Whither the US economy - a cross section of views
To date, there has been no conclusive evidence that the economy has emerged from the extended business trough. However, if the stock market accurately reflects true business trends - and we believe it does - then a substantial recovery should commence shortly. A rising Dow has preceded each of the seven postwar economic rebounds by an average of 4.4 months.
Some analysts became frustrated when the Dow recently stalled less than 40 points below its all-time record. Citing similarities with the period which led to the Great Depression, these observers are fearful that the economy will slump into full-scale depression rather than rebound. However, Wall Street's powerful, record-shattering performance has already demonstrated that today's economic environment is like no other in history. The Dow may be stalling now, but it has plenty of gliding altitude left to loft higher later on. - Wedbush Noble, Cooke Inc., Los Angeles
An emerging recovery in the housing market is being welcomed as a harbinger of a broader-based cyclical recovery in the economy. Sales of both new and existing single-family houses have picked up from their lowest levels in over a decade. New home sales, which hit bottom last April, grew 32 percent between June and October although existing home sales languished until a 4 percent upturn in October. Because new houses available for sale are at their lowest level in a decade, the increased sales pace is prompting growth in the number of construction permits and starts. Third-quarter permits and starts were each about 30 percent higher than their fourth-quarter 1981 lows. - Continental Bank, Chicago
The near-term economic outlook is difficult to fathom; it may be easier at this point to determine what isn't, rather than what is in prospect. First, there are, for example, few tangible signs that economic recovery is under way. To the contrary, economic activity was probably still declining through November , though not as precipitously as in the immediately preceding months. Second, recessionary psychology remains pervasive, touching virtually all industries (with the exception of defense) and all regions of the country. In particular, consumers seem more intent on saving rather than spending. The only spark to consumer spending seems to have come through major auto sales incentives in November and pre-Christmas sales promotions at department stores. But it's too early to tell whether these spending gains are sustainable or merely have come at the expense of future sales. Third, the substantial decline in interest rates since mid-1982 may be sufficient to halt the economic decline within the next month or two, but further sustained rate declines will almost be required to ensure a sustained recovery.
Finally, what limited evidence that does exist suggests that the recovery, once it arrives, is likely to be painfully inadequate. Serving to limit any recovery in 1983, for instance, are likely to be continuing and unusually severe financial strains, both domestic and foreign. - Aubrey G. Lanston & Co., New York
The murky American automobile scene is beginning to clear, and for doom purveyors there may be some surprises in store. Several experts are painting this picture within the next couple of years:
* An extraordinarily competitive market, with Detroit catching and surpassing foreign automakers in terms of ability to adjust to market demands.
* A leaner industry, with far smaller payrolls than in the past and less need to increase prices yearly.
* Even more joint ventures and new business relationships among automakers.
* Dramatic changes in the relationships with suppliers.
* Emergence of the world car, with many identical major components and similarity in appearance.
* Continuing consumer emphasis on a two-car life style.
What does this bode for Mid-America, the one-time heart of the automotive industry? Certainly a lesser economic impact than the glory days of the past. For example, the number of final assembly plants in Mid-America has dwindled from 48 in 1977 to 29 in 1981.
Yet the automotive industry will remain one of the region's most important assets. And the industry's comeback after four successive years of recession-level sales will be an essential component in the rejuvenation of the Mid-American economy. - AmeriTrust Corporation, Cleveland
The failure of stocks (and long-term bonds) to respond to such favorable interest rate news as discount and prime rate cuts, as well as indication that rates have further to go on the down side, would seem to indicate that declining interest rates have carried this rally about as far as they can. Of course, there is continuing fear of a possibility of a backup in rates as a result of Federal Reserve action, continuing federal government borrowing, as well as the beginnings of an economic recovery. But to rally further from this point, which it is certainly capable of doing, the market will probably need some strong positive signs that the foundation for an economic recovery is now being built.
For the long-term investor, selected common stocks still appear to offer the best value. If inflation and interest rates continue their favorable trends, common stocks could provide healthy returns in relation to other investment alternatives as corporate earnings improve and multiples expand in response to a more favorable business environment. - Advest Inc., Hartford, Conn.