Pessimism problem plagues economy meme

Brian Wesbury:

It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble.

True, retail sales fell 0.4% in December and fourth-quarter real GDP probably grew at only a 1.5% annual rate. It is also true that in the past six months manufacturing production has been flat, new orders for durable goods have fallen at a 0.8% annual rate, and unemployment blipped up to 5%. Soft data for sure, but nowhere near the end of the world.

t is most likely that this recent weakness is a payback for previous strength. Real GDP surged at a 4.9% annual rate in the third quarter, while retail sales jumped 1.1% in November. A one-month drop in retail sales is not unusual. In each of the past five years, retail sales have reported at least three negative months. These declines are part of the normal volatility of the data, caused by wild swings in oil prices, seasonal adjustments, or weather. Over-reacting is a mistake.

A year ago, most economic data looked much worse than they do today....

With housing so weak, the recent softness in production and durable goods orders is understandable. But housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing.

Personal income is up 6.1% during the year ending in November, while small-business income accelerated in October and November, during the height of the credit crisis. In fact, after subtracting income taxes, rent, mortgages, car leases and loans, debt service on credit cards and property taxes, incomes rose 3.9% faster than inflation in the year through September. Commercial paper issuance is rising again, as are mortgage applications.

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I think Democrats and the NY Times are driving the pessimism. The Times is doing it as an excuse for its own poor performance over the last seven years. When its stock is in the tank, it would much rather blame it on the economy than its own ineptitude. Thus you get stories like this one with a lead paragraph, "Will George W. Bush be remembered as the president who lost the economy while trying to win a war?" That is just so NY Timesish and as Wesbury points out so wrong.

The Democrats are desperate to rerun their 1992 campaign and the Times is doing what it can to help. But even the 1992 campaign against the economy was misleading and fraudulent. It was certainly not the worst economy in the last 50 years as alleged by Bill Clinton and Al Gore. Nor is this economy in desperate shape. Unemployment has been at record lows during the post tax cut phase of the Bush administration with the possible exception of liberal journalist. There in lies one of the main keys to the pessimism.