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To: Giraffe who wrote (22623)	11/6/1998 12:08:00 AM
From: Giraffe	Respond to of 116779

Fed Reflates to Combat Advancing Global Crisis, "Credit Crunch" and Illiquidity; US to Suffer a "Growth Recession" Analysis by Gary L. Ciminero, Independent Economic Advisory Posted October 26, 1998 Latest inflation readings confirm its nonexistence. First off, hourly wages hardly rose last month, again blunting the 12-month trend just below 4%. The September survey showed the NAPM price index fell for the ninth straight month. And the rate of deflation in NAPM purchase prices actually dropped further, registering 34.4 for the lowest reading for the purchase price index since 1949! As emphasized in last month's IEA, dollar strength and recessionary Asian economies continue to vitiate inflation and undercut commodity prices. Import prices fell for the eleventh straight month in September to a level 6.5% below year-earlier. Likewise, nonagricultural export prices fell for the thirteenth month in a row, to a level 3.1% below September 1997. Reflective of falling manufacturing and import prices, producer finished goods recorded a 0.3% gain in September, on a one-month partial reversal of August's big fall in auto/truck prices. Looked at over the longer term, last month's producer prices were off 0.9% from year-earlier, the twelfth consecutive decline. Consumer level inflation ground to a halt last month and the 12-month trend slowed to just 1.5%. Aside from continued good news on inflation, current events have turned more bearish for real growth. Accordingly, the slowdown I have long foreseen will now devolve into a "growth recession" around the turn of the year, as weaker consumption and business investment combines with plunging foreign trade. See the Selected Economic Indicators table below. Not an outright recession, the growth recession I foresee would dominate the first half of next year when the economy's pace slows below 1%, unemployment picks up from 4.5% toward 4.9%, and profits continue to fall. In reaction to lower interest rates and settling global concerns, the US economy should resume a real growth trend of 2-2.5% by the second half, thus averting an outright recession. Yet, the entire year will record just 1.5% growth, while profits tick up 2.2% after falling 2.5% this year. Meanwhile, the stock market will continue its volatile reaction to rising financial risks and falling profits. Even after the dramatic declines in stock prices since July, the S&P-500 remains some 10-15% overvalued relative to falling earnings prospects this year. Adding to stock market uncertainty was the abrupt reversal of investments in equity mutual funds, as August recorded the worst monthly outlflow in history. Besides, as the graph below shows, investors on-net withdrew funds for the first monthly after eight years of monthly inflows often at record levels. Besides, the August outflow broke the prior record set during the stock market crash of October 1987!