Friday, November 02, 2007

Why we remain unimpressed 

Non-economists seem to be pretty displeased with economists and the media who continue to argue that the economy is heading for the shoals. In a couple of posts, my good friend Captain Ed wonders why we're pessimistic in general in America and thinks it has to do with the media coverage. John Hinderaker points out that the New York Times changed their lede on the employment report this morning, expecting bad news. You can't really fault them for that -- the consensus of forecasters (according to Bloomberg this AM) was for 80,000 jobs rather than the 166,000 reported. Believe me, most of us who look at this stuff for a living were surprised. Investors Business Daily opines, meanwhile, that all of the negative press has created cognitive dissonance in voters and consumers.

Some of us -- and at risk of annoying my fellow NARNians Ed and John, I am in this camp -- remain unimpressed by this number, the GDP report from Wednesday, or much else. I could make this a long post, but it's late and I'm in need of dinner and an evening walk with Littlest.
  1. If you are saying that consumer confidence is being harmed by the news, I don't really think the sentiment measures bear that out. The Conference Board index has shown a decline the last few months, but we haven't reached the two-year lows. Given what's happened in housing, the decline is to be expected, and doesn't feel out of line.
  2. It's hard to argue things are going swimmingly the same week the Federal Reserve cuts the Fed Funds target. In its directive the Fed stated "the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction." The Fed knew the GDP number before issuing that statement, and probably knew the employment report in broad terms. The Fed seems to have switched back to a neutral stance for the moment though they will "continue to assess the effects of financial and other developments on economic prospects." That does not sound like a real vote of confidence.
  3. Employment is at best a coincident indicator of the economy; Nouriel Roubini argues that it is even lagging. Some think the recession might occur this quarter, but I think the majority view is that, should one come, it's more likely to be in the first quarter next year. So employment wouldn't swing down just yet. Even so, average growth since June has barely made 100,000 jobs a month, which is not nearly so fast as earlier in this expansion ... and this has been a pretty slow expansion for jobs. Up here in St. Cloud, the expansion of the manufacturing sector may be the only thing keeping the local economy from slipping into recession, and that might not last if the latest national figures are true here as well.
  4. If you look at the jobs report, where are the losses? Pretty much every goods-producing firm. If you think about which industries turn first when a recession begins? Yes, the goods-producing sector.
I'm not saying, I'm just saying...

UPDATE: Looking before bed, I see this wasn't posted when I thought it was.