Parts of the US Show Economic Strength

IN observing the United States economy and activity on Wall Street these days, the key word is ``selectivity.'' Despite all the negative reports now being issued about the overall economy - such as tightening credit conditions for small businesses, still nagging inflation, the slump in car sales, the mess in the savings and loan industry, and so forth - there continue to be many pockets of economic strength throughout the US.

``Some parts of the US economy are doing much better than other parts,'' notes David Wyss, an economist with DRI-McGraw Hill, an economic consulting firm based in Lexington, Mass. For example, New England is in a recession. But other parts of the US, such as the Pacific Northwest, the industrial Midwest, California, and the Southeast US, continue to avoid recession and instead post economic growth.

Concerns are mounting that an unexpected shock to the economy could send it into a tailspin. However, DRI-McGraw Hill still does not see a recession on the horizon for the the US, or the global economy, for that matter.

US gross national product should expand at a modest rate of between 1.5 percent to 2 percent this year, Wyss says, roughly in the range forecast by Federal Reserve Board Chairman Alan Greenspan. And the US economy should grow a little better next year, between 2.5 percent and 3 percent, forecasts Wyss.

In terms of regions, the Pacific Northwest currently looks the best, Wyss says, reflecting strength in the civilian aircraft industry, such as Boeing, based in Seattle. And exports of US lumber products through the ports of Seattle and Portland, Ore., are running at good levels.

Perhaps not surprisingly, regional economic performance usually mirrors what is happening to specific industrial sectors, Wyss notes. Part of New England's current economic difficulty, he explains, is that the region is heavily linked to defense spending and high technology. However, defense spending is currently being reduced, and many high-tech firms have a defense component. Cuts in defense are also hitting California aerospace firms. But Wyss reckons that California will continue to show modest growth, reflecting its active export trade to Asia, as well as a relatively vigorous real estate sector.

Even the oil-patch states in the Southwest are starting to post a comeback, following recession conditions there in recent years. Oil prices are picking up, Wyss notes, and the region has started to diversify away from its dependence on the energy/defense/agricultural triad.

While economists such as David Wyss see strength in many geographical regions of the US, many stock market analysts are similarly finding strength in specific manufacturing sectors and industries.

Indeed, a recent report by Kidder, Peabody & Company urged investors to concentrate more on the direction of individual stocks rather than on ``overemphasizing general market indicators.'' Kidder, Peabody, of course, wants to sell equities. But its larger point is supported by most market analysts - namely, that despite the gyrations of the Dow Jones industrial average recently, as well as fears about recession, a number of industrial sectors, and many individual companies, continue to be attractive.

Stock sectors that now look promising to another analyst, Gene Jay Seagle, are the international oil groups, oil service stocks (companies that supply equipment to, or do work for, oil companies), and environmental companies.

Mr. Seagle, director of technical research for Gruntal & Company, an investment house, also likes many of the big blue chip stocks, since blue chip companies, with their overseas presence, ``provide a way for US investors to get into the expanding global stock market.''

``Individual stock selection is now more critical than ever,'' says John Bye, vice president and director of equity research for PNC Financial Corporation, a financial holding company based in Philadelphia.