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December 03, 2005

So Good It's Bad.

Yesterday, the WSJ featured an article by Brian Wesbury, an investment strategist, on current economic 'perceptions' that deserves your attention. A taste:

During a quarter century of analyzing and forecasting the economy, I have never seen anything like this. No matter what happens, no matter what data are released, no matter which way markets move, a pall of pessimism hangs over the economy.

It is amazing. Everything is negative. When bond yields rise, it is considered bad for the housing market and the consumer. But if bond yields fall and the yield curve narrows toward inversion, that is bad too, because an inverted yield curve could signal a recession.

If housing data weaken, as they did on Monday when existing home sales fell, well that is a sign of a bursting housing bubble. If housing data strengthen, as they did on Tuesday when new home sales rose, that is negative because the Fed may raise rates further. If foreigners buy our bonds, we are not saving for ourselves. If foreigners do not buy our bonds, interest rates could rise. If wages go up, inflation is coming. If wages go down, the economy is in trouble.

This onslaught of negative thinking is clearly having an impact. During the 2004 presidential campaign, when attacks on the economy were in full force, 36% of Americans thought we were in recession. One year later, even though unemployment has fallen from 5.5% to 5%, and real GDP has expanded by 3.7%, the number who think a recession is underway has climbed to 43%.

Mr. Wesbury thinks this spin reflects an underlying unease with globalization. Careful readers of this site may detect a different hypothesis favored herebouts. (And, in that vein, I recall your attention to Ace's Top 10 N.Y. Times Economic Headlines from last week for a bit o' funny.)

Anyway, regardless of the reasons for the media's economic good=badism, Wesbury's piece is worth a read.


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posted by Dr. Reo Symes at 12:09 PM

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