The Federal Reserve's forbearance in not raising interest rates this year has proved prudent.
Evidence is piling up that the economy in the United States has slowed without central bank intervention. Most economists see a "soft landing" - a decline in the fast growth of last winter to a restrained pace, but without recession.
One key drag has been the economic crisis in Asia.
"It is worse than I thought," says James Glassman, an economist with Chase Securities Inc. in New York. And he has been among the more gloomy in this regard.
Asia is one reason that fears of recession are popping up like weeds in a garden.
"The probability of a recession in 1999 is 75 percent," write economists S. Jay Levy and David Levy of the Jerome Levy Economic Institute, Mount Kisco, N.Y.
The new pessimism stems from several factors. The Levys list too lax bank lending standards, flourishing leveraged buyouts of companies despite sky-high values, a profit squeeze, economic trouble in Japan and Russia, and disregard for financial risk.
One depressing factor got major attention last week: a bust in the stock market.
Stock prices, as measured by the Dow Jones Industrial Average, were down 285 points to 8598.02 last week. The Dow is off about 5 percent over the past three months.
Last Tuesday's sharp drop of 299 points in the Dow average of 30 blue-chip stocks was hastened by the TV conversion of securities guru Ralph Acampora from bull to bear.
The Prudential Securities chief technical analyst had been forecasting a rise in the Dow to 10000 by mid-1998. Now, he says, it won't happen until 1999. In the meantime, the Dow could slip to 7400.
An early bear
Economist A. Gary Shilling was a bear on stocks before Mr. Acampora.
Mr. Shilling, a consultant based in Springfield, N.J., came out with a book early in the summer that predicted not only a market slump, but recession. "A Bear Market in US Stocks Will Trigger a Consumer Saving Spree and Ensure Global Deflation," notes a chapter headline.
His argument goes like this: The Asia crisis proves deeper than expected. Corporations are hit by slow exports and increased imports. That wouldn't be enough to kick off a recession. But as companies report weak earnings, stock prices fall.
Shareholders thereby feel less wealthy. They step up their savings to compensate. This means less consumer spending, pushing the economy into a slump.
"Middle of next year," guesses Shilling. It depends, he says, on how long it takes before investors suffer enough from weak stock prices to be convinced the market drop isn't just a small pothole on the road to greater wealth.
At some point, he says, Fed policymakers will lower interest rates - not raise them.
"They will be dragged kicking and screaming into ease," he says. "They are fighting the last war - against inflation, not deflation."
Shilling's new book is titled "Deflation" (Lakeview Publishing, Short Hills, N.J., $16).
Because Americans buy some 20 percent of all the goods made in the world, he sees deflation - declining prices - as a worldwide phenomenon.
But it will be a "good" deflation - not the bad one of the 1930s with its financial collapse, rampant bankruptcies, and massive layoffs and pay cuts.
Shilling expects a golden period more like that of the American Industrial Revolution after the Civil War.
In the last few decades of the 1800s, industrial production zoomed with changing technology. Rapidly expanding railroads provided a bigger market. Patents multiplied. Productivity grew rapidly. Output grew 2.1 percent per person per year. Prices fell sharply.
A more positive pessimist
Chase Securities' Mr. Glassman is not so pessimistic in the short term as Shilling. He expects the economy to grow at a 1 percent annual rate for the rest of this year and then pick up speed next year.
Consumers, he notes, are enjoying a 3 percent growth rate in their incomes. Their spending is growing at a 6 percent rate, encouraged by the bull market.
"We have never seen anything like that," he says. "It is a sign consumers are more sensitive to what happens in the stock market."
But if Shilling's vision of a golden era ahead is right, perhaps today's high stock prices aren't an absurdity.