The Reason to Ignore Most Economists

Durable goods orders (manufactured goods designed to last at least three years) increased 1.3% last month to a seasonally adjusted $219.26 billion, the Commerce Department said today. Excluding transportation, durable orders rose a promising 0.7%. Orders in June were revised higher, also rising 1.3%. Previously, June durables were seen rising 0.8%.

The report was much better than Wall Street expected; economists had forecast a decline of 0.4% for July. It should be noted that the June revisions mean economists were far off the mark then also.

A gauge of business equipment spending -- orders for nondefense capital goods excluding aircraft -- increased in July by 2.6%, after going up 1.3% in June. Year-over-year it has increased 4.2%, indicating capital spending hasn't collapsed despite dire predictions it would.

The "long story short" translation here is that other than housing, the economy is still in good shape. We have yet to have a negative quarter of GDP growth, the unemployment rate, despite rising, is still low by any historical measure.

Economists, far from being scientists are letting their outlook shade the reality of what is happening out there and their "predictions". My home has dropped in value like the rest of the US's over the last two years. But, I am not selling, so who cares? It does not have any effect on my life at all and its drop is meaningless to my financial plans in the next decade or to my lifestyle. Now, it does on others, and that is why we will not grow GDP at 3% to 4%. It is the reason it will grow 0% to 2%. That is still growth.

Do home value drops matter to Caterpiller (CAT) or John Deere (DE) or other US exporters selling equipment to China, India or Brazil? It does in that their profits may drop slightly but not enough to offset a global world. Again, not great growth but growth nonetheless.

Housing is also the reason people think the world is coming to and end, clouding their perception of what is really happening. People losing their homes make real nice news headlines and stories, especially in an election year. Watch what happens after the election. This issue will take on considerably less importance. For now, it will be a day after day drumming of it as both parties and the media try to assess blame on everyone but the real responsible parties, lenders and borrowers.

Do not base your outlook or investments on what the economists say. Remember, they predicted a recession as early as last fall, and have still been wrong to date on that one.

Disclosure: None

Comments

[HARM:]

"Housing is also the reason people think the world is coming to and end, clouding their perception of what is really happening... For now, it will be a day after day drumming of it as both parties and the media try to assess blame on everyone but the real responsible parties, lenders and borrowers."

Amen to that. Of course, the "careful what you wish for", "sane lending standards = Financial Armageddon" crowd WANTS you to think it's the End of the World --so they can manipulate the public into supporting more taxpayer-financed Wall Street bailouts.

Privatize profits, Socialize risk, baby!

2008 Aug 27 03:13 PM

[inthemoney:]

OK, let's see. We exported a lot of industrials to emerging markets, which are slowing. Consumer is tapped out due to inflation "tax", lack of credit, declining housing market, increase in unemployement. Yes, this is a reason to celebrate. Until tomorow, that is, when Wall Street comes back to its senses. After all, stock market is supposed to be forwad looking. Expect a sell off tomorrow.

2008 Aug 27 03:54 PM

[HARM:]

inthemoney,

No one's saying that the housing bubble implosion *won't* negatively impact the broader economy at all. Just that speculators and Wall Street suffering consequences for their own reckless actions does not = End of the World. There will be suffering, no doubt. However, as long as most of the pain is concentrated among those aforementioned "responsible parties": lenders and borrowers, it's not an automatic crisis. It's just the market working the way it's supposed to --Creative Destruction 101.

2008 Aug 27 04:54 PM

[inthemoney:]

HARM, you just have no idea what is in store. Housing bubble is just a tip of the issue. Unless we manage to invent some other bubble really quickly, our 70% consumer economy is going down and fast. As for the ecoomists, they have been issuing warnings last 7 years at least. nobody listened. Even now there are people like the esteemed author here who don't listen. All our so-called prosperity and growth in the last 10 years were financed by borrowing. Well, we can't borrow anymore because the inflation will get completely out of control.
I have nothing to prove here. I manage my money, you manage yours as you see fit. But when people telling us not to listen to economists, who were right all along about the debt, dollar and inflation, I simply cannot understand it.

2008 Aug 27 10:39 PM

[Jason Rines...:]

The article should of been titled: Cheerleading 101 .

2008 Aug 27 11:05 PM

[notsosmart:]

this is fun. above says dont believe economists.i agree. i also say dont believe him.in fact dont believe anybody about anything at anytime.im not sure you shoiuld believe me.think for yourself.all have an agenda.mainly their hand in your pocket.in this new world of greed,scammers,skimmer... ceo's& bod's,crooks & liars in business & gov. nobody knows anything as nobody can be trusted.we hardly produce a thing & make phony livings by creating worthless paper documents for trading.can a country really survive on this?

2008 Aug 28 10:32 AM

[Still Renting:]

I really don't think a lot of people understand just how much the runup in home prices was stimulating the economy and, conversely, the collapse will negatively affect the economy. It is an economic pendulum and it is going the other way now. And as another poster said, pendulums don't stop at equilibrium.

Bottom line - housing is huge, and so is it's impact. Wait'll after the election and home selles enter the flat selling season with their home STILL on the market, and christmas sales show the true demise of the home equity loan as ATM. This is gonna be one seriously interesting 4th quarter.

Think of it this way. Some are saying the roof is not leaky while others say it is an accident waiting to happen. Come the rainy season (4th quarter) we will find out who is right.

2008 Aug 28 10:38 AM

[User 68127:]

The "exports will save us" story is great until the overseas economies start slowing as well...oh wait!...they already have!

U.S. consumers are buying less. Guess what? That translates to fewer imports to the U.S. Guess what? Fewer imports means other nations have less cash to spend on our exports, and less incentive to expand. They will also start cutting their staffs. Guess what? That means that U.S. multinationals are about to see their international business slow as well, and that is even IF the dollar does not continue to strengthen....

2008 Aug 28 11:15 AM

[mkttrdr:]

Comments are always better than the articles.

Truth-In the last 4 years 60% of home sales were 2nd homes or investment properties. That means almost 15 million homes can go back on the market if the speculators need money. 70% of US econ is based on consumer spending-mainly housing related.

Oh, but wait: the dollar has droped 15% and thus housing should drop by the same. How can the dollar go up when the Fed prints more money. RATES will rise.
No refi's - no equity+job insecurity+ too much inventory= bad times.

If the market looks forward I guess we will see 8900 on the dow before June 2009. S&P 1080.

The country doesn't need to be in a recession to feel like one. How does it feel to wake up with 25% less than you thought you had?

2008 Aug 28 12:12 PM

[notsosmart:]

the roof over your head should never have been an atm machine.the roof over your head is a liability,not an asset.any increase ,real or phony means nothing till you sell.some folks are finding out the hard way-sadly.

2008 Aug 28 01:20 PM

[cstauffer:]

One thing that I agree with in this article is that most brokerage house and bank economists publish outlooks that should be largely taken with a huge grain of salt. These economists, just like their counterparts, the Market Strategists, are not paid to publish their objective opinions, but they are generally public cheerleaders. Their are several economists who buck that trend, one is Northern Trust's Paul Kasriel.

The problem with the author and many other "experts" who argue that this financial and economic disruption that has resulted from over leveraged consumers, banks and brokers, is that these people pick and choose the data that they want to use to support their opinions. Can you say "weapons of mass destruction intelligence"? Today's GDP numbers are a prime example. Even though unemployment has risen over a full percentage over the last year or so, foreclosurers and personal bankruptcies have reached multi-decade highs, bank failures are on the rise, retail sales are contracting, and real wages have fallen for over seven years straight, GDP has not gone negative, therefore the economy is strong.

2008 Aug 28 01:55 PM

[HARM:]

"I really don't think a lot of people understand just how much the runup in home prices was stimulating the economy and, conversely, the collapse will negatively affect the economy."

Thank you, SR.

This type of bizarro-world, one-sided "Head, I win, Tails, you lose" thinking is what got us into this mess in the first place.

I love the way a massive run-up in prices (but not incomes) fueled by funny money was universally hailed as a W-O-N-D-E-R-F-U-L thing by most media pundits and financial "experts". Yet, prices falling back down to levels that *real people* with *real income* can actually afford is... ARMAGEDDON.

Welcome to our Lake Wobegon world of one-way capitalism, where every speculator is above average and merits a bailout.

2008 Aug 28 02:37 PM

[Swiss_Buffett:]

Just because GDP has not had 2 consecutive quarters of negative "growth" does not mean that there is no recession. Especially the labor market has been weak, and that the consumer is pinched serverly.

Kudos to Todd if his falling home price value does not matter to him and his lifestyle. But apparently there are millions of other folks who were not so restrained and indebted themselves far more than they should have thanks to ever increasing home values. Now that the ever pyramiding lending schemes have dried up, somebody will hold the bill. And that's always the consumer - and that's bad for the US economy and eventually may very well be bad for the global economy (especially China).

2008 Aug 29 04:01 AM

[Steven Hansen:]

between the fed and the president's market intervention task force, i do not see much downward movement from here in the market. the real problem is there is no upside. because we will have no bloodletting, we cannot have a strong market recovery. the fundamentals which caused this mess need repairing. the economy will limp like a three legged deer from now until hell freezes over.

2008 Aug 29 04:40 AM