THE week of Oct. 19, when the stock market fell a record 508 points in one day, a Business Week cover story asked, ``Will Wall Street Take the Economy Down?'' The answer, it now turns out, is ``No.''
A year after the market plunged, the United States economy has shrugged off the one-day loss of $500 billion in capital. Recession clouds seem distant. Business investment is strong, reflecting confidence in the future.
``I think our major concern now is not that the economy is too weak, but that it is growing too strongly,'' says Lyle Gramley, chief economist with the Mortgage Bankers Association.
That's a far cry from the bleak scenario some analysts expected. The Business Week cover story concluded: ``An incalculable amount of damage has been done ... to the health of economies in the US and around the world.''
The day after the crash, papers hypothesized that there could be an erosion of consumer confidence and spending, the loss of part of the wealth that had financed the United States' economic recovery, a rise in the cost of capital, and an increased likelihood of a recession in 1988.
The gloom-and-doom outlook never came to pass - in large part because Alan Greenspan, chairman of the Federal Reserve Board, acted quickly to prevent widespread bank failures, as happened after the 1929 market crash.
``We came very close to the edge of a financial meltdown,'' says Mr. Gramley, a former Federal Reserve Board governor. ``Timely action by the Fed helped confine the ripple effect to a small puddle in New York City.''
There is no question that the Big Apple suffered. Employment on Wall Street dropped about 10,000 between ``Black Monday'' and August of this year, according to the Bureau of Labor Statistics. This surge in unemployment spilled over to such areas as real estate, printing, advertising, publishing, and temporary office help.
Ripples also spread to the hot real estate markets in the upscale communities surrounding New York City. In Franklin Lakes, N.J., Marilyn McHugh of Schlott Realtors says, ``Nothing has appreciated in value since October of 1987.''
Although nationwide retail sales declined temporarily last winter, they have since recovered.
``As crass as it may sound, rich people have money, so we are still able to do business,'' says Marjorie Corn, controller of Steven Corn Furs, a Paramus, N.J., fur showroom.
While sales of luxury goods fell off, auto sales remained robust. In fact, by the end of the model year - which had started one month before the October market crash - the US auto industry had sold more than 15.5 million cars and trucks - a few hundred thousand more vehicles than expected.
``The crash put us on the alert for a concatenation of bad news that might cause us problems, but we never got it,'' says David Munro, senior corporate forecaster at General Motors.
Like General Motors, other mainstream US companies never felt the impact. One sign of this was a spurt in capital spending.
Ken Goldstein, an economist with the Conference Board, a private business research organization, estimates that business spending for new plants and equipment has grown 8 percent (1 percent more than the economy) since ``Black Monday.''
One of the reasons companies increased their spending is because corporate profits are on the upswing. The Conference Board estimates that earnings will be 10 percent higher this third quarter compared with the third quarter of last year.
A typical example is the DuPont Company, which watched its stock fall 18 percent on Oct. 19. But for the first six months of this year, its earnings are up 37 percent compared with the first six months of last year.
Significantly, companies have had the internal cash flow to fund their investments - they have not had to rely on the equity or bond markets.
An example is Steelcase Inc. in Grand Rapids, Mich. The office furniture company is building a $75 million research center, has just completed a $60 million expansion, and is planning another $90 million plant. The company, with revenues of $1.6 billion, is paying for the expansion from its cash flow.
The plunge also failed to make real economic waves beyond New York's shoreline. (Global markets' rebound, Page 13.)
``There was not much effect on the world's wealth,'' notes John Calverley, an economist with American Express Bank in London. One key reason: Not many people in the world own stock. In fact, London-based Business Research International, an organization that sponsors conferences, recently had to cancel a conference on the stock market crash because there was not enough interest in it to attract the minimum number of participants.
The bottom line on why the American economy withstood the hefty drop, most economists agree, is because it is basically in good shape. Business and consumers were alert, but did not panic. Main Street simply went about business as usual.
Vivian Schlesinger contributed to this story. CATALYST FOR CAREER CHANGE.
The market plunge was a catalyst for Peter Ness's career change.
Last Oct. 19, Mr. Ness was the co-manager of international mergers with Chase Manhattan Bank. Today, he advises corporations on such matters as restructuring their businesses, buying their own companies, and funding new ventures.
Ness left his three-year stint at Chase in February, realizing the market crash was leading the company to merge its investment bank functions with other bank operations. Forsaking the corporate life, he joined an old college buddy, William Dunk, whose company offers management consulting advice.
As a partner with Mr. Dunk, Ness has found the entrepreneurial work exhilarating. But he has learned two important lessons: ``If they don't send a retainer after the first meeting, I don't bother talking to them anymore; and your weekends are not your own.'' A WORLD BEYOND WALL STREET
If Michael Dukakis wants to learn about the October plunge, he doesn't need to look too far: Ron Reed, one of his campaign coordinators, fell victim to ``Black Monday.''
Mr. Reed and 10 percent of his colleagues at Thomson McKinnon Securities found themselves looking for new jobs last December when the brokerage house retrenched following the crash.
Reed, with an MBA and experience as a congressional aide, found a job in May with the Urban Development Corporation, a quasi-public/private New York state agency. Within months, he caught Gov. Mario Cuomo's eye by helping persuade Spalding to build a new golf ball factory in Gloversville, N.Y.
In September, Governor Cuomo's political staff asked Reed to go on leave to work for fellow democrat Governor Dukakis. Reed's post-crash discovery: ``There is a world out there beyond Wall Street.''
A year ago, Janet Dempsey was living the Wall Street dream: driving a Saab, living on Manhattan's Upper East Side, and making a ``ton of money'' as a municipal bond trader at Merrill Lynch & Co. Within a month, the dream came to an end when Ms. Dempsey was included in a wholesale cutback.
Ironically, her success has made it harder to find a new job. ``A lot of people have a chip on their shoulder about Wall Street traders, because they don't understand the intangible skills we developed.''
But Dempsey, a former basketball and tennis star at Seton Hall University, has kept a positive attitude. Now she is aiming for a career in sales and is taking classes at Careers for Women, an organization that matches graduates with companies and products.
She says part of the appeal of a sales job is that she would be her own boss. ``The harder I work, the more money I make. I don't want any limits.''