Most persons cannot get enough good news.
But Wall Street investors - especially those who manage the pension funds, bank trust deparments and other big investment pools - seem to be looking for as much bad news as they can find.
At a time when most economist predict continued good growth for the next year and a half, although at a somewhat slower pace than the heady 7 per cent expansion of the first half of 1977, the markets continues to drift along listlessly, as it has for the last 18 months.
The portfolio managers really do not believe the economists, market observers say, and prefer to seize on the few scattered signs that economic growth may grind to a halt while inflation continues at a 6 per cent rate.
Economists, for the most part, see the same signs that the market investors see: The index of leading economic developments months ahead, turned down slightly in May. Business investment, a key to sustaining the two-year-old economic recovery, is increasing but at a slower pace than some hope. Some economists worry that consumers have borrowed too much and may be reluctant to continue buying at a pace fast enough to guarantee continued recovery. Businesses have been adding to their once heavily depleted inventories since the first of the year, but will slow their inventory acquisitions in the coming months.
Market participants seems to interpret these signs as ominous. As a result, stock prices are severely depressed.
Most economists, on the other hand, think the recent developments confirm what most of them have been predicting all year: The economy will continue to grow and create jobs in the second half of the year, just not as quickly as if did between January and June.
Herman I. Liebling, a Treasury consulting econimist and professor at Lafayette College, notes that home building continues strong, the capital goods expansion seems to be in gear, and whatever may be said about consumer indebtedness, both consumers and businesses seem to be in strong financial shape. Liebling maintains that while consumer spending may lessen a little in the future, it still will be strong.
At the same time that the economy continues to grow, short-term interest will, too, especially as business loan demand perks up. But these interest rates are not expected to rise high enough or fast enough to choke off the recovery.
Inflation also has started to cool from its torrid pace earlier in the year. The June wholesale price index tumbled 0.6 per cent. Still, the inflation rate is high by any historical standard.
Most economists think that a slowdown in growth is a good development. While faster growth than the 4.5 per cent to 5.5 per cent pace envisioned by most economists would speed the decline of the unemployment rate (which rose slightly in June to 7.1 per cent from May's 6.9 per cent), it also might create heavier inflationary pressures that could in turn abort the recovery.
The costs of ruining the recovery would be much greater than the gains of a slightly higher growth rate, according to one architect of congressional fiscal (or spending) policy.
Congress, which must adopt a final 1978 budget within the next few weeks, is not expected to make many charges in spending policy.
"There is a higher degree of pessimism and skepticism among investment decision-makers than among economists themselves," according to Eric T. Miller, chairman of the investment policy committee at Oppenheimer & Co.
Investment managers "tend to stress the negatives and are overlooking the way things are really falling into place about as well as anyone would have hoped for two years ago and even a year ago," he added.
Investors have some reason to be skeptical about economic forecasts. Forecasters have been caught by surprise by several of the developments in the 1970s. No one expected the severity of the 1974-75 recession, the intransigence of inflation or, for that matter, the prolonged pause in economic growth that occured from the spring of 1976 until late last year.
But economists could not have expected some of the developments of the mid-1970s that thoroughly upset their economic models. Severe crop failures, simultaneous economic booms among industrial countries that created severe commodity shortages and inflation, as well as a five-fold increase in oil prices had major impacts on the world economy that models could not have foreseen.
If there were any forecasters who were right about the 1973 inflation and the 1974 recession, they were right for the wrong reasons, noted one major, chastened economist.
While economists have been off in discerning quarter-to-quarter growth in the last year and a half, they have been reasonably accurate in predicting yearly inflation and growth rates. And the economists who advise investors are not saying things much different than those who advise Congress, the administration or business.
A. Gary Shilling, chief economist and senior vice president for White Weld & Co., said the extreme caution businessmen have exhibited in making expansion commitments have led to what to calls "microcyles," that compress all the elements of a full business cycle into a short period of time.
"Every time inflation kicks up, businessmen pull back, they cut their inventories and then we get a pause," he said. "This causes a reduction in inflation, and then we see an improvement in corporate profits."
These nine-month-to-a-year microcycles, which keep the economy from running off on a full boom or plunging into a recession, also have provided the base for a more prolonged expansion that could continue until 1981 or 1982, Shilling said.
But the stock market's reaction is perplexing, Shilling complained."When we're in the boomlet phase, investors say profits are going up, but inflation is a problem. But in the down phase, they say inflation is coming under control but profits will soon be slowing down. It's really the same kind of caution that infects the economy."