Pundits have been forecasting a U.S. economic "collapse" for a couple of years, and the economy has continued to confound these "experts." This continual haranguing in the press has the effect of influencing public opinion and casting a pall over attitudes, even as the economy itself pretty much ignores the doom and gloom predictions.
The difficulties in the housing market have fueled recent hysteria, primarily because journalists either don't understand how minimally important the housing problems are in the whole economic picture, or because it suits some nefarious purpose to promote existing fears of a recession.
Another area frequently cited as a sign of impending doom is that oil prices have moved close to $100 a barrel, up from near $60 at the first of 2007. This is another instance where a poor understanding of economics and the lack of historical perspective combine to create a false sense of catastrophe. Oil prices are high, yes, and oil has never cost as much per barrel as it does today. However, on an inflation-adjusted basis, the price of oil is not as high now as it was in the late 1970s. That's not to say that things aren't uncomfortable and might not get worse, of course, but we aren't there yet, and even if we get there, oil is only one of many factors that make up our economy, and many of them are still strong or at least at acceptable levels.
One writer who doesn't buy into the media's gloomy predisposition commented that while many Americans feel poorer, as home values fall and fuel costs more, positive factors also exist. For example, employment is high, the economy has continued to grow at a decent rate, productivity is up and stocks have posted significant gains for the year, despite a couple of price dips. That is a perspective you don't read often.
Some commentators put a great deal of emphasis on what happens in retail sales in December. Reflecting the negative bias of much of the American media, an Associated Press story Nov. 24 ran under the headline, "Despite economy, malls and stores jammed." The underlying assumption of the writer is that the economy is bad enough that it really should have kept people out of the stores. Scratching her head trying to figure it all out, the reporter continued, "Malls and stores were jammed for pre-dawn discounts on everything from TVs to toys on the official start of Christmas shopping as consumers shrugged off worries about rising gas prices and falling home values." "It's crucial," another writer opines, "that the Black Friday euphoria lasts throughout the season, [which is] expected to be the weakest in five years." Message: things are bad so you shouldn't spend much this Christmas, but if you don't the economy is going in the tank.
So, get off your backside and go out there and buy a lot of Christmas gifts; our economic survival depends on it!
Recessions come and recessions go; they are a fact of economic life. Depending upon whose data you use, the US has experienced as many as nine since 1950, which works out to one every 5.6 years. But, just what is a recession, anyway? One definition is: A period of general economic decline; specifically, a decline in Gross Domestic Product for two or more consecutive quarters. U.S. GDP growth has historically averaged about 2.5-3% per year, and the last several years has seen the GDP growth rate as high a 5% in 2000 to as low as 0.3% after 9-11-2001, but about 3.4% at the beginning of 2007, and 3.9% in the third quarter of 2007, well within the expected and acceptable range, and pretty strong in the face of predictions of a recession.
We'll see how the Christmas purchasing season goes, but according to most economic indicators, recession isn't on the horizon. Someone should tell the media.