Brian Wesbury: ‘The Economy Is Fine (Really)’ — and Recession Is Not the Threat
I have referred to Mr. Wesbury’s work frequently here. That’s because he has been, as he is today, a sober voice standing up to Old Media-driven economic hysteria with those stubborn things known as facts.
Wesbury first caught my attention when he expressed alarm in late 2005 that 43% of the country thought we were in a recession — not about to go into one, actually in one. That same poll metric reads 35% today. There wasn’t a recession then, and odds are, as Wesbury notes, we’re not near one now.
Here are some snips from his Wall Street Journal column today, making a number of points that I was hoping to get around to, and reminding us that inflation has not been relegated to irrelevancy. Since he has studied reams of data that I haven’t, I’ll delegate the point-making to him:
It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble.
….. housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing.
….. incomes rose 3.9% faster than inflation in the year through September.
….. the over-reaction to very spotty negative news is astounding. For example, Intel’s earnings disappointed, creating a great deal of fear about technology. Lost in the pessimism is the fact that 20 out of 24 S&P 500 technology companies that have reported earnings so far have beaten Wall Street estimates.
Models based on recent monetary and tax policy suggest real GDP will grow at a 3% to 3.5% rate in 2008, while the probability of recession this year is 10%. This was true before recent rate cuts and stimulus packages. Now that the Fed has cut interest rates by 175 basis points, the odds of a huge surge in growth later in 2008 have grown. The biggest threat to the economy is still inflation, not recession.
….. What Federal Reserve Chairman Ben Bernanke recently estimated as a $100 billion loss on subprime loans would represent only 0.1% of the $100 trillion in combined assets of all U.S. households and U.S. non-farm, non-financial corporations.
….. The irony is almost too much to take. Yesterday everyone was worried about excessive consumer spending, a lack of saving, exploding debt levels, and federal budget deficits. Today, our government is doing just about everything in its power to help consumers borrow more at low rates, while it is running up the budget deficit to get people to spend more. This is the tyranny of the urgent in an election year and it’s the development that investors should really worry about. It reads just like the 1970s.
The good news is that the U.S. financial system is not as fragile as many pundits suggest. Nor is the economy showing anything other than normal signs of stress. Assuming a 1.5% annualized growth rate in the fourth quarter, real GDP will have grown by 2.8% in the year ending in December 2007 and 3.2% in the second half during the height of the so-called credit crunch.
I’m guessing that Wesbury’s 1.5% estimate for fourth quarter GDP growth is low — possibly very low. We’ll find out Wednesday morning at 8:30.
Cross-posted at NewsBusters.org.
Tom, what was the MSM response to the last quarter’s 4.9% GDP? I think that any positive number on GDP is going to get spun or dismissed and so I think we need to be prepared to stick it to the MSM in a way that puts their agenda in full light to the public. Think of it as the perjury trap the libs are so fond of pulling on Repubs. What goes around, comes around.
Comment by dscott — January 28, 2008 @ 10:58 am
The biggest threat to the economy is “The Democrat Effect” - slowing of economic activity as a logical market reaction in anticipation of higher taxes and increased regulation.
Don’t think that the very likely possibility that the next president being a Democrat with a Democrat Congress all pledging to increase taxes and take profits from business during a looming recession doesn’t have an effect on capital decisions and hiring? I’d be scared ****less if I were contemplating a new venture or expansion now or in the near future. I’d wait until I knew what type of punitive regulations were coming; hence, part of the reason for any slow down, and lack of confidence.
Comment by Joe C. — January 28, 2008 @ 1:47 pm
#1, the Media ignored a BIG upward revision to 3Q GDP from 3.9% to 4.9% between the Oct. and Nov. estimates — noted at the time here and at NB.
In terms of what’s coming, I may have an embarrassing quote or two on ice that might come in handy for the GDP report. I know I have one at the ready for the jobs report on Friday, and am crossing fingers that the number is significantly positive.
#2, of course, expectations and uncertainty are hurting the economy, which is why I’m angry that Bush didn’t even try to fight for making the 2003-2009 tax system permanent.
Comment by TBlumer — January 28, 2008 @ 3:49 pm
1st time here. Wow! Is this a Rush blog? What gives? Dems vs Repub? Are you kidding? Show me the difference! Have you even bothered to at least TRY and come up with a replacement for M3 figures? If so, did you notice something BIG? Yawl need rebirth of ANY nature!
Comment by jon — January 28, 2008 @ 5:40 pm
IF the GDP # comes in at a respectable number I would hope W will pull the rebate from the table or least the Repubs in Congress will scuttle the whole feel good for nothing program. In doing so this will force the Dems to caterwaul about how cruel the Repubs are which then puts us back on a factual debate on what constitutes a good economy, a bad economy versus a sector in trouble. No one disputes the housing sector has problems, however, just because builders are now paying for over building, doesn’t mean the end of the world, it means a necessary correction to the imbalanced they caused in the supply and demand. For this they want us to go deeper into debt by another $150 billion????
But back to my first post, this time around when the GDP number comes out, we need the blogosphere collectively to go on the offensive against the MSM. If we don’t do this, the political dialog for the election will be about the economy and the MSM will be free to spin the story for the Dems. If the MSM is put on the defensive, this will derail the entire Dem strategy for 2008. “It’s the economy stupid” in the immoral words of the spin meister.
Comment by dscott — January 28, 2008 @ 8:52 pm
#4, totally, not, following.
#5, if the GDP number is really, really good, you’ll have a case. 4%-plus and your tactic has a chance. 3% and below? Forget it. Between 3 and 4? maybe.
Comment by TBlumer — January 28, 2008 @ 11:43 pm
Um, no.
0.6%
What does this say about Wesbury’s forecast?
Comment by Arthur Schlesinger — February 1, 2008 @ 5:53 am
A. That he may not be perfect.
B. That there are two revisions remaining for him to be right. See the comments at my post at the time of the release. Revisions are much more likely to be up, maybe by a lot, than down.
Comment by TBlumer — February 1, 2008 @ 6:38 am