sell more goods next year.
Ford Sees ‘No Impact’
Bearing that out, Harold A. Poling, president and chief operating officer of Ford Motor Co., told reporters Tuesday that the October crash has had “no impact” on demand for Ford products or on the company’s production plans.
Joseph W. Duncan, chief statistician and corporate economist for Dun & Bradstreet, has compiled three surveys of the business landscape and concluded that “there is no evidence whatsoever” that the market crash will produce a serious economic slowdown next year or has seriously affected business attitudes.
Dun & Bradstreet’s quarterly survey of business attitudes rose from the low 60s in late 1986 to a pre-crash level of 70, the highest since the boom year of 1984. “After the crash, the index stopped improving,” Duncan said, “but it stayed at 70.”
Survey Finds Steady Output
Likewise, Dun & Bradstreet’s monthly survey of manufacturing firms showed no change in production plans between October and November, as though the market collapse had never happened.
And in a special post-crash survey of 5,000 companies, Duncan found that 75% said they had no plans to scale down their investment plans.
Levine, surveying the data, likened the October market crash to a fall snowstorm. It may snarl traffic for a few days, he said, but it melts before long with no substantial lasting effects.
