That Cheery Notion of Upbeat Economic News

Barron’s Alan Abelson lets fly another fusillade this morning. In Parting the Mist, he observes that the White House is "banking on a buoyant economy
to offset the increasing disenchantment with the war and a rash of

And, he adds, that cheery notion "draws sustenance from the recent
bountiful crop of upbeat economic news, from jobs to durable-goods
orders and a pick-up in consumer confidence."

But alas, it grieves him to suggest, that "the prospects for the
are not entirely salubrious."

"For one thing, the mounting conviction among professional soothsayers that next year will see GDP growing 4% or more is disturbing. For it reflects not a cool assessment of the outlook, but the deadly tendency of that set of seers to forecast by extrapolation — whatever is, will be. It isn’t that the majority of economists are always wrong. But they’re much more often wrong than right. So all by itself, their bullishness on ’06 makes the contrary view a reasonable bet."

But its not merely his contrary streak that suggests caution is in order; Rather, it’s the actual prospects for the economy: 

"More tangibly, the incorrigible optimists, as is their wont, are blithely ignoring the dark clouds plainly visible on the horizon. The great housing bubble is popping and the consequences are shaping up as dire, indeed. Not only is the value of the happy homeowner’s house in jeopardy, but also obviously its ability to finance his free-wheeling spending; the end of the housing boom might even pose a threat to his job. On this score, the Anderson Forecast, conducted under the auspices of UCLA and released last week, bleakly predicts that the decline in housing will run a good several years, in the process reaping a grim toll on jobs — possibly 500,000 in construction and another 300,000 in the financial sector.

Add to that potential sizable hit to both employment and the consumer’s psyche such rather unnerving facts as that Detroit’s in the ditch and hellbent on closing plants and handing out pink slips to its workers, whatever color their collars; that the federal government, on the basis of the first two months, seems a lead-pipe cinch to run up a $500 billion-plus budget deficit this fiscal year; that inflation continues to rear its insidious head, and you can see perhaps why we find it difficult to wax enthusiastic about next year’s economy.

And let’s not, as much as we wish we could, forget about energy. The recent perkier consumer mood and his greater willingness to consume has everything to do with the drop in gasoline prices. But last we looked, crude edged back over $60 a barrel and natural-gas prices shot up to a new all-time high north of $15 per mcf before easing off. Gasoline and heating oil are sure to follow. Sure to follow, too, are furrows and frowns on the consumer’s brow and a desolate waning of the brief revival of his spirits.

Last but not least, gold continues to spiral upward, setting still another 24-year high as it closed in on $530 an ounce. Bullion’s relentless rise, whatever is supplying the impetus, as we’ve lately lamented more than once, likely bodes ill for the economy."

And some of you accuse me of being a curmudgeon . . .

Parting the Mist

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  1. apav commented on Dec 10

    If Andy Xie’s expectation of dropping oil prices comes to pass, then I expect consumer sentiment to hold up until all those new realestate job holders see their income fade. Also since the typical consumer has most of their assets in their homes, if home prices go flat or fall consumer confidence will follow downward.

    I’m looking for interest rates and housing for the lead – they led the economy (sort of) up and they are set to lead it down. How interest rates will behave is hard to figure. China’s capacity will keep a lid on inflation and China and Japan will fight a collapse of the US$. So a muddle through or mushy landing is possible. Gold has me a little worried about the US$’s status as the reserve currency – but that would be real bad.

  2. The Prudent Investor commented on Dec 10

    The Dow made the third attempt to clear the old record within 12 months – and failed again with volume drying up.
    I already eat my words of two weeks ago that it is set for a take-off. It still could form a bull trap, but hey, Fed funds are double what they were a year ago.
    Oil is up again and when did you last hear of a big-cap company announcing a dramatically better profit outlook?
    The next treasury auction results will tell us whether it is gold or IOU’s investors hold in favor.
    We are closing in on the point where it could all unravel and given the stunning price action in gold that looks more bullish to me than anything else I have seen in this millennium (except oil) I have cleared my portfolio from all US stocks, save the miners.
    I am also not so sure anymore that the coming rate hikes by the Fed will help the $ to clear its recent high at 1.16 Euros. If it were about nominal interest rates we would all buy 90% 90-day funds in the Zimbabwe $. Higher rates mean higher risk and there is no exception from this iron rule.
    Push the panic mode button, get the parachute and stay alert. The next move will be intiated by news that will not have their origin in the USA. Imagine what could happen if OPEC or Iran ask for oil payments to be made in gold. Did you ever see a capitalist politician hold a gold bar as Russia’s Putin did recently? This picture has more than symbolic power only. The oldest symbol of wealth could form into a demolition ball for the longest surviving fiat currency in the world.
    I may be a bit early for this call, but the power shift from the USA towards Asia cannot be prevented by the acting administration which has created a growingly hostile attitude worldwide. He who sows wind will harvest a storm and no sane soul outside the US still thinks of this president as a savior of democracy but as an oil-warrior for the juice that keeps the military machine humming. A tank with an empty tank cannot instill fear as it is a sitting duck.
    Please get paper ballots and local election committes that count the votes manually for the next election.
    Yes, it is that bad.

  3. cm commented on Dec 11

    This quote strikes me as rather eloquent and sophisticated style of writing. Is this 19th century/pre-WW2 language? As a non-native speaker of English I find it hard to judge where it belongs. (Serious question, please let me know.)

    Be that as it may, on the factual side he covered the larger macroeconomic issues well.

  4. Emmanuel commented on Dec 11

    I couldn’t agree more with Abelson. The analogy that I’d like to draw is with the Iraq invasion. At first, there was so much euphoria that freedom was on the march, “Mission Accomplished” and everything else. Approval of the war was high, and the neocons were giddy. The administration was in a self-congratulatory mood for all appeared well. But now, $200 billion plus afterwards, Iraq is set to pump less oil in 2005 than in 2004, and even less when “Uncle” Saddam was still running the show. Some progress.

    It seems to me that we are on a similar trajectory with the euphoria over this so-called economic “recovery” fuelled by any number of unsustainable forces. Instead of neocons, we have perma bulls like those on CNBC and the editorial pages of the WSJ. Yet, like in Iraq, the unsustainable and irreconcilable bits will rear themselves up sooner or later. And, lest we forget, median incomes have been declining for how many years now? Some progress.

  5. Nathan commented on Dec 16

    “And, lest we forget, median incomes have been declining for how many years now? Some progress.”

    Emmanuel, do you have a shred of proof for this assertion? Any basis in fact? or is this just your imagination running wild, because you have let your political blinders prevent you from seeing anything?

    Just curious.

    The BEA and the Census Bureau both say income has gone up since the 1960’s on a per capita and a household basis in real terms.

    Care to explain? or they are part of the vast right-wing conspiracy too?

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