Stock Gyrations Won't Damage Economy --- Experts Say Sharper Drops Are Needed to Cause Tailspin
The lurching stock market may make consumers queasy, but it's going to take more than that to make them sick enough to trigger an economic downturn.</br></br>Think back to 1987. Then, the stock market's plunge was much more severe in percentage terms than any of the dips in the past few days. Still, outside of the financial sector, the economy didn't feel any ripple effects until around mid-1989, notes Donald Fine, chief market analyst for Chase Asset Management.</br></br>The 1987 market plunge was steeper than any of the market slides that have coincided with recessions in the past few decades. And many economists believe that, to hurt the economy, today's market would have to suffer consistent and considerably worse drops than it has shown recently. Even then, Mr. Fine says, "only at some future point" would it damage consumer spending and other economic sectors.</br></br>In the high-technology sector, where the recent drop has been severe, tumbling stock prices are a reflection of worsening industry performance, said Kenneth R. French, professor of finance at the Yale School of Management. Still, a continued stock price plunge in that sector, he said, might reduce its access to venture capital and inhibit initial public offerings.</br></br>In general, however, the wider economy is largely insulated from the stock market's volatility. True, more "little guys" have their money in the stock market today. According Federal Reserve numbers cited by James Poterba, professor of economics at the Massachusetts Institute of Technology, 38.4% of all U.S.households held some kind of stock in 1992, the latest year for which data are available, up from 33.2% in 1983. But one-third of the $8.4 trillion in corporate public and private equity is tied up in IRAs, 401(k)s and other retirement accounts, according to 1995 data from the Fed and Investment Company Institute.