In 1987, just before market crash, many didn't expect a recession and the Dow was setting new records daily just four months ago, here is the news:
Friday 10/16/1987
Stock plunge hits blue chips, local firms/Experts say recession not likely
WASHINGTON - Despite two weeks of run-for-the-hills, panic-in-the-streets financial news, most experts doubt that the United States is sinking into another business recession.
Stock prices, down a record 108 points on Friday, have fallen like a rock this month. Interest rates are up sharply, increasing monthly house payments and making it more expensive to buy a car on credit.
But economists say the economy is fundamentally sound; the unemployment rate of 5.9 percent is the lowest since 1979; exports are up, and the inflation rate, though higher than last year, is unlikely to pop through the roof anytime soon.
The Labor Department reported Friday that wholesale price increases are running at a moderate 3.6 percent rate so far this year, even though imported goods are more expensive and the price of oil is pushing toward $20 a barrel.
The main fear is that investors and consumers will overreact to the falling stock prices, creating a self-fulfilling recessionary psychology that could scuttle the Christmas shopping season.
"It's a scary time," says Donald Straszheim, chief economist for Merrill Lynch in New York.
Even the White House is concerned that Americans will talk themselves into a downturn when most of the economic indicators point to continued economic growth.
President Reagan's budget director, James Miller, calls it "a sensitive situation."
There is no denying that the Dow Jones industrial average of 30 blue-chip stocks has fallen to 2246. That's 476 points below the late-August peak of 2722. Much of the loss came on Oct. 6, when the Dow fell 91 points, and the last three days of this week, when the Dow fell a total of 261 points.
On a percentage basis, however, the current slump is less severe than the stock market crash of October 1929, when stock values plunged 23 percent in two days.
Whether the bull market has gone bearish is disputable.
"There is no evidence yet that the bull is over," says Anthony Tabell, a market analyst in Princeton, N.J. "It depends on what happens after the market stabilizes. It's too early to guess."
Straszheim is more skeptical. "It doesn't look good for the market," he says. "People are paranoid about prospects for the dollar and interest rates."
Interest rates on home mortgages have climbed to 11.5 percent, up 2 percentage points since spring. They are likely to keep rising as lenders anticipate a weaker dollar, tighter money and more inflation.
"The hike in mortgage rates has increased the payments on a modest, $80,000 mortgage by more than $100 a month," says Jim Fischer, president of the National Association of Home Builders. "Thousands of potential buyers are being bumped out of the market."
Fischer, a builder in Nashville, Tenn., says he fears "a stampede in financial markets, a sort of herd mentality that pushes interest rates even higher for no rational reason."
Housing economists Lyle Gramley and Michael Sumichrast say they expect fixed-rate mortgages to reach 12.5 percent next year.
Many observers blame the jumpy stock market and rising interest rates on the big U.S. trade deficits with foreign countries and the inability of Congress and the Reagan administration to reduce the federal budget deficit for 1988.
Trade deficits normally promote inflation by weakening the exchange value of the dollar. Budget deficits feed the trade deficit by pumping money into the economy for the purchase of foreign goods.
Friday 10/16/1987
Stock plunge hits blue chips, local firms/Experts say recession not likely
WASHINGTON - Despite two weeks of run-for-the-hills, panic-in-the-streets financial news, most experts doubt that the United States is sinking into another business recession.
Stock prices, down a record 108 points on Friday, have fallen like a rock this month. Interest rates are up sharply, increasing monthly house payments and making it more expensive to buy a car on credit.
But economists say the economy is fundamentally sound; the unemployment rate of 5.9 percent is the lowest since 1979; exports are up, and the inflation rate, though higher than last year, is unlikely to pop through the roof anytime soon.
The Labor Department reported Friday that wholesale price increases are running at a moderate 3.6 percent rate so far this year, even though imported goods are more expensive and the price of oil is pushing toward $20 a barrel.
The main fear is that investors and consumers will overreact to the falling stock prices, creating a self-fulfilling recessionary psychology that could scuttle the Christmas shopping season.
"It's a scary time," says Donald Straszheim, chief economist for Merrill Lynch in New York.
Even the White House is concerned that Americans will talk themselves into a downturn when most of the economic indicators point to continued economic growth.
President Reagan's budget director, James Miller, calls it "a sensitive situation."
There is no denying that the Dow Jones industrial average of 30 blue-chip stocks has fallen to 2246. That's 476 points below the late-August peak of 2722. Much of the loss came on Oct. 6, when the Dow fell 91 points, and the last three days of this week, when the Dow fell a total of 261 points.
On a percentage basis, however, the current slump is less severe than the stock market crash of October 1929, when stock values plunged 23 percent in two days.
Whether the bull market has gone bearish is disputable.
"There is no evidence yet that the bull is over," says Anthony Tabell, a market analyst in Princeton, N.J. "It depends on what happens after the market stabilizes. It's too early to guess."
Straszheim is more skeptical. "It doesn't look good for the market," he says. "People are paranoid about prospects for the dollar and interest rates."
Interest rates on home mortgages have climbed to 11.5 percent, up 2 percentage points since spring. They are likely to keep rising as lenders anticipate a weaker dollar, tighter money and more inflation.
"The hike in mortgage rates has increased the payments on a modest, $80,000 mortgage by more than $100 a month," says Jim Fischer, president of the National Association of Home Builders. "Thousands of potential buyers are being bumped out of the market."
Fischer, a builder in Nashville, Tenn., says he fears "a stampede in financial markets, a sort of herd mentality that pushes interest rates even higher for no rational reason."
Housing economists Lyle Gramley and Michael Sumichrast say they expect fixed-rate mortgages to reach 12.5 percent next year.
Many observers blame the jumpy stock market and rising interest rates on the big U.S. trade deficits with foreign countries and the inability of Congress and the Reagan administration to reduce the federal budget deficit for 1988.
Trade deficits normally promote inflation by weakening the exchange value of the dollar. Budget deficits feed the trade deficit by pumping money into the economy for the purchase of foreign goods.