Letters to the Editor: Economic Soothsaying
Your Aug. 17 Abreast of the Market discussed the economic and investment outlook of my firm, particularly the recession forecast of our Macro-Economic Index.</br></br>I would like to clarify something: The Macro-Economic Index is a proprietary economic model and not related to, or based on, the National Association of Purchasing Managers' survey, as your column inadvertently suggested. The index began to weaken in advance of the purchasing managers' survey earlier this year.</br></br>The Macro-Economic Index forecast this record-setting economic expansion in August 1982 and, in all probability, will prove correct in its current recession forecast. The lead time of recession signals in our index over the past four decades is, on average, five months.</br></br>With regard to the current buoyant behavior of the equity market, to include a new record peak in the Dow Jones Industrial Average on Aug. 24, it is important to remember that the economy and the market were not in any way correlated in 1987. Just as the October 1987 "meltdown" in the stock market did not produce an economic recession (as we correctly predicted at the time), so the present strength in the stock market does not necessarily mean that the economy will avoid recession.</br></br>David B. Bostian Jr.