Trade your computer for a crystal ball

By Alan M. Gayle Vice President & Corporate Economist Crestar Bank

Tug "ANALYTICAL"

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I proach to making economic projections is to examine the current trends for the major components of the economy,lmpose some policy guidelines and forecast. Through the first three quarters of 1987, one would quickly see that the consumer spending was holding firm and the confidence level was high. Businesses seemed to have weathered the import surge, and had begun both hiring and spending.

The trade deficit was still a sticky problem, but the odds suggested that the worst was behind us. This set of assumptions (along with few others) would lead to the conclusion that the economy was on firm footing with the best guess being continued growth, slightly higher inflation and moderately higher interest rates.

So much for the "analytical" approach. The stock market crash on October 19 has forced analysts to abandon this approach to forecasting in favor of identifying probable forces and their effect on an uncertain world.

The drop in stock prices has had two major effects: a drop in wealth and a loss in confidence. The first effect is relatively easy to assess. The decline in wealth has been estimated at $l-$1.5 trillion. However, the decline in consumer and business confidence is a tricky and fragile concept to measure, and in the end will determine the extent of the probable economic slowdown. The reaction to the stock market drop as measured