by Joe Sullivan

The economic deterioration that started last year in Southeast Asia has spread to Japan, Russia, and Latin America. In seeming response to these global distress signals, the U. S. stock market has just taken its steepest plunge in more than a decade. And in a startling speech last Saturday, the usually circumspect chairman of the Federal Reserve Board, Alan Greenspan, cautioned that, "It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress."

So just what do all these harbingers of gloom mean for Knoxville? While there's no gainsaying that a downturn could be lurking just around some corner, so far at least the local economy has remained on a steadily upward course. Indeed, the recent trend in several key indicators has been toward better rather than poorer times. Consider:

* Using sales tax receipts as a measure of consumer spending, Knox County rang up growth of 5.9 percent in the year ended June 30 compared to the year before. In June (the most recent month for which data is available), the gain was a bubbly or perhaps blippy 9 percent.

* Despite the largest one-time layoff in Knoxville history (affecting 2,300 workers at Levi Strauss), employment growth has also been robust. According to the Tennessee Department of Employment Security, 195,540 Knox Countians held jobs in July, up 3.9 percent from a year before. This rate of growth is more than three times the national growth of 1.1 percent over the same period. And Knox County's unemployment rate of 3.7 percent remains well below the 4.5 percent rate nationally.

* After lagging during the early months of the year, new housing starts have moved ahead of the 1997 pace. According to The Market Edge, which gathers data for the Home Builders Association of Greater Knoxville, the 292 residential building permits issued in Knox County in August were the highest for any month in more than two years and for the first time pushed the total for the year to date ahead of the 1997 period.

The lowest mortgage interest rates in more than 30 years are clearly a major contributor to the home-building upswing, which also augurs well for sales of home furnishings and appliances. But Dell Akins, compiler of The Market Edge, believes that stronger job growth in Knox County is an even bigger factor.

The director of UT's Center for Business and Economic Research, Matthew Murray, isn't all that apprehensive about adverse impacts from afar. "There are enough islands of strength to keep the Asian flu from turning into pneumonia," Murray asserts. As for the skidding stock market, Murray says that, "If the market stays within a reasonable realm, I don't see a significant impact on the economy as a whole, but a severe crash could have spiraling effects."

Peter Temin, an economist at the Massachusetts Institute of Technology, doesn't even buy into the proposition that stock market crashes cause recessions. A recent article in The New York Times reports that, "After examining every recession this century, Temin concludes that only a minor downturn in 1903 was caused by falling stock prices. Some recessions were caused by anti-inflationary policies of the Federal Reserve Board. Others were caused by external events, like the oil price shocks in the 1970s. Even the Great Depression in the 1930s did not stem from plummeting stock prices. Chalk that horror up to persistent policy blunders here and abroad."

That's not to say declining stock prices don't have any adverse economic effects. A rule of thumb among economists has it that consumers cut back spending by about four cents for every dollar of wealth they lose. American stocks have lost about $1 trillion of their peak market value of $10 trillion over the past six weeks. Applying this rule of thumb would mean about a $40 billion drop in annual consumer spending, about one-half percent of total spending. That's certainly more than chicken feed, but it's not the stuff recessions are made of.

The law of the business cycle hasn't been repealed, though. And after seven years during which the good times have just kept rolling, a downturn seems inevitable at some point. But for the nonce, it's encouraging to see that Knoxville's economy has been getting warmer in the midst of both global and local chills.