Economy Improves, Old Media Ignores
Demonstrating the old adage that "there's none so blind as those who will not see," media talking heads keep pushing recession even as the economy continues to grow.
May 8, 2008 - 12:30 am
Those who are rooting for the economy to go into a tailspin cannot be pleased.
First, the government told us that the economy grew 0.6% in the first quarter.
I wasn’t happy, because I’d like to see the economy get back to at least the 3.2% average growth it experienced from the second quarter of 2003 through the third quarter of 2007. But many in the business press seemed displeased for the opposite reason — that the number wasn’t negative. Since the everyday working definition of a “recession” is “a decline in GDP for two or more consecutive quarters,” it meant that there is no solid evidence of a recession.
Nevertheless, the Associated Press’s Jeannine Aversa insisted that “a growing number of economists believe the economy is in a recession and is indeed contracting now.”
Rex Nutting at MarketWatch.com went way over the top, as you can see from these article excerpts:
U.S. could have recession without drop in GDP
Analysis: Growth isn’t everything; jobs and incomes count more
… The economy may be on track for the first recession in U.S. history without any quarterly decline in growth.
… GDP is a pretty crude measurement of economic well-being.
… GDP is a quarterly accounting gimmick that may not be an accurate reflection of the economic reality.
… With GDP showing a small positive number in Wednesday’s report, no doubt many people will cheer that the economy has therefore avoided a recession. But that’s not what the other economic numbers show.
Nutting, MarketWatch’s Washington bureau chief, quoted no outside economist, analyst, government bureaucrat, think tank researcher, or anyone else to back up his extraordinary claims. I have never seen anyone call GDP a “crude measurement” or an “accounting gimmick.” If I were working at Uncle Sam’s Bureau of Economic Analysis, I’d feel insulted.
Fortunately for the rest of us, the “economic numbers” that followed last week’s GDP report do not support Nutting’s peculiar notion of “recession with growth.” On Friday, the government’s employment report showed that the economy added over 700,000 jobs in April. That’s right. Here’s the proof:
As you can see, government’s best estimate is that 703,000 more real people were actually working in April than were in March, and that 1,810,000 more were really doing so in April than in January.
If you’re surprised, I don’t blame you. Rex Nutting may be too.
That’s because the “official” jobs increase or decline and the unemployment rate are both adjusted for seasonality, or changes in real employment levels that have occurred in previous years. The fact that the number of jobs added in April 2008 was less than the number added in previous Aprils goes a long way towards explaining why the most recent seasonally adjusted jobs change was a loss of 20,000.
The business press has abused the seasonally adjusted job-loss numbers for the past three months by pretending that they represent actual people thrown out of work. They do not. The AP’s Aversa was a primary offender last Friday, as she wrote:
Employers eliminated 20,000 jobs in April.
… It was the fourth straight month that employers cut jobs — bringing total losses to 260,000.
… Businesses are handing out pink slips as they cope with an economy that is teetering on the edge of a recession, or possibly in one already.
… On the employment front, construction companies, manufacturers, retailers, mortgage brokers, and temporary help firms were among those shedding jobs in April.
Almost none of what Aversa cited above happened in the real world. Except for manufacturing, every major sector of the economy had more workers in April than in March.
To be clear, compared to previous years, April’s jobs increase was not as great as one would hope to see. But it was at least closer to the previous two Aprils (within 157,000, on average) than January’s decrease or February’s and March’s increases were to their comparable 2006 and 2007 figures. More improvement is needed, but April at least headed in the right direction.
Oh, and April’s unemployment rate, seasonally adjusted, fell 0.1% to 5.0%; the unadjusted rate fell from 5.2% to 4.8%.
Finally, the recent news from the Institute for Supply Management (ISM) has been very good.
Last Thursday, ISM reported that manufacturing’s 15% of the economy, while still slightly contracting, held steady. Its Manufacturing Index came in at 48.6% (any reading above 50% indicates expansion; below 50%, contraction).
On Monday, ISM’s Non-Manufacturing Index, covering the remaining 85% of the economy, including the troubled housing and financial services sectors, leaped into expansion mode with a reading of 52%. That was up 2.4% from the previous month and confounded the “experts,” who had predicted that it would go down.
Then on Tuesday, ISM had the nerve to issue its spring 2008 Semiannual Economic Forecast, which said: “Economic Growth to Continue Throughout 2008.”
If you think you heard “How dare they!” murmurs from the business press, you may be right.
Tom Blumer owns a training and development company based in Mason, Ohio, outside of Cincinnati. He presents personal finance-related workshops and speeches at companies, and runs BizzyBlog.com.