REMEMBER THE MOVIE "Being There"? Peter Sellers played Chance the Gardener, a kindly but mentally vacuous man who, through a series of improbable circumstances, finds himself in front of the president of the United States being asked about the economy. Chance intones with utter seriousness and at the same time utter brainlessness "Growth will return in the spring.
" What do you know it's spring, and it certainly seems that growth is returning. All the economic news this week has been solidly upbeat, with big surprises on the upside in the ISM manufacturing and services surveys, productivity and jobs. But for all that, life doesn't imitate art.
In reality, it's been the smart ones who have been saying that growth would return. The mentally vacuous pessimists and the brainless bears have been saying that the economy will soon slip into recession. They've been saying it will happen in the spring.
And the summer. And the fall. And the winter.
They've been wrong, wrong, wrong but they've saying it for so long it's become the conventional wisdom. In a recent poll, a majority of Americans said they think we are in a recession right now. It goes to show how powerful the media is in forming opinions.
With the unemployment rate at an ultra-low 4.4%, and with disposable personal income having grown 4.5% (even including inflation) in the first quarter, everybody really knows there's no recession.
In fact, in the same poll, a majority said that their own personal financial situation was just peachy. Yet the majority still somehow thinks that there's a recession on. It's just for everybody else, I guess.
It's more than just chance no pun intended. In fact, it's all about politics. The media thrives on bad news, and the predominantly liberal media loves bad news especially when a Republican is in the White House.
So it's no surprise that there's a constant drumbeat of purported "news" designed to convince everyone that if doom hasn't arrived just yet, it's at least just around the corner. Don't trust me on this? Would you trust the Federal Reserve Bank of St.
Louis? In a recent study, Fed researchers found that the word "recession" appeared in print most often after recessions were already over, when the economic reality was actually improving. At the same time, they found that the liberal New York Times used the word more often than the conservative Wall Street Journal, especially during certain years when the president just happened to be Republican.
Let's put politics aside and look at the facts. I don't care who is in the White House. When the economy was booming in the late 1990s, I didn't deny it just because Bill Clinton a man whom I loathed was president.
The facts are the facts, now just as much as then. And the facts point to continued strong economic growth this spring. "Continued" growth?
Yes: continued. The seemingly sluggish growth of the last year has been an illusion. Just a single sector representing only 5% of the economy housing has dragged down the overall growth statistics.
But outside of housing, growth has been excellent. The bears say that analysis is dishonest, that you can't arbitrarily take away housing just to make the economy seem strong when it's really weak. I take the point, but when 95% of the economy is doing well and 5% of the economy is doing badly, I don't see how you can stand by and let the tail wag the dog.
It seems to me that a sophisticated analysis at this moment in history would go to the trouble of disaggregating the overall numbers to get at the truth, and the truth is that our problems are isolated to just one small area. The bears have a comeback to that one, too. They say that weakness in the housing sector is so intense, and that housing is so fundamental to so many people's lives, that it's bound to infect the whole economy.
OK, that's a legitimate theory, I suppose. Except they've been saying the same thing for a year now, as housing has fallen off a cliff. But it just never comes true.
There's simply no evidence of infection of 95% of the economy by the 5% represented by housing. Income is strong. Spending is strong.
Jobs are strong. Corporate earnings are strong. Everything is strong but housing.
In the first quarter of this year, the only problem in the nonhousing part of the economy was weakness in exports, which had been very strong in previous quarters. That weakness was attributable to a slowdown in exports of chemicals and aircraft. Can some bear please explain to me why one quarter's weakness in sales of aircraft and chemicals to overseas buyers has even the slightest connection to housing?
In fact, exports hold a clue to why the economy has been so protected from the housing slowdown. More and more of our economy is based on global trade. Imports and exports together represent just slightly less than 30% of GDP, an all-time record.
Housing just happens to be our least global economic sector (we can neither import homes from China nor export them to Canada) so our intensely globally diversified economy is well insulated from any possible spillover. It's also the case that some of the boom in housing of the last few years was excessive if not a bubble, at least it was an economic distortion. Having that distortion go away is actually a good thing.
It means that resources can now go where they really belong, not chasing dreams of easy riches in Florida condominiums. Accordingly, construction of commercial buildings is booming. Growth in that area of real estate has almost perfectly offset the slowdown in housing over the last year.
Chance the Gardener was right. Growth has returned in the spring, if it was ever gone in the first place. The stock market can't be fooled.
That's what these new all-time highs are about. Do you think that would be happening if the bears had even a sliver of an argument here? Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors.
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