NEW YORK — Many economists have been saying that the stock market's dive is a precursor to a recession. That isn't necessarily so.
According to the Weekly Economic & Financial Commentary, a Merrill Lynch newsletter, the stock market "has predicted 19 of the last 11 recessions" since 1929. That, of course, is a tongue-in-cheek way of saying that there have been 11 recessions since the Great Depression, but the stock market dropped sharply 19 times in the same period.
"It is a good but imperfect indicator," the newsletter said.
So what is the use of making such comparisons when they are not that valid?
"Why do people get excited when a baseball player hits .400? He has failed six out of 10 times," said Douglas Cliggott, senior economist at Merrill Lynch. "In a lot of areas, there are not many things that bat a thousand."
But what Merrill Lynch was really trying to do, according to Cliggott, is to "try to calm people and to allow them to realize in a historical framework that a move like this one does not guarantee a recession. One does not follow the other. While a sharp drop in the stock market raises the possibility of a recession, it does not guarantee it."