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Rosy Data Don’t Blot Out Recession Worries

October 8, 1988

NEW YORK (AP) _ No matter how good the statistics on the economy get these days, they don’t seem to be good enough to quell fears on Wall Street of an approaching recession.

By most standards, the figures on the pace of business activity and growth have been very upbeat of late.

The latest case in point: The Labor Department’s report Friday of a drop in the unemployment rate from 5.6 percent in August to 5.4 percent in September.

While job growth continued, it occurred at a relatively subdued rate, which suggested that the economy was neither getting too hot nor catching a chill.

Analysts said the Federal Reserve Board probably would like the figures enough to decide against any further credit-tightening in its battle against inflation.

Meanwhile, the passage of time has made it increasingly apparent that last year’s stock market crash was not the immediate precursor of a corresponding plunge for the economy.

The stock market has been holding its ground lately because of ″a total absence of any sign of a recession,″ in the words of Henry Gailliot, president of Federated Investment Counseling, a Pittsburgh-based money management firm.

Yet Gailliot, like a good many other observers, believes the gains recorded by stock prices this year have represented nothing more than a ″bear market rally,″ and argues that a recession is likely by next year.

″If this business cycle is to move toward recession in the standard sequence, which involves capacity strains in finance, industrial output and employment, the recession will occur in 1989,″ he maintains.

″The overextended consumer will stop in a not very different fashion from the overextended stock market, which stopped in August of 1987.″

Not everyone shares this view, of course. For the nearly six years since the current period expansion began, the optimists have been right and the frequent warnings from the pessimists have proved wrong.

″We do not anticipate a recession soon,″ said Jim McCamant, editor of the Medical Technology Stock Letter, in the latest issue of that investment advisory publication.

″It is important to look at the economy sector by sector, rather than always concentrating on the aggregate numbers.

″During this long period of prosperity, we have had some serious recessions in a number of different industries. The oil supply industry is still in its recession.

″The ‘Rust Belt’ companies are now in the early stages of an economic recovery, helped by strong exports. In this sector the recovery is still very young and is far short of previous cyclical peaks.″

The optimistic camp got a lift late in the past week when the stock and bond markets responded enthusiastically to the employment report.

The Dow Jones average of 30 industrial stocks closed Friday at 2,150.25, up 37.34 points from the week before and not far from the post-crash closing high of 2,158.61 it reached on July 5.

The New York Stock Exchange composite index rose 3.24 to 156.81, and the American Stock Exchange market value index gained 2.19 to 303.82. The NASDAQ composite index for the over-the-counter market, weighed down by selling in high-technology issues, dropped 2.04 to 385.67.

Volume on the Big Board averaged 166.65 million shares a day, against 134.94 million the week before.

Edward Yardeni, economist at Prudential-Bache Securities, argues that forecasting a recession based on traditional economic-cycle reasoning is misguided because economic circumstances have changed.

He says ″market capitalism″ and intense global competition now exert forces of discipline on the economy that, in effect, regulate activity much more effectively than government policymakers used to.

″Severe busts will no longer be necessary to unwind the excesses caused by booms,″ he contends. ″Excesses won’t be allowed to build in the first place.″

End Adv Weekend Editions Oct. 8-9

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