The Foundation for Economic Recovery Is Here Now, Ready to Build On

Lately, it has become fashionable to bad-mouth the economy. It’s not too difficult to see why: Hardly a day goes by without one company or another announcing sizable layoffs.

Some of this is due to long-term restructuring strategies, as business seeks to reduce costs and become more competitive. However, some traces to shorter-term objectives, such as boosting the next quarter’s profit.

This has resulted in an unusually large number of relatively “visible” people losing their jobs. Occupations at risk include bankers, accountants, lawyers, architects, real estate personnel, advertising and the media. Since people in these professions have tended to escape the effects of recessions in the past, their misfortunes dominate the headlines and the evening news.

Announcements of major corporate layoffs, coming as they did during the holiday shopping season, cast a pall on merchants’ year-end hopes--not to mention on their plans to buy next season’s goods.

Confidence has plunged to lows not seen in a dozen years, as consumers--reacting to this news, seeing their co-workers, friends and relatives lose jobs, and fearful for their own--reduced their spending to bare-minimum levels.

For all this doom and gloom, most statistics paint a decidedly less dismal picture:

* New-home construction and sales jumped 26% during 1991.

* New orders for durable goods have risen 10% since March--with non-defense capital goods bookings soaring more than 25% since May.

* Total business shipments have gone up for eight straight months--the first time this has happened since 1983.

* Inflation-adjusted exports have risen 11% since February.

* The country’s all-encompassing measure of economic activity, the gross domestic product, rose in the second and in the third quarters while stabilizing in the fourth.

* For all business, the inventory-sales ratio, at 1.50, now equals its long-term average, while the ratio for the key manufacturing sector, at 1.53, is at a 12 1/2-year low.

* Consumers are saving at a rate of about 5%, above the average of the past five years.

* People have paid down installment debt in eight of the last 13 months, pushing down to 17% the ratio of such debt to disposable personal income--the lowest in six years.

* Inflation has disappeared at the producer level and is down sharply at the consumer level.

* The unemployment rate averaged 6.7% in 1991--lower than in every month from April, 1980, through November, 1986, except for January, 1986, when it was also 6.7%.

* Employment actually rose by 237,000 in the last three months of 1991, but since it was far fewer than usual for this time of year, it was reported as a decline of 227,000, after seasonal adjustment.

If these positive statistics are not enough to speed up the faltering economic recovery, the following should provide a lift:

* Oil prices are down. Warm weather and increased output have pushed crude prices down to their lowest levels in several years. Since everyone uses oil in some form, this will act as a tax cut, leaving consumers and business with more discretionary income for spending, saving or debt reduction.

* Interest rates are down. Although this hurts savers, many are moving their funds into bonds (where rates are still comparatively high) and stocks. Borrowers are refinancing existing higher-rate loans, picking up a nice piece of change in the process.

* Exports will continue to grow. The weaker dollar should more than offset the weakness in the economies of many of our trading partners.

The rise in housing means increased demand for home furnishings, while the low level of business inventories should lead to some restocking.

The foundation for a pickup in the pace of economic activity has been laid. All that is needed now is a dose of confidence.