The Real Economy

“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...

“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... Over-reacting is a mistake.

“A year ago, most economic data looked much worse than they do today. Industrial production fell 1.1% during the six months ending February 2007, while new orders for durable goods fell 3.9% at an annual rate during the six months ending in November 2006. Real GDP grew just 0.6% in the first quarter of 2007 and retail sales fell in January and again in April. But the economy came back and roared in the middle of the year -- real GDP expanded 4.4% at an annual rate between April and September.

“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…

“The irony is almost too much to take. Yesterday everyone was worried about excessive consumer spending, a lack of saving, exploding debt levels, and federal budget deficits. Today, our government is doing just about everything in its power to help consumers borrow more at low rates, while it is running up the budget deficit to get people to spend more. This is the tyranny of the urgent in an election year…

“Warren Buffett, Wilbur Ross and Bank of America are buying.”

(“The Economy Is Fine (Really)” Brian Wesbury. Wall Street Journal: January 28, 2008. pg. A.15)

WHICH IS REAL, actions or beliefs? What drives reality, numbers or perceptions?

Of course, the answer is yes.

In a yin-yang world, what are we attending to? Why? What are the consequences of shifting our attention?