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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Elwood P. Dowd who wrote (32057)	8/31/1998 10:38:00 PM
From: Night Writer	Read Replies (2) \| Respond to of 97611

Goldilocks vs. the three bears Despite the panic, some experts still think the U.S. economy remains healthy and the crisis is overblown. By Andrew Marks Economists have dubbed it the Goldilocks economy: not too hot and not too cold, everything is just right. And for the last two years, those conditions -- combined with the extraordinary inflows of cash from mutual fund investors and foreign institutions -- have pressed the market through its incredible bull run. Now the three bears -- Russia, Asia and declining earnings -- threaten to jolt Goldilocks out of her complacent sleep. At least that's one very reasonable interpretation of events in the U.S. and worldwide markets this week. Indeed, until this latest downturn, every fear about events abroad or at home was tossed aside by yet another sign of U.S. economic strength. Economists and market analysts alike looked on in awe as the economy created jobs and pushed up wages even as inflation remained at remarkably low levels not seen for 30 years. But with stocks trading in ever lower territory (the Dow industrials fell another 114 points, or 1.4%, on Friday; the Nasdaq shed 46 points, or 2.8%), traders and analysts are suddenly taking little comfort in the extended fairy tale. In fact, many are forecasting its imminent demise, contending that the economic crises sweeping Asia and most of the world's emerging markets will soon drag the U.S. into a recession. Still, there are those -- like CS First Boston chief economist Rosanne Cahn -- who suggest that the underlying conditions remain stronger than the selloff would suggest. Pointing to the latest government economic data, Cahn said that "steady growth, high employment, increasing wages and low inflation continue their happy relationship." "Many pros are in a panic induced by what's happening in the rest of the world and our stock market," she said. "The economy remains in terrific shape and should not be part of this equation of fear that everyone is propounding. There is little reason to fear that the recessions in Asia and elsewhere will do more than slow economic growth in the U.S." While Cahn may be one of the economy's most vigorous defenders, she is far from alone in her views. Robert Goodman, senior economic adviser at Putnam Investments, said in an interview on Wednesday that "the fundamentals in the United States have not been better in 50 years. What we're getting now is typical at this stage of a business cycle. It's a market correction that's being exacerbated by a lot of short-term concerns." And John Lonski, senior economist at Moody's Investors Services, suggested that "people are overpricing the bad news and undervaluing the fundamentals of the economy." Here, point by point, are the positive signs the true believers see in the economy. * Economic growth: The Commerce Department reported Thursday that gross domestic product -- the prime measure of economic growth -- grew at an revised annual rate of 1.6% in the second quarter. That's up from the earlier estimate of 1.4%, and down significantly down from the 5.5% annual rate of the first quarter. It's the weakest performance since the 0.4% rate in the second quarter of 1995, but many suggest that the General Motors strike shaved a full percentage point off the figure. * Consumer spending: Responsible for 2/3 of the nation's growth rate, consumer spending is considered the key to continued growth. The government reported Friday that consumer spending slipped 0.2% in July. Cahn said the July figure was skewed by a 5.3% decline in spending on durable goods, including cars, which experienced slack sales due to the GM strike. Meanwhile, spending for nondurables rose 0.4%. "Consumer sentiment is holding up well, according to the latest reports. Housing starts and new home sales continue to grow. The consumer remains a healthy part of the economic equation," Cahn said. * Wages and employment: The government reported Friday that personal income rose by a faster-than-expected 0.5% in July, and said Thursday that the number of Americans filing first-time claims for unemployment benefits fell 6,000 last week to a remarkably low 297,000. "Employment growth is slowing, but it's still growing in the face of fears that lower corporate earnings would lead to layoffs. It's just not happening," Cahn noted. * The stock market: Consumer spending has been spurred in no small part by the remarkable returns of the last few years. While many fear that the market's plunge will depress spendthrift ways, Lonski suggested that the Dow would have to fall another 10% before it significantly slowed consumer spending. "American consumers only just began spending the dividends of the 'wealth effect' " of the extended market gains last year, he said. "I think it will take more than what's happened in the last few weeks to turn off that spigot."