The stock market made some history this week that's certainly encouraging - but only up to a point.
The history was made when the Dow Jones industrial average, the most widely quoted gauge of the stock market, closed above 3,000 for the first time ever. This event capped some previous record-setting by other market indexes.These milestones amount to a vote of confidence in the forecast of many economists that the American economy will pull out of the recession later this year and boost corporate profits.
That confidence is bolstered by some other constructive developments. Inflation is running at an annual rate of only 2.4 percent, the lowest since the summer of 1986. Because of lower gasoline prices, the cost of living went down in March. This good news about prices lends support to hopes that the Federal Reserve Board can lower interest rates without igniting a new round of inflation.
But don't start cheering yet. Despite widespread predictions that the recession would be short and mild, the slump that started last fall has been unexpectedly severe. First-quarter production by the Big Three carmakers was the lowest since 1982. Unemployment is at 6.8 percent, the highest in nearly five years, and could exceed 7 percent this month or next. Housing starts dropped 9.3 percent last month. Moreover, big retail chains continued their sluggish sales in March despite a boost from Easter.
Despite the stock market rally, then, the economy is still generating more questions than answers. Among them: Though this week's historic rise in the Dow should encourage investors to buy more stocks, can the rally be sustained? And, if interest rates are cut, will that be enough to jump start an economy suffering from high unemployment and a decline in family purchasing power? Stay tuned for further developments.