By Carl T. Hall San Francisco Chronicle With the notable exception
of rising stock prices, most of the standard signals of an improving
economy have yet to show up as layoffs spread and the ground war
Construction and real estate, consumer confidence, durable-goods
manufacturing, employment and a host of other so-called leading
indicators haven't corroborated the bullish message from Wall
Many experts say a successful end to the gulf war is a key
ingredient in a recovery scenario. For now, about the best
interpretation that can be drawn from the latest economic evidence
is that, while the economy doesn't appear to be getting any better,
it's not getting a whole lot worse, either.
``At least there's not a continuing free-fall,'' said David
Cohen, an economist at MMS International, the McGraw Hill
financial-services subsidiary based in Belmont. ``But a resolution of
the Mideast conflict will probably be necessary before we see any
Even so, the stampede into equities has fueled legitimate hopes
for a summer recovery. Stock prices often rally a few months before
the end of a downturn, when investors, sensing a recovery, try to
beat one another to the bargains.
Recessions last 11 months on average. If this one is dated as
beginning in August - as most experts believe - then a January
stock-market rally would be right in line with the usual pattern if
recovery comes about June or July.
The U.S. Commerce Department lumps stock prices and 10 other
so-called leading indicators into a single composite index, which is
put through a statistical adjustment designed to smooth out
inconsistencies in the data.
The theory is that while any indicator can emit a false signal,
most won't err at the same time, nor in the same direction. Thus,
the composite index, at least in theory, tends to be more accurate
than any of its parts.
The index rose a negligible 0.1 percent in December, according
to the Commerce Department's preliminary estimate, after declining
sharply for four months. A survey of 30 economists by MMS suggests
an additional 0.4 percent decline occurred in January. There's also
a distinct chance December's figure will be revised downward.
``The stock market is taking a great deal on faith,'' said Lacy
Hunt, chief U.S. economist at HongkongBank group in New York.
Here's a closer look at some other classic early signals of
- Faster growth in the nation's money supply.
When the Federal Reserve reduces interest rates, it's supposed
to generate additional bank lending, which in turn leads to
increased business investment and consumer spending. Even before
the economy picks up, an easier credit policy should show up as an
increase in the nation's money supply.
The Fed began to aggressively ease interest rates in December.
So far, there's been little impact on the most closely followed
money-supply measure, known as M2, which includes cash in
circulation, checking accounts, savings deposits and money-market
For the 13-week period ended Feb. 11, M2 grew at an annual rate
of only 1.3 percent over the previous period. During the past year,
M2 has grown 3.3 percent, near the bottom of the Fed's target range
of 3 percent to 7 percent.
To revive the economy, growth in the money supply has to exceed
inflation. But the latest figures - including a Labor Department
report last week showing consumer prices rose a higher-than-expected
0.4 percent in January - suggests this hasn't happened yet.
Fed interest-rate policy typically takes at least six months to
spur economic growth. Many experts predict a longer lag this time.
Even though interest rates are down, banks are said to be less
willing to extend credit in the aftermath of the S&L debacle and the
drop in commercial real estate. …