Election Elation on the Street

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The markets appeared to be elated that the election outcome seems unlikely to bring about any major shifts in economic policy. Some financial analysts were concerned that if the Democrats gained control of Congress, the lawmakers might enact a big emergency spending program to create new jobs. That would speed up the recovery, but could also rekindle inflation.

Security analysts, though, are not entirely satisfied with Reaganomics. Their chief worry is the ballooning federal deficit, which threatens to swell past $175 billion this year. They hope that a few more Democrats in the House will force the President to compromise on the budget, perhaps by scaling back his demands for huge increases in defense spending. Says Edward Yardeni, chief economist for the Prudential-Bache brokerage house: "Investors did not want a rejection of Reaganomics, but they wanted a policy that was a little more flexible, a little more toward the center."

Many chief executives of major corporations agreed with that view. "The President is going to have to make more trade-offs," says David Mahoney, chairman of Norton Simon. "Both parties need to ignore extremes and concentrate on getting the economy rolling again." Asserted John Nevin, chairman of Firestone Tire & Rubber: "There will be a more pragmatic attitude toward intolerable budget deficits."

Jubilant Administration officials saw the rally as a rousing endorsement of the President's policies. Said Treasury Secretary Donald Regan: "The stock market is bullish on America. The seeds of economic recovery planted last year are now bearing fruit." There was more than a touch of irony in the Administration's praise of the stock market's wisdom. Only about 18 months ago, when share prices started falling, President Reagan said, "I have never found Wall Street a source of good economic advice."

The financial markets may be signaling a rebound ahead, but few signs of it can be found in the industrial heartland. Despite the break in interest rates, company profits for the third quarter were down by about 21% on average from the same period a year ago. Many recession-battered firms in such bedrock industries as mining, steel and autos suffered stunning losses. Aluminum Co. of America ran a $14 million deficit, Bethlehem Steel Corp. lost $209 million, and Ford Motor Co. $325 million.

As their earnings have sagged, corporations have been forced to let more and more workers go. The Department of Labor announced last week that the unemployment rate had risen in October from 10.1% to 10.4%, its highest level since 1940. In the auto industry alone, some 250,000 employees, or 21% of the unionized work force, have been laid off indefinitely.