Enough with the Gloom and Doom Talk

This link will take you to a really terrible article entitled “Weak Economic Data Suggest Recovery Is Fizzling.” That’s not the worst and most misleading headline ever (the Chicago Daily Tribune probably wins with its immortal “Dewey Beats Truman” one on November 3, 1948), but it sure is a candidate for worst misleading economic report of 2010.

The article accurately cites several pieces of less-than-stellar economic news today (unemployment claims rose, Congress is cutting some people off after they’ve been receiving unemployment benefits for 99 weeks, the manufacturing index slipped, construction spending was weak, a survey in China was not so strong as expected and industrial production in the Euro Zone was weaker than expected). All these things are true, but not even remotely close to being important enough to derail the recovery. By the way, research shows extending unemployment benefits causes people to wait longer to seek a new job.

On July 30, the BEA will give us revised national income and product account (NIPA) data for the period from the first quarter of 2007 through the first quarter of 2010. The odds are these new data will change our perceptions of both the recession of 2007-2009 and the recovery that began in either May or June 2009.

Of course, the BEA will also give us the first “Advance” estimate of real GDP for the second quarter of 2010. The overwhelming consensus of economic forecasters is that we’ll see a number in excess of 3.0 percent. That’s not spectacular, but it’s not awful either.

Virtually every economic forecaster expects real GDP to set a new record this quarter. That would finally surpass the level of the second quarter of 2008, which was boosted into record territory by the $152 billion stimulus package (mostly composed of $600 payments to individuals and $1200 payments to married couples plus $300 per child with a phase out for couples with adjusted gross incomes above $150,000) signed into law by President Bush on February 13, 2008.

Once an economic expansion is under way, it tends to continue for a long time. It would take a successful terrorist attack in North America, a huge earthquake that destroyed major cities, oil prices hitting $100 a barrel and staying there four months or longer or the failure of Congress to enact legislation to keep the biggest tax increase in history from occurring on January 1, 2011, to cut this expansion short.

None of those things belong in a baseline forecast. Disposable personal income hit an all-time record in May (the old record was set in May 2008) ) and that augers well for higher retail sales. Real personal consumption expenditures, which account for 70.0 percent of real GDP, began setting new records in March 2010.

Business fixed investment is quite strong. Given high levels of profits and aging equipment (especially computers and software), businesses have to keep investing to stay competitive and they can afford it.

Things aren’t perfect. What a shock. The expansion is not running out of steam either.

So sit back, take a deep breath, and think about all the good things happening in the US economy. They far outweigh the bad ones.