Tuesday, August 20, 2002

Boom? Bust? Both?
Here's why I'm so freaking confused about the economy: two blurbs, both from the front page of USA Today's Money section yesterday:

Economic recovery may have 'hit a wall' in July; Chances of a double-dip recession have increased to 20% or more
WASHINGTON -- Anxious economists are downgrading their forecasts, and some crucial sectors of the economy are pushing the likelihood of a rebound into next year because of the abrupt slowdown in the economic recovery."

Rally extends into 4th week
Investors fixated on the chances of a double-dip recession and whether CEOs would sign off on the books may have missed something more important: a rally. Stocks rose for a fourth-consecutive week for the first time since May 2001.

Recession? Consumer spending is good, the housing market is booming, and the GDP was up 6.1 percent in the first quarter. This is complicated. Alan Blinder, formerly of the Federal Reserve and now economics professor at Princeton, wrote last month in the NY Times:

Those who get their economic news from television may come away with the impression that the economy and the stock market are two sides of the same coin. If the market is heading south, then the economy must be, too. But it's not true. The United States economy is most emphatically not falling right now. The stock market may be the TV star. But it is the economy that generates the jobs and puts the food on our tables. And fortunately, the economy is doing much better than the market.

It's confusing, so the media focuses on "national mood" news about the economy that oversimplifies things, said Wall St. bigwig Holman W. Jenkins Jr. last month at Slate:

Thank you for not using the words "restore investor confidence." Have you noticed how almost every solution touted by everybody sounds like it's meant to jolly up investors so they start throwing money at stocks again? I swear if you read Hank Paulson's speech or listen to anything Harvey Pitt says, it seems as if they think the best reform is one that serves its psychological purpose without changing anything substantively.

My advice is to read the rest of Blinder's breakdown for an accessible explanation of where we stand.

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