Dependable indicators

Herb Greenberg

March 15, 1991|By Herb Greenberg | Herb Greenberg,Chronicle Features

Some economic indicators are better than others. Mitchell Held, Smith Barney's chief financial economist, has a strong opinion on the subject, so strong that he recently headlined a report, "Three Economic Indicators to Take With You Should You Be Stranded on a Desert Island."

OK, so the economy and its chances for recovery may be the last thing on your mind if you're stranded on a desert island. But these indicators have worked well for Held, who says: "They'll pick up acceleration or deceleration in the economy two-thirds of the time, which is better than many economists can do."

Let's consider the indicators:

First there is the figure showing first-time claims for unemployment insurance, released every Thursday afternoon. They've been holding steady at about 450,000 to 500,000, except for three weeks ago, when the figure was 520,000. The government yesterday said initial claims on a seasonally adjusted basis declined 34,000 to 474,000 in the week ended March 2.

Held would like to see the figure stay steady, in the sub-500,000 range, for several weeks before he can get more enthusiastic. "Increases would signal the possibility of a deepening recession," he says.

Next is the employment-diffusion index, the percentage of industries that increased total employment in any given month. This indicator is reported monthly along with the usual unemployment data. Typically, employment doesn't rise until the diffusion index shows a sustained increase. It has dropped for the past two months.

Finally, there are spot industrial commodity prices, which are reported daily in several national financial newspapers. When manufacturing activity increases, they start rising. Right now the signals on spot prices are mixed: The Commodity Research Bureau index has stabilized for the past half-dozen sessions, while the Journal of Commerce index has fallen. "A mishmash of data is typical of turning points," Held says. He says that Smith Barney takes a more upbeat view, that the recession is over, though the pace of the recovery will be slow.

On the market: Expect the Dow Jones industrial average to continue teasing investors for at least several more months.

Over-the-counter-stock maven Jim Collins, of Moraga, Calif.,-based OTC Insight newsletter, told me that he doesn't think the Dow can break through 3,000, and stay there, until two things happen: a fall in the rate of 90-day Treasury bills to about 5.5 percent from the present 6.25 percent, and a decline in long-term rates to about 7.5 percent from more than 8 percent.

The probability of those developments in the next few weeks is not very high, he says, because the Federal Reserve hasn't yet grasped how bad the economy is. But longer term, over the next few months, "it's very likely." As the indicators continue to slump, he suspects, the Fed would try to pump more money into the economy by cutting rates, which in turn would be the catalyst for stock prices to clear the psychological hurdle of 3,000.

Collins, whose newsletter is regularly ranked near the top by the Hulbert Financial Digest, was extra bullish in October, when the NASDAQ industrial index was about 51 percent lower than it is now. He says that by-and-large over-the-counter stocks have moved up to a "fair" market value.

Stockbroker Joan Getsinger of Donaldson, Lufkin & Jenrette in San Francisco, who was recently named for the second straight year to Money magazine's 10-member All-Pro Stockbroker team, returned from Europe this week, even more bullish than she was before.

While there, she met with a number of private bankers in Zurich, who told her that the U.S. stock market is the only one they want to invest in. They told her that the rest of the world is too volatile.

The bulk of her portfolio consists of blue chips such as Philip Morris and PepsiCo, which she still considers bargains.

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