The Economy -- Capital: Struggling Stocks Threaten the Economy
FOR A TIME, there was a reassuring story to tell about the stock market and the economy. Stocks rose in a speculative frenzy, and then fell. But the U.S. economy recovered surprisingly quickly from Sept. 11, aided by the irrepressible American impulse to shop, plus a round of interest-rate cutting. The market was sick. The economy wasn't. Silicon Valley paper millionaires stopped buying Porsches. The rest of us kept buying Chevrolets.</br></br>The magnitude, the speed and the circumstances of the stock-market decline are threatening that comforting story. Unless the market touches bottom soon -- and despite yesterday's spectacular bounce in stock prices, there is no assurance of that -- it is going to yank the economy down with it.</br></br>We may not sink back into recession. But if we have a few more bad weeks on Wall Street, you can rip up those forecasts about the economy growing at a 3.5% annual pace in the second half. Instead, the economy will slow so much that unemployment starts climbing again and the much-delayed resumption of business capital spending will be delayed still further.</br></br>History offers lots of lessons at a time like this. It's just hard to tell which ones to apply. After the 1987 stock-market crash, consumers paused for a bit, but the economy barely faltered. In 1998, the stock market dropped, and two fantastic years followed. Seven of the 14 bear markets since 1929 didn't coincide with recessions. But seven did, and the damage that a bursting bubble did to Japan is a reminder of how badly things can go awry even in a wealthy, modern economy.</br></br>The economic fundamentals in the U.S. are still strong. The White House and Alan Greenspan are right about that; they aren't mindlessly reciting Herbert Hoover's memoirs. The very resilience of the U.S. economy, so far, has been impressive. And technology's productivity-producing benefits haven't evaporated with all those dot-coms.