Signal from a busy Wall Street: Does it mean recession is over?

Wall Street records the busiest week in history; the Dow Jones industrial average rises to within a whisker of a 3 1/2-year high: Is it signaling something; is the recession over?

The signal from Wall Street coincides with recent government economic indicators that are generally favorable -- just as the annual meeting of the World Bank and International Monetary Fund prepares to gather in Washington.

But the news isn't all good:

1. Foreign economists report that recession is under way in industrial countries of Europe.

2. Though American recession may be coming to an end (or is actually ended according to some government observers) inflation is still intolerable and will average for the year around 12 percent.

3. The oil cartel has agreed to curtail output with no end to rising energy costs -- the dominant long-run factor in the present global economy.

4. If the US recession actually is sloping off, as one of the shortest in history, it will not have lasted long enough to have its theoretical "good" effects; i.e. braking the pricewage spiral and the course of inflation.

Investors made billions on Wall street last week: The Dow Jones industrial average of 30 leading stocks rose 27.22 points. This brought the average to 963 .74. It was 763.95 on April 6, 1978. The two-year climb has added billions in market values and has made on paper a new crop of millionaires even while unemployment is around 7.6 percent. Inflation, meanwhile, is currently around 10.4 percent -- down from the start of the year but still unacceptably high. Volume of stocks traded last week was the highest in history.

A series of favorable monthly repots on individual aspects of business and consumption came from government offices as the stock market boiled, leading chief Commerce Department economist Courtenay M. Slater to say flatly the recession is "over." But economic problem No. 1 is still inflation, and to meet this problem various banks have been boosting their prime interest rate. If inflation continues, the Federal Reserve Sytem is likely to apply its own brakes -- tightening credit and reducing money in circulation by raising the cost of borrowing money. It is at this point that inflation and recession overlap, for tight money slows business activity.

Into this volatile situation the American presidential election reaches its climax, and officials of the World Bank gather here to put the situation into global perspective.

On the political front, a chief difference in Congress is whether there should be a stimulative tax cut now, as advocated by Ronald Reagan supporters, or whether the country should wait as the carter leadership proposes. The broader political issue is why the nation developed in the first place the severe unemployment-inflation which has come since Gerald Ford left office.

Oil is one explanation.

"The disappearance of cheap energy," says the International Finance Corporation, a World Bank affiliate, in its annual report, "is the dominant economic fact and paramount problem of our times."

The World Bank will appraise the situation as it convenes here. Oil prices have risen 64 percent this eyar over last. Higher oil costs, plus general inflation, are producing social unrest throughout poor lands over the world, it is belived.

You've read  of  free articles. Subscribe to continue.
QR Code to Signal from a busy Wall Street: Does it mean recession is over?
Read this article in
https://www.csmonitor.com/1980/0922/092232.html
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe