BECAUSE THE CONSUMER IS AILING, SO THE CONVENTIONAL wisdom goes, the economy must be near recession, or in one. It's appropriate that this view is growing in popularity just as Mark Twain's newly-discovered Broadway comedy Is He Dead? has become a hit. Reports of the American consumer's demise have been similarly exaggerated.
Today's consumer statistics are badly distorted by two forms of lag -- statistical and institutional -- which reflect a disconnect between the accelerating rate of economic change and the ability of government and data-keeping organizations to keep pace.
Both public policy and private investment decisions overly rely on databases designed well back in the last century. Meanwhile, Americans are charging toward the second decade of this century, brandishing iPhones, Wiis, Garmins and other technologies that are underestimated or omitted in industry and government statistics.
He doesn't think the 4th quarter GDP report was that bad either:
Peeling apart the 0.6% fourth-quarter advance report on gross domestic product reveals two distinct problems with the widely accepted forecast of a consumer-led recession. First, the sluggish growth was mostly due to a precipitous decline in inventories -- which will likely self-correct in first-quarter figures -- and the residential construction slump. Second, preliminary GDP data tend to underreport both the fast-growing new Web-based economy (music downloads, for example) and the untaxed cash economy, while overweighting the declining smokestack economy.
Almost ignored by analysts wallowing in the financial sector's woes, the consumer keeps chugging along, with fourth-quarter personal consumption expenditures -- 71% of GDP -- up 5.9% (2.5% real) year-over-year. Main Street keeps spending while Wall Street keeps whining.
He has some positive things to say about the housing market as well:
The housing correction has led to a decline in both home values and home-related consumer spending, particularly for major home improvements. But with the housing affordability index at 130 -- the most bullish since 2004, according to the National Association of Realtors -- and mortgage rates near their lowest in several years, the housing market stands poised for a rebound once the excess inventory gets worked off. Despite conventional wisdom that loan demand is in the ditch, refinancing and new mortgage applications are near multi-year highs -- and the new economic stimulus package's barely noticed increase in FHA and conforming loan limits to $729,000 will help revive the housing sector.
I've been in the slowdown/no recession camp for quite a while. I admit that there are times when I wonder if I'm missing something. I don't know if I can be as confident as Johnson seems but he makes some good points. I hppe he's right. Read the whole thing.