U.S. Economy Is Expanding, Not Receding

Friday’s job report (May 2nd) was another indication that the US economy is not about to roll over, as widely predicted. The report came in stronger than the consensus expected with non-farm payrolls declining only 20K in April from an expected loss of 75K, while revisions to February and March subtracted 8K.

This is consistent with sluggish growth for the first half of fiscal ‘08, but not recession. If this were a true recession, the kind that feeds upon itself, job losses would be much more severe and corporate profits would not be nearly as good. As a result, the Unemployment Rate dropped to almost 4.9 percent from 5.1 percent, with Manufacturing Payrolls also reflecting an improvement as it rose to -46K from -48K.

Despite a loss of payroll jobs in the past three months, it is likely that real GDP grew at about 2% annual rate in the first quarter. GDP growth for the fourth quarter of 2007 was also up slightly, while the prior two quarters averaged over 4 percent growth. Worth pointing out is that while real GDP slowed to just 0.6% in the first quarter, the number is expected to be revised up, and an economic rebound to more than 3% growth – in the second half of fiscal ‘08 is highly probable.

Furthermore, consumer spending has been up steadily through the first quarter. Exports are booming with the Factory Orders index adding to the improved outlook and surging to 1.4% from a negative 0.9%. Business investment in equipment and software continue holding up very well. And at 154 million employed, the civilian labor force just hit a new all-time high.

Not bad I’d say for a US economy which constantly finds itself in the midst of a fear mongering campaign from the vast armies of journalists and economists who never fail to sensationalize economic problems. Yet, the economy manages to expand and show off signs of resilience.

Only few weeks ago we were headed for our first-blown horrible recession in 16 years, according to predictions made by the economist elite at Merrill Lynch and Morgan Stanley. This notion was also reinforced only a couple of days ago by Warren Buffett in a CNBC interview.

This is unfortunate. Media hysteria over the mortgage crisis and continued collapse in homebuilding has certainly misled countless people about prospects for the real economy. We still grew at 0.6%. This naturally leads one to ask the contrarian question: Since when have the media and the Buffetts of the world ever had our best interest at heart and given us an advance warning of an impending economic crisis that actually came to pass? Exactly.

Napoleon Bonaparte cynically once said “Men are moved by two levers only: fear and self interest.” You would agree with me that Wall Street has become master of both elements. Fear sells. It sells newsletters, it sells bookings and most importantly shakes the weak hands.

Is it ethical? Definitely not. Will the tactic ever change? Probably never. But what can change is our rejection of media-propagated myths and clichés along with Wall Street’s misleading and unfounded analytical arguments thrown our way. It simply shouldn’t be tolerated.

Bottom line: First quarter real GDP was up. Bonds are yielding much more than short-term bills with the stock market well along its route to recovery. Increases in consumer spending and exports will keep GDP growth positive in the second quarter. The fiscal stimulus will see to that. Just yesterday, the April ISM Services Index, a national nonmanufacturing survey, rose to 52.0, from 49.6 – reflecting expansion. This was higher than the expected reading of 49.1.

There will not be a single down quarter for GDP in ‘08. This is not a recession.

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About Ron Haruni 1068 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

2 Comments on U.S. Economy Is Expanding, Not Receding

  1. Any new insights into the future??????

    One would beg the question at what point and after how many profound screwups, missed targets, complete blunders do we draw the line and say NO more, all the so called “experts” are declared not an expert on anything and they are sent back to what ever swamp they crawled out of.

    Why can it be called a “think tank”? when all they do is come with dumb and wrong ideas. DumbTank makes much more sense and then no one would expect anything from the morons.

  2. Well, I respect your opinion but I profoundly disagree how you are purposely mischaracterizing the record. For starters, markets exist because perfect knowledge and foresight are impossible to attain. Meaning, markets are a substitute for perfect knowledge.

    Secondly, I have always approached my analysis from an economic perspective and based my conclusions simply upon suggestion of that metric alone. Since, the subprime crisis first became evident, I have consistently believed and gone against the conventional wisdom, since last November, that US economy is already in a recession. And, at least so far, my argument has been validated. Positive GDP #rs prove my pretension.

    Thirdly, up to this point, economic weakness has been isolated and successfully contained in the housing market and in the sectors affected by energy. The weaknesses in these areas have not dragged down overall GDP which is (if you check my posts) consistent with my forecasts. Furthermore, amidst all this doom and gloom we have had real GDP growth at a 2.8% annual rate in the second q. First q posted growth as well. Excluding home construction, real GDP has grown 3.1% and productivity is still booming.

    The isolated housing, finance and energy crisis are clearly exaggerated by excessive government intervention, mark-to-market accounting and the ‘end is near’ daily speeches from financial media. As a result, consumers become hesitant in spending and credit starts to get squeezed even to good-standing and well-run businesses. The end result is an economy threatened by a spreading panic. (check out VIX). If the economy falls into recession because of lack of confidence as opposed to real weakness in fundamentals, then it would be an unprecedented event, since consumer psychology has never, ever caused recession.

    Check the new banking data, released today from the Fed on bank loan volume. Where do you see a credit crisis in these numbers and charts?!!!!. “Total Loans and Leases at All Commercial Banks” reached an all-time high of $7.026 trillion September, going over $7 trillion for the first time in history. These actual facts unequivocally reject the claim by many that we are facing a complete stoppage of all credit.

    These are the facts, and again my record is all there for you to see. If you want to talk out of your ass, then that’s a different matter and I recognize the fact of being a complete ignorant on that dept.

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