Plotting an economic course after `Black Monday'. For time being, economy seems to be rolling along

One month after ``Black Monday,'' the United States appears to be bumping along as if it had experienced a 50-point drop in the Dow, not a 500-point drop. Many economic signals that have come out since the Oct. 19 plunge - in retail sales, in employment, and even in the stock market - are encouraging, but economists say they are too preliminary to suggest a trend.

In fact, yesterday, the government announced that housing construction plunged 8.2 percent in October, the biggest decline in more than three years in a setback analysts blamed on rising mortgage rates and fears over the collapse of the stock market.

To many historians there is some d'ej`a vu to all this. In late 1929 and early 1930, for example, the stock market recovered more than 40 percent of what it had lost during its October crash.

Today, few economists are predicting a full-fledged recession; in fact, a poll taken after the market plunge showed most economists paring down their estimates of growth, rather than forecasting a downturn.

The government, meanwhile, is trying to avoid even the echoes of 1929. David Wyss, an economist at Data Resources Inc., gives the government fairly high marks on its handling of the immediate crisis.

The Federal Reserve pumped $10 billion into the system in the two weeks after the drop and said it would not let major banks fail. White House and Congress promise action to reduce the budget deficit.

The Hoover administration handled the immediate aftermath to the 1929 crash with equal deftness, Dr. Wyss says. Things began to fall apart a few months later when longer-term policies went awry. For example, the White House stood by as the money supply contracted and banks went out of business. Later, it raised taxes so it could balance the budget, even though the country was in a depression.

Obviously, there are crucial differences between 1929 and 1987. Before the plunge this year, the US economy was expanding; in 1929, it was already in recession and thus more fragile.

The 1929 crash also led to safeguards. For example, today's stock market investors are restricted in how much stock they can buy on margin, and a drop in prices does not hurt them as much as it did in 1929. Most important, the banking system is insured, so a run on banks - a major reason for the Great Depression - is highly unlikely today.

``These reforms have been very successful in isolating the stock market,'' says Barry Bosworth, an economist at the Brookings Institution. It's similar to the way ``we put Las Vegas in the middle of the desert. We said, if those people want to go out there and gamble, take losses and gains, fine; but it really does not affect the rest of the economy,'' he says.

In a way, the safeguards make the government's task more difficult. ``The stock market is a lousy indicator of what's going to happen to the economy,'' Wyss says, noting that Wall Street has predicted ``eight out of the last four recessions. The Fed has to draw a fine line because it's not sure there's going to be a recession.''

He says the Federal Reserve policymakers should continue a relatively loose policy of lower interest rates to keep the US and other countries out of recession. But he and others are also concerned about inflation; and inflationary fears were a major reason the stock market got so skittish and finally plunged.

Even today, says Dr. Bosworth at Brookings, ``The greatest threat we face is not recession, but excessive inflationary pressures.''

As for the other main concern - the federal budget deficit - the path is a little more obvious, economists say. As with the Hoover administration in early 1930s, the government is running a deficit. But while reducing the budget was the wrong choice during the Great Depression, it is the only choice today, most mainstream economists say.

But to avoid pushing the country into recession, ``we need a small and mainly symbolic tightening of the 1988 and '89 federal budget,'' says Francis Bator at Harvard University's Kennedy School of Government.

Any more than $30 billion this year and $40 billion next year, he and others say, risks recession. And while other economists like Bosworth want deeper cuts, most concede that would be politically impossible in an election year.

Economists say Congress holds the cards for making the biggest mistake for the economy in the long term: protectionist trade legislation. The trade bill before Congress ``isn't Smoot-Hawley, but it looks an awful lot like it to an outsider,'' Wyss says.

The Smoot-Hawley law in 1930 put up prohibitive tariffs on foreign imports. The drop last month seems to have put today's trade bill on hold. And that's a good thing, Bosworth says, since trade is a relatively bright spot on the economic horizon.

Consumers, who control two-thirds of the economy with their buying decisions, will have a big say in how the economy fares.

Consumers say they are cautious; indeed, some stores that cater to more affluent buyers - the people most affected by the stock market - are feeling a slight pinch. But on the whole, popular nervousness has not yet translated into action.

And if past is prologue, the country can count on the American consumer to help buoy the economy, says Edward Yardeni at Prudential-Bache. ``If there were an olympics in consumption, Americans would get the gold, silver, and bronze.''