Wednesday, February 13, 2019

What is the condition of our economy?

The last quarter of 2018 saw a constant drumbeat of negative “news” that likely contributed to a psychologically induced drop in the stock market.   Headlines like, “Worst December for stocks since 1931 gets worse as rate hikes spook investors” were commonplace.   Social media regurgitated the narratives.    One would have thought the sky was falling despite an abundance of contrary economic performance measures that the economy is strong.
Something is wrong when armchair analysis by novice investors can detect the difference between economic reality and a false perception, but “journalists” cannot or will not.  The American public would do well to guard against watching biased and unreliable television “news” and informing itself (or rather not informing itself) through social media.  The resources are available to make better economic decisions.  The only requirements are time and focus.   The rewards can be significant.  

What is the evidence the economy is strong?

In the 1960s, economist Arthur Okun created the misery index economic indicator.  The misery index is largely the addition of the inflation rate and the unemployment rate.  The lower the number the better the economy.  The Carter Administration holds the title for the worst Misery Index at more than 20 (Inflation over 14% and Unemployment over 7%).  Dwight Eisenhower had the best at only 3.28.   The current misery index under the Trump Administration is 5.9 – the best since Eisenhower in 1952.

Recent release of end of year 2018 and January, 2019 economic data confirm a strong U.S. economy.

Lagging Economic Indicators (Table 1) illustrate how well the U.S. economy is performing.   LAGGING indicators are facts about what has happened in the recent past.  They can help in making some prediction about the immediate future, but straight-line projections of historical trends are dangerous and to be avoided.   In general, look at this table to assess where the economy is right now.