Reality, Recessions and Self-Fulfilling Prophecies

By January 3, 2008Economy, Trade

To restate a premise mentioned around here before: No matter the actual economic developments, we’re convinced the media — reporters and institutions amid their own conventional wisdom — will highlight the negative and spend a disproportionate amount of time predicting a recession. The reasons are a bias toward bad news and fear-mongering and personal, political preferences in the run-up to the November general election: A recession is upon us, the only solution is massive government intervention, and our preferred presidential candidate favors that intervention. A self-fulfilling prophecy is born.

BUT….Sometimes the news really does fit the narrative. It’s not encouraging that the latest manufacturing survey from the Institute for Supply Management, reports that its index fell to 47.7 in December from 50.8 in November — a figure below 50 percent indicates a contracting economy. Oil topping $100 a barrel, however briefly, isn’t welcome news; and oh, orange juice futures are up. The grocery store meat counters aren’t so friendly either, these days. (The Washington Post roundup is here.)

We checked with the NAM’s chief economist, David Huether, for his thoughts, which have been consistent over the last couple of months. The economy seems to be slowing, business investment is lagging, and consumer spending could be stronger. Still, a single month in the ISM survey doesn’t really mean all that much.

That last point is worth repeating. It’s one that the head of the ISM survey makes, as well. From USA Today:

But Norbert Ore, chairman of the ISM manufacturing survey, says the sector is more likely in a “soft patch” and that he would have to see large declines in selling prices and jobs before he would say a recession is inevitable.

Manufacturing accounts for about 12% of the U.S. economy and one out of every 10 jobs. “I’m somewhat optimistic at this point that this is a little blip on the radar screen,” Ore says, noting the index was below 50 as recently as a year ago without signaling a recession.

(Our emphasis.) David’s economic forecast for 2008 is due out next week, so he’ll have a fuller view of the economy soon.

The bright spot remains exports, which account for about half of the U.S. economic growth over last year. If you want goverment action in response to economic signs and portents, how about congressional approval of free trade agreements with Colombia, Panama and South Korea?

Although …The Club for Growth notes that the stock market does much better when Congress is out of session than when it’s in. The heck with government intervention. Stay out of town!

(Hat tips: Glenn Reynolds, U.S. News Custom Briefings.)

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