August 5, 2005

The Economy Must Be Good Since You’re Not Hearing About It: 080505 Installment

Filed under: Economy,MSM Biz/Other Bias — Tom @ 3:30 am

August 8 Update: Welcome Atlas Shrugged Shruggers, and thanks to Pamela for the great writeup (combined with discussion of last Friday’s good employment numbers), and the kind words. Pamela, in her characteristic to-the-point fashion, says: “Can you imagine if these were the numbers of a Democrat Administration? They’d be chiseling Mount Rushmore as we speak.” Indeed.

Four items of economic news that have been underplayed, apparently in the interest of finding one missing teenager (whose family has my deepest sympathies, but not my 24-7 attention), and uncovering who-knows-what in the adoption records of the two children of the Supreme Court nominee:

1. Did you know manufacturing (manu-what?) has been on a sustained tear?

Manufacturing growth accelerated in July, continuing steady and historic consistency (bold is mine):

NEW YORK (CNN/Money) – The nation’s manufacturing sector grew at a faster pace in July, according to a survey of industry executives released Monday that contained lots of good news for Wall Street expectations.

The Institute of Supply Management’s survey of executives at goods-producing companies came in at 56.6, the best reading of 2005 and up from the 53.8 reading in June. The closely watched survey, one of the first economic readings for July, had been forecast to rise to 54.5 in July.

Any reading above 50 constitutes growth in the sector, so Monday’s survey means that manufacturing has grown for 26 straight months, the longest expansion in the sector in more than 16 years, since nearly three years of uninterrupted growth ended in April 1989.

I just love it when the “best since” numbers predate the 1990s.

2. Did you realize that the stock market has been performing well recently?

The NASDAQ is just about at a 4-year high. And imagine this–Not that the dollar amounts are enough to guarantee lifetime stays at the beach, but balances in 401(k) plans are at a 5-year high (link requires registration):

The sixth edition of Fidelity’s “Building Futures” report analyzed nearly 8.6 million participants in about 10,800 corporate defined-contribution plans serviced by Fidelity at the end of 2004. In 2003, the average 401(k) balance was $55,000.

Average plan-participation rates remained steady, with 66% of eligible workers contributing in 2004 and 2003, Boston-based Fidelity, the biggest U.S. mutual fund company, said Thursday.

“We are encouraged by the key results in this year’s report,” Steve Deschenes, executive vice president at Fidelity Institutional Retirement Services Co., the nation’s largest provider of 401(k) plans, said in a statement. “The data indicate that workers continue to view their 401(k) as a popular retirement-savings vehicle, and on average are seeing higher account balances as a result.”

3. Has anyone told you that this recovery is better from an employment standpoint than the previous one?

Unless you’re a reader of Don Luskin at (which is neither) or Jim Glass at, there’s a good chance you don’t know that. Comparing this recovery to the previous one on five objective criteria, the score is 3.5 to 1.5 in favor of THIS recovery:

Unemployment rate:
Prior recovery: 5.8%
This recovery: 5.0%

Score 1-0 for this recovery.

Long term unemployment rate (15+ weeks)
Prior: 2.25%, which is 40% more than
This: 1.58%

Long-term unemployment at this point in the prior recovery was higher even in absolute terms, 2.96 million versus 2.35 million, in spite of the work force being 17 million larger today. So the current recovery is much better on this point.

Score 2-0 for this recovery.

Average real weekly earnings from pre-recession high
Prior: -1.9%
This: +0.25%

In fact, during the prior recovery real average weekly wages would stay below their 1990 pre-recession high for seven years, until well into Clinton’s second term (betcha didn’t hear that during the 1990s, did you?–Ed.)

… the current recovery is up 3 to 0 right now — already we have a winner!

Labor force participation, age 20+
Prior: 67.8% (unemployment rate 5.0%)
This: 67.8% (unemployment rate 4.5%)

… we have an exact tie between the two recoveries, making the score 3.5 to 0.5.

(The fifth factor is) payroll employment. This can be quickly ceded even by fans of the current recovery — payroll indeed grew faster during the prior one.

So our final tally is 3.5 to 1.5 in favor of the labor market of today over that at the same point in the prior “Clinton recovery.”

A couple of quibbles:

  • The so-called Clinton recovery started in late 1991, a year before Clinton was first elected.
  • The payroll employment number, which is total people working, is in my opinion being held down by what I call the “Dr. Laura effect,” which is a conscious effort by more couples to have one stay-at-home spouse during their children’s early years. It also may be impacted by the inability of government statisticians to pick up legitimately profitable self-employed and home-based businesses.

Finally on the employment front, this Christian Science Monitor article indicates that there may be accelerated hiring growth in the near future (HT Opinipundit).

It’s pretty obvious that the terms “jobless recovery” and “flat labor markets” should have been deep-sixed months ago.

4. Geez, I almost didn’t mention the 3.4% GDP growth in the second quarter.

Oh, and most analysts expect this figure to be revised upward in subsequent reports.

UPDATE: Thanks to prodding from the first commenter below, I should note that I am concerned about the level of risk home lenders and borrowers are taking, credit overextension in general, the possible impact of the draconian bankruptcy law that will take effect in mid-October, and the impact of current budget deficits and long-term entitlement liabilities (see the NOdometer on the home page for the figure associated with Social Security alone).

UPDATE 2: From Powerline (bold is mine):

The oddest thing about the strong economic growth that has taken place over the last several years is how stubbornly many people refuse to recognize it. Polls continue to suggest that most Americans are unaware of the economy’s excellent performance. Can that really be true? No doubt inadequate news coverage is a factor, but I can’t believe that a majority of Americans really have no idea how the economy is performing. I suspect that when asked about the economy in opinion surveys, many people focus on what they perceive to be negative at the time–budget deficits, the price of gasoline–either because that’s what’s in the news, or because they hope to influence the government by voicing dissatisfaction.

I disagree with the bolded statement. The economy’s performance is consistently being underplayed by the mainstream press; if you don’t hear it or see it, you don’t know it.

August 5 Outside the Beltway Jammer.



  1. I’m going to be lazy and just refute a few of your comments. If you want more substance, I’ll get back to you.

    The manufacturing index being higher is promising – good deal. I can’t fault that

    The stock market is *not* performing that well. The NASDAQ composite is not a good representation of the overall stock market health. Companies listed on NASDAQ are generally growth and tech companies. If you want to look at a good representative, check out the Standard and Poor’s 500 index (.SPX). In 2005, we have seen a 1.6% increase in the S&P 500. That’s paltry.

    Never (ever) look at the unemployment rate. That only shows the percentage of the total available workforce who are seeking employment and drawing unemployment. That does not include the amount of people who have just plain given up.

    GDP growth is very promising, but could prove to be problematic. If the GDP grows too much, the Federal Reserve will cry “inflation” and continue to increase the interest rates. This news caused the stock market to go down slightly.

    The US economy is robust, but certainly not strong and stable. It takes the very delicate act of balancing the interest rate to contain inflation but to not stifle spending. Short term, you are right. The economy is bustling. The long-term implications are kind of hairy. I am sure you are sick of hearing about trade deficits and credit overextension, but these factors are real and could be a big problem.

    Comment by Kevin Irwin — August 5, 2005 @ 11:46 am

  2. Kevin, thanks for the comment. I thought I saw where S%P is at a 3 or so year high as well, though I couldn’t find it when I did the post.

    I think the full text of the Scrivener “scoreboard” link does a good job of refuting the “discouraged worker” (same as “given up”) theme that is alway the pessimists’ fallback when the unemployment rate goes down. Specifically, look at this, which wasn’t in the “scoreboard” and is about 2/3 through the post:

    Now here are two challenges for those selling the “millions of discouraged workers” meme…

    1) Compared to this point in the prior recovery, with unemployment lower today among those looking for work, long-term unemployment much lower, and pay having risen faster, why would so many more people be discouraged about finding a job? What’s discouraging them?

    2) If there really are so many more discouraged workers today, why have they stopped describing themselves as such to the BLS?

    Unemployed and discouraged workers as a percent of the labor force and discouraged workers
    Prior: 6.1%
    This: 5.3%

    There’s a puzzle to solve, if there are so many more discouraged workers today.

    Also, since I posted in the wee hours, I didn’t remember to post my customary laundry list of concerns, which I have done now in an update above.

    Also, I’ve noted in the past that I’m not impressed that increased tax collections have taken the deficit down to “only” $300 billion or so:

    Comment by TBlumer — August 5, 2005 @ 1:02 pm

  3. I am not going to get into the gory detail, but given the level of economic intermingling going on between Japan, Europe, the US and Mexico and Canada, I might suggest that you need to consider (from the finance side) almost a single bloc economy… Example: if you look at the savings rate of seniors vs 20-30 somethings, the disparity is worrisome; if you compare the productivity of 20-30 somethings to seniors, we again have a worrisome situation, but combining the “sectors” you see a much less worrisome situation. Can you imagine a concern about the trade deficit between pension plans and Boeing?

    Comment by Tracy — August 5, 2005 @ 2:59 pm

  4. Valid point in 1st sentence. The rest generally aren’t doing so well, therefore we’re lucky that we are, and the other guys are either going to hold us back or drag us down at some point. Could be.

    Comment by TBlumer — August 5, 2005 @ 4:19 pm

  5. Sure, the S&P 500 is at a 3 year high, but keep in mind that in 2002 it was at a 5 year low. Right now, the S&P 500 is at the same level as it was in 1998. Read into the x-year highs, a single point increase from year to year is considered a high, but isn’t necessarily a vast improvement.

    As to the comment about discouraged workers, I don’t have the data to back that up. I only have the stories of people who have lost their jobs and have either decided to return to school to get their graduate degrees, or have taken jobs with less compensation. I don’t think that these people are anomalies.

    Comment by Kevin Irwin — August 6, 2005 @ 12:52 pm

  6. #5, I think there are more stories like your than their used to be because of the turbulence of the economy. It must be going in both directions, though, because average real earnings has in general held its own over the long haul. Somewhere down the road, I’m going to look at quartiles or quintiles to see what the story is (perhaps lower quintile is falling behind-my guess is they’re treading water but not falling behind).

    The effectively lower discourage worker situation noted in #2 vs. the prior recovery pleasantly surprised me.

    Comment by TBlumer — August 6, 2005 @ 3:46 pm

  7. Economic Compare and Contrast

    There’s an interesting contrast of opinions on the health of our economy between the most recent post by Stirling Newberry, chief economist at Langner and Company, and our own BizzyBlog.

    These paragraphs seem to sum up of Newberry’s persp…

    Trackback by Ohio 2nd — August 8, 2005 @ 10:42 am

  8. Some Call It A Bonfire/Carnival Of Classiness…

    We call it “Classiness, All Around Us.” Click to explore more In no particular order, presents classiness from the blogosphere (now with 50% more classy!): 1. PC(USA)- Hugh Hewitt notes that the Presbyterian Church is shoot…

    Trackback by — August 9, 2005 @ 12:20 pm

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