United States stock markets have acted as if they were flying through some bad air pockets in the past two weeks.
The markets are supposed to be good predictors of the economy's future behavior. So are they telling us a down economy lies ahead? Does it?
We don't think so. The sky isn't falling. But the market-predictor question is of more than usual importance, because:
*In just the first six months of this year more Americans put more money into the stock markets via mutual funds than in any previous whole year. More families than ever are investing their hopes, dreams, house funds, college nest eggs, and retirement plans in the markets than ever before.
*Washington's bipartisan Social Security advisory panel, despite split views, is ready to push the president and Congress toward investing some portion of the massive federal retirement fund in bond and stock markets.
*Public confidence (and consumer spending, the biggest engine of economic growth) can be dented by any prolonged market rollercoastering.
So, what are the basic facts?
Inflation remains low, at just 2.9 percent. And, with a few exceptions, it is low throughout both the rich industrial world and the developing world.
Employment is high, with joblessness just 5.3 percent, best in six years.
The dollar has strengthened realistically, but not dangerously, against major currencies.
It's the combination of the latter two factors that has spooked Wall Street, the world capital of guess-ology. The theory is that high employment puts upward pressure on wages. That will then push up prices. Alan Greenspan's cautious Federal Reserve Board will throw up a roadblock of higher interest rates to halt this wage/price rise.
Higher interest rates will slow down business borrowing for expansion and also individual Americans' buying/borrowing plans. The firmer dollar will cut export earnings.
All very logical. But strong factors also work against this scenario.
Global competition is intense and growing. That tends to hold down wages in America, except those won by US worker productivity gains. Last week's announcement of an unusual 9 cent an hour jump in average wages reflects just such a rise in productivity. High unemployment in Europe and low-wage competitors in the developing world act as a brake on a big inflationary surge in the US.
The US dollar's recovery - while reflecting the world-beating restructuring of American firms - is nonetheless moderate. It may slow exports somewhat. It may cut profit margins a bit. (A drop in technology firms' earnings accounts for Wall Street's latest swoon.) But most of the exporters concerned remain strong competitors. And economic recovery in Japan, and prospectively in Europe, should mean more buyers abroad.
Public confidence can, of course, be shaken by market pyrotechnics. And with more Americans investing more of their futures in the markets, this becomes a bigger-than-usual factor. But millions of those investors have shown themselves to be not easily shaken by momentary downturns. With high employment, rising wages, and globally competitive products, they have no reason to be. Neither sky nor economy is about to fall.