Economy: A Hot Tip Topples

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Nothing excites Wall Street more than a hot rumor. After months of dismal economic reports, investors were ready to jump on anything that hinted that the recession was bottoming out. They got their chance last Tuesday when word spread in the stock market that the University of Michigan's early January survey of consumer sentiment would show a dramatic upturn. The results of this particular poll were greatly anticipated because it was taken shortly after the Federal Reserve slashed interest rates at the end of December. Word of the alleged rebound in consumer confidence caused the Dow Jones industrial average to shoot up more than 60 points for the day.

The rumor, alas, was unfounded. When the results were released late Thursday to the survey's clients, they showed just another in a long series of declines in consumer spirit: a drop from 68.2 in December to 67.1 in early January. If that wasn't depressing enough, the government released a batch of year-end statistics last week confirming the economy's continuing dismal shape. Retail sales, which account for one-third of all U.S. economic activity, fell 0.4% in December. For all of 1991, they inched up a meager 0.7%, the smallest gain in three decades. The cutback in spending led to plant closures. Industrial output fell 0.2% last month, and shrank by 1.9% in 1991, the first yearly decline since the 1981-82 recession. One piece of good news did emerge. The weak economy managed to contain inflation. Consumer prices rose a modest 3.1% in 1991, the lowest in five years.