Investing in Anticipation Of an Economic Recovery
"We believe that a recovery has already started and that growth will be stronger than expected in the first half of this year," concludes Edward S. Hyman, a well-known Wall Street economist and president of International Strategy and Investment, an economic consulting firm in New York.</br></br>To support his case, Hyman argues that with the economy having been in recession for two years, consumers have been able to pay off some of their installment debt and increase their savings, and banks have had time to get healthier. Second, short-term interest rates have been halved over the past two years, and M2, a measure of money supply, has grown 4.6 percent since October, indicating that monetary policy has become stimulative. Third, in 1991 bank regulators were restrictive, and now they have become more accommodative.</br></br>Anecdotal evidence that a recovery has begun includes firming or increasing retail, auto and housing sales; better business at travel, high-tech and fast-food companies; slightly higher commodity prices; first-time unemployment claims have stabilized at 450,000; and an increase in machine-tool orders of more than 70 percent since mid-1991.</br></br>Hyman also cites the fact that the financial markets are pointing to a recovery. "Cyclical stocks have taken the lead in the stock market. Bonds have slumped. The dollar has firmed," he said.</br></br>A big boost to the economy in the future will come from the fiscal stimulus of an election year, Hyman said. The 1992 federal budget, minus spending for the savings and loan rescue, will increase by a whopping 12 percent.