Economists Disagree On Shape Of Things To Come

May 19, 1991|By Kim Clark

Will the future be an L, V or W? A hockey stick or a camel's back?

After taking months to agree that the United States is actually suffering a recession, economists are now debating the shape of the much-hoped-for recovery by plotting graphs of everything from housing starts to sunspot activity.

Practitioners of the science have lined up this year's economic graphs with those of previous recessions to look for historical patterns. And they are using analogies ranging from typography to animal shapes to describe the graphs' message.

"It is like looking at the clouds," admits Elton Henshaw, director of the American Economics Association, a Nashville, Tenn.-based professional association.

"Around this time of the business cycle, economists do start talking alphabet," agrees Edward Yardeni, an economist who draws lots of graphs for the C. J. Lawrence investment firm in New York.

But it is far more important than mere ABCs. The difference between an optimistic U-shaped chart of employment, for example, and a bleak "double-hump" or "M" could mean the difference between paychecks and joblessness for millions.

So far, Mr. Yardeni's charts of employment, automobile sales, and factory shipments show continual declines. "It's an 'I,' " he says.

Maybe, he says, the charts will soon display L's -- and show a flattening of the decreases.

A sustained L -- showing a long period of stagnation -- "has never happened before," Mr. Yardeni says, explaining that graphs of past recoveries resemble U's or V's.

But, Mr. Yardeni says, "History always repeats itself, just never in quite the same way . . . there have been some pretty nasty structural changes in the economy" since the 1981-1982 recession.

The once-bullish Mr. Yardeni points to problems in the banking industry, continued pessimism among purchasing managers and drops in manufacturing employment, and sees "very few signs, if any, that the economy is picking up."

Others, however, argue that we're already on a V-path to economic victory.

"Contrary to the opinion of most forecasters, I think the recovery will be V-shaped rather than saucer-shaped," says William B. Hummer, who last year won the Annual Economic Forecasting Award for having made the most accurate predictions about the nation's inflation, employment and production rates over the past decade.

Mr. Hummer, an Illinois-based banker and stockbroker, spends his evenings and Saturdays working on his computer, making charts of all kinds of economic statistics and comparing them to similar charts he drew up for past recessions.

Although previous recessions followed somewhat predictable patterns, Mr. Hummer has been stumped by this one.

"I rely heavily on history. You cannot be very precise about the future without knowing the past . . . but right now I am impressed with the dissimilarities" of this recession compared with past economic contractions, he says.

In fact, it is the very confusion of charts tracking lowered interest rates, hints of upturns in real estate sales, and shrinking factory inventories that causes Mr. Hummer to buck his compatriots and to predict a sharp upturn in the next few months. "There are many mixed signals. That's typical of a transition period," he says.

Because of fundamental changes in our society, including improved communications and advanced economic understanding, Mr. Hummer says, "The patterns are much shorter. . . . Economic cycles are compressed. . . . When the turn comes, it could be sharper."

Larry Kimbell, head of economic forecasting for the WEFA Group in Bala-Cynwyd, Pa., is also optimistic, predicting a "reasonable chance for a hockey stick by summertime."

That means, he says, his charts of economic activity "will go flat and then up," in the shape of a hockey stick. But Mr. Kimbell warns that in his examination of past recessions, he's seen the possibility that this contraction could follow a pattern set in 1969 and 1980 and resemble a W.

The economy could improve slightly this summer, but then fall back into an economic morass late this year.

All of these predictions seem like froth on the ocean to Sam Nakagama, a longtime Wall Street economist who charts the relationship between sunspots and worldwide economic difficulties.

The sunspot index skipped over the current recession, which Mr. Nakagama blames on the war in the Persian Gulf.

But sunspots, which flare up in 22- to 23-year cycles and are linked with weather problems and droughts here on Earth, foretell widespread food shortages starting in 1994-1995, he says.

"Cycles of drought are periodic and recorded," Mr. Nakagama says. "This could be important in the middle of the decade."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.