Friday, August 12, 2011
According to the University of Michigan's measure of consumer confidence, consumers today are more rattled about the state of the economy than they were at the depths of the "great recession" two and a half years ago. If that's not sentiment hyperbole, I don't know what is. The state of the economy is manifestly better now than it was then, but the bad news has been hyped to the max, as this survey suggests.
Start with Nancy Pelosi's claim that Republicans and Tea Partiers were bent on destroying the world as we know it. Add in the threat of default by countries such as Greece and Italy and perhaps Spain, which could in turn trigger the collapse of the entire European banking industry and possibly bring about the end of Western civilization. Spice things up with soaring gold prices and a Fed that has resorted to extraordinary measures to ease the supply of credit, while the background chorus wails that we're on the verge of another housing price collapse. Austrian economists meanwhile insist that we ain't seen nothin' yet. Top things off with the first-ever downgrade of U.S. Treasury debt, and a president who seems clueless about what to do as his approval ratings sink.
In short, if you wanted to work yourself into a frenzy of dread, there is no shortage of bad news with which to do it. But you have to ignore a whole lot of good news in the process. For starters: the economy has been growing for two years, adding some 2 million jobs; unemployment claims this year have averaged 415K per week, down over one-third from the levels two years ago; retail sales are at record highs, up 8.5% in the past year; corporate profits are at record nominal and real highs; swap spreads (a key measure of systemic risk and the health of the banking system) are at normal levels today when at the end of 2008 they were signaling potential calamity; and high-yield credit spreads (see chart below) have fallen by two-thirds from their recession highs, when as many as half the companies in the U.S. were expected to be out of business within five years. Let me simply suggest that the facts do not support the angst reflected in today's confidence report.
Posted by Scott Grannis at 7:30 AM