[dude1394]

Engram has a post on this impending doom...And as usual he does it better than I.

http://engram-backtalk.blogspot.com/...ct-future.html

I'm increasingly struck by the fact that "news" stories about the state of the U.S. economy largely consist of some reporter's predictions about the dire situation that awaits us -- as if people have accurately predicted the future before, so we should pay close attention to their predictions now.

Here, for example, is part of a new story at MSNBC about a big drop in jobless claims:

The government will release the November employment report on Friday. It is expected to show that the jobless rate edged up to 4.8 percent, from 4.7 percent in October.

Overall economic growth is expected to slow to a barely discernible 1.5 percent in the current October-December period and weaken even further in the first quarter of 2008.

Analysts said growth rates this low raise the threat of a possible recession.


All of this may turn out to be true, but my point is that no one really has the slightest idea if it will. They are just making it up, as they always do, and it is one of reasons why Americans have failed to appreciate their fabulous economy for last 4 years. The future has been continuously bleak since 2003 despite the fact that, in the past 4 years, we've witnessed an American economy that has performed spectacularly well and that was unsurpassed by any major industrialized nation on earth.

As I noted in an earlier post, in the second quarter of this year, analysts looked ahead to what would happen in the third quarter with respect to GDP growth:

Most economists expect the economy to slow in the third quarter, which ends Sunday. The median forecast by economists surveyed by MarketWatch for third-quarter GDP is 2.3%, followed by a further slowdown to 1.5% growth in the fourth quarter.


They expected 2.3% growth in the third quarter, but here is what actually happened:

U.S. economic growth fastest in four years

GDP for third quarter steamed ahead at revised 4.9 percent rate

WASHINGTON - The economy barreled ahead in the summer, growing at a 4.9 percent pace.


If you double the prediction, you still come in below the actual figure. My point is that no one can predict the future, but just about every story I read sticks with the 1.5% growth forecast for the fourth quarter anyway (as if that prediction is actually meaningful).

A slew of economic news came out yesterday. Analysts had expectations about what these reports would show. Were they right or wrong? Let's start with factory orders:

Factory Orders Up Unexpectedly

WASHINGTON (AP) — Orders to U.S. factories unexpectedly rose in October although much of the gain reflected higher energy prices.

The Commerce Department reported that orders advanced by 0.5 percent in October, far better than the flat reading that had been expected. However, much of the strength came from a big jump in the cost of petroleum and other energy prices, which pumped up orders at oil refineries and chemical plants. The orders figures are not adjusted for changes in prices.


If you always expect the worst, good news is unexpected. Bad news rarely is. Let's now take a look at a private sector jobs report:

US jobs report eases fears of sharp slowdown

Employment in the private sector rose almost four times faster than expected last month, according to an estimate from ADP, the payroll services firm, soothing fears that the credit crisis is about to cause a sharp economic slowdown.


Faster than expected? You don't say. That's just a polite way of saying that, yet again, negative expectations were wrong. Next, let's consider productivity:

Productivity lift for US economy

US worker productivity was at its strongest in four years in the three months to October, official data shows.
The US Labor Department said that productivity, or output per hour of work, rose at an annualised pace of 6.3% in the third quarter.
...
The jump in productivity was higher than economists were expecting.


Higher than economists were expecting? Get out. Who would have ever thought that possible?

You have to look at the past to evaluate the strength of the American economy. Looking forward, things have been terribly bleak for 4 straight years. Looking back, we've enjoyed the greatest economy on earth. And, no, there is no debate about that. If you disagree, you simply have not investigated the matter for yourself. Instead, you've allowed mainstream media reporters to do your thinking for you (never do that), or you, yourself, have suffered financially, and you've generalized your personal circumstances to the larger economy. By contrast, I've examined all of the relevant statistics and gauged the strength of the American economy across time (e.g., over the last 25 years) and across place (e.g., in comparison to the nations of the G7). When you do that, you get a big surprise because you discover that the bleak future we've suffered through for the last 4 years ended up being a fabulous past 4 years.

Attach great weight to economic statistics from the past (because those numbers are sound), but attach very little weight to dire predictions about the future. If you are not convinced that you should follow this recipe, just look at the next two predictions. The first is a survey of Chief Financial Officers:

Survey finds CFOs are gloomy about economy

Optimism about the economic outlook has dropped among chief financial officers in Europe and the US, as concerns rise over the turmoil in credit markets, according to the quarterly CFO global business outlook survey.

The survey of 1,275 CFOs globally found pessimists outstripped optimists in the US by eight to one, the biggest margin since the survey began in 2001.


Oh no. That sounds bad. CFOs know what they are talking about, after all. The next is a survey of top corporate executives:

Corporate Leaders Upbeat on Economy

WASHINGTON (AP) — The country's top corporate executives foresee pretty good business prospects even as the economy gets squeezed by a housing collapse, a credit crunch, Wall Street turmoil and high energy prices.

A survey by the Business Roundtable, released Tuesday, showed that most executives expect sales, capital investment and hiring to remain at current levels or even improve in the coming months.

While the economy's problems have caused consumer confidence to tank, the survey's results suggest that corporate executives' assessment is that the business climate remains generally healthy despite all the strains.


You see? No one knows. Even so, the media reports good news about the economy as being a temporary deviation from negative expectations -- nothing more than a short postponement of the inevitable economic disaster. Ignore all of that and base your opinion about the strength of the American economy on where it has been for the last 4 years, not where some pessimist thinks it will go in the next quarter or two.

Economic growth in the fourth quarter of this year may very well be low. Or it may be moderate, and it might even be high. We'll just have to wait and see. Even if it is low, it may or may not mean anything. GDP growth was a mere 0.6% in the first quarter of 2007, but that was followed by two quarters of absolutely smashing growth (3.8%, then 4.9%). Although we don't know what the future holds (and this applies to Iraq and the global climate as well), we do know that (a) reporters are always happy to tell you how bad George Bush's economy is and (b) in truth, the economy has been phenomenally impressive for 4 years in a row (following the 2001 recession caused by the dot-com crash and the attacks of 9/11).

Let the evidence influence your opinion about the American economy. The evidence lies in the past. What the future holds is anyone's guess, so don't be hysterical about that.