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Is the Economy Fooling Economists?

Is the Economy Fooling Economists?
By Ron DeLegge, Editor
August 1, 2008

SAN DIEGO ( – Is the U.S. economy in a recession or not?

The typical American can probably answer that question accurately in a flat 10 seconds or less.

Home prices are crumbling, the job market is weak, the U.S. dollar is in the gutter, the stock market is in a funk and $4 a gallon gasoline is soaking consumers. 

Look around, of course the U.S. economy is in a recession. Anyone with enough sense can see it.

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Yet, leading economists at the National Bureau of Economic Research (NBER) aren’t so sure.

Here’s what they see:

--Second quarter GDP, despite falling short of estimates, still grew 1.9 percent;
--Consumer spending increased during the second quarter and had its best gain since the third quarter of last year;
--Sales of U.S. exports rose 5.1 percent from the first quarter, helped by foreigners purchasing cheap U.S. goods.

Is the economy fooling economists? If it is, it wouldn’t be the first time.

Why don’t economists just take a clue from leading indicators, like the stock market?

The Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 are all down in double digit territory. They’ve been that way for about a year.

And if economists still aren’t convinced, then they should inspect the equity market further.

A quick gander reveals that all 9 industry sectors within the S&P 500, even basic materials (Ticker: XLB) and energy (Ticker: XLE) which have been boosted by high commodity prices, are posting year-to-date losses.  

In a not-so subtle way, stocks are sending a loud and clear message that everything in the U.S. economy is not OK.

Even without negative GDP quarterly numbers, economists can still do what’s right and call it a recession.

Why can’t they just fess up and tell us what we already know?

According to the Wall Street Journal*, NBER won’t be making calls on whether the U.S. economy is in a recession or not “anytime soon.”

One of the NBER’s committee members, Robert Hall, an economist at Stanford University told the Journal, “We take our time.”

Good for them.

Maybe by the time NBER discovers that the U.S. economy is in a recession, it’ll be yesterday’s news. 

And maybe, if America is truly fortunate, the next great bull market will have already started and none of the current mess will matter.

Perhaps the late John Kenneth Galbraith was right.

“The only function of economic forecasting is to make astrology look respectable.” 

*July 28th, 2008 Edition

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