Friday’s job report (May 2nd) was another indication that the US economy is not about to roll over, as widely predicted. The report came in stronger than the consensus expected with non-farm payrolls declining only 20K in April from an expected loss of 75K, while revisions to February and March subtracted 8K.
This is consistent with sluggish growth for the first half of fiscal ‘08, but not recession. If this were a true recession, the kind that feeds upon itself, job losses would be much more severe and corporate profits would not be nearly as good. As a result, the Unemployment Rate dropped to almost 4.9 percent from 5.1 percent, with Manufacturing Payrolls also reflecting an improvement as it rose to -46K from -48K.
Despite a loss of payroll jobs in the past three months, it is likely that real GDP grew at about 2% annual rate in the first quarter. GDP growth for the fourth quarter of 2007 was also up slightly, while the prior two quarters averaged over 4 percent growth. Worth pointing out is that while real GDP slowed to just 0.6% in the first quarter, the number is expected to be revised up, and an economic rebound to more than 3% growth - in the second half of fiscal ‘08 is highly probable.
Furthermore, consumer spending has been up steadily through the first quarter. Exports are booming with the Factory Orders index adding to the improved outlook and surging to 1.4% from a negative 0.9%. Business investment in equipment and software continue holding up very well. And at 154 million employed, the civilian labor force just hit a new all-time high.
Not bad I’d say for a US economy which constantly finds itself in the midst of a fear mongering campaign from the vast armies of journalists and economists who never fail to sensationalize economic problems. Yet, the economy manages to expand and show off signs of resilience.
Only few weeks ago we were headed for our first-blown horrible recession in 16 years, according to predictions made by the economist elite at Merrill Lynch and Morgan Stanley. This notion was also reinforced only a couple of days ago by Warren Buffett in a CNBC interview.
This is unfortunate. Media hysteria over the mortgage crisis and continued collapse in homebuilding has certainly misled countless people about prospects for the real economy. We still grew at 0.6%. This naturally leads one to ask the contrarian question: Since when have the media and the Buffetts of the world ever had our best interest at heart and given us an advance warning of an impending economic crisis that actually came to pass? Exactly.
Napoleon Bonaparte cynically once said “Men are moved by two levers only: fear and self interest.” You would agree with me that Wall Street has become master of both elements. Fear sells. It sells newsletters, it sells bookings and most importantly shakes the weak hands.
Is it ethical? Definitely not. Will the tactic ever change? Probably never. But what can change is our rejection of media-propagated myths and clichés along with Wall Street’s misleading and unfounded analytical arguments thrown our way. It simply shouldn’t be tolerated.
Bottom line: First quarter real GDP was up. Bonds are yielding much more than short-term bills with the stock market well along its route to recovery. Increases in consumer spending and exports will keep GDP growth positive in the second quarter. The fiscal stimulus will see to that. Just yesterday, the April ISM Services Index, a national nonmanufacturing survey, rose to 52.0, from 49.6 - reflecting expansion. This was higher than the expected reading of 49.1.
There will not be a single down quarter for GDP in ‘08. This is not a recession.