Looking The Other Way

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Greenspan's lot may be even tougher than Volcker's was. The new chairman must fend off a recession by keeping interest rates low, but he will come under excruciating pressure to raise them again if the dollar needs rescuing. Any little upward nudge in interest rates, however, is likely to send the stock market into the tank again. When the Fed's open market committee met last week for the first time since the crash, some economists hoped the group might rescind September's discount-rate increase. But no such announcement came. One reason may be that the committee has too little information so far about Black Monday's effect on the economy. Without solid proof that growth is imperiled, the Fed is probably reluctant to announce a dollar-endangering drop in the discount rate.

One survey of 35 economists last week predicted that the economy will expand at a humdrum 2.8% annual rate during the last half of 1987 and a sluggish 1.4% in the first half of 1988. While that is a definite slowdown, it is not quite a dead halt. A few economists, however, predict a recession. Among them is Irwin Kellner, chief economist for Manufacturers Hanover, the New York City banking company, who thinks the U.S. economy will shrink by 2% in the first half of 1988 before quickly recovering.

Economists have kept a sharp eye on consumers to see whether they have become cautious and tightfisted, but the evidence so far is hazy. Last week domestic automakers reported a brisk 10.8% increase in passenger-vehicle sales during the last ten days of October, compared with the same period last year. Those customers, however, may be people who had already intended to buy a car * and went ahead with those plans in spite of Black Monday. Many car dealers now say business is slowing by as much as 30%. Major retailers, who released October sales figures last week, mostly say business has proceeded at the same sluggish pace they were experiencing before the crash. Sears, for example, reported that October sales were up 1% from the same month in 1986, an increase that did not keep pace with the current 5% rate of inflation. Last week the Labor Department reported that the unemployment rate during October inched upward to 6% from September's 5.9%, which supported contentions that the economy has slowed only slightly.

Polls seem to show that consumers are worried, but not enough to change their buying behavior very much. In a telephone survey of 800 adults conducted last week for E.F. Hutton by the polling firm Yankelovich Clancy Shulman, 66% of consumers said they were "more concerned about the economy" in the wake of recent financial turbulence. But only 36% said they were more likely to hold off making major purchases. In another survey, in which the New York Times polled 1,549 adults from Oct. 29 through Nov. 3, fully 52% of those interviewed said they thought the economy was in either very good or fairly good shape.

Like the rest of America, politicians in Washington seemed less likely to change their behavior patterns as memories of Black Monday drifted away. When congressional and Administration leaders opened their second week of emergency budget-cutting meetings last week, their post-crash burst of bipartisan magnanimity was on the wane. "The worst thing for the summit is stock-market stability. It takes the pressure off," says Economist Schultze.