Is the economy really doing “just fine”?

From Bloomberg:

Housing? What Housing? I Don’t See Any Housing: Caroline Baum

Excluding housing, the U.S. economy is doing just fine.

That’s the latest rationalization of a select group of operators who think that the Bush administration’s 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate can protect the economy from any and all ills.

To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush’s Middle-East policy is a rousing success.

How valid is the claim that outside of housing everything is hunky dory? Let’s go to the videotape to see how housing- centric the U.S. economy’s weakness really is.

The Commerce Department reported Friday that real gross domestic product rose 1.3 percent in the first quarter, the slowest pace in four years. The year-over-year growth rate slipped to 2.1 percent, also a four-year low.

Investment in housing, the purported culprit, fell 17 percent, less than in the fourth quarter. Residential investment, as it’s known in the GDP accounts, subtracted from growth for the sixth consecutive quarter, something that hasn’t happened since 1980.

The first quarter’s sluggish growth wasn’t confined to housing, however. Exports declined, inventories were a small drag, and capital spending (investment in equipment and software) rebounded 1.9 percent — better than expected based on monthly data on shipments but nothing to write home about after declines in the second and fourth quarters of last year.

“The initial weakness was in housing, but the weakness in capital spending is not a cross-infection from housing,” says Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

One year ago, capital spending was growing at a 9 percent year-over-year rate, he points out. Now it’s zero.

“A year ago, people said capital spending was going to rescue us as housing slowed,” he says. “Capital spending is down to zero (year-on-year). There’s been an unambiguous slowdown.”

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5 Responses to Is the economy really doing “just fine”?

  1. RentinginNJ says:

    I’m not sure I completely understand why the stock market is on such a tear given some of the troubling news as of late.

    It seems like any nugget of good news is an excuse for a big rally.

    Bad news is either glossed over and quickly forgotten as soon as the next nugget of good news comes out. Or, bad news is spun into good news to comport with the Goldilocks view of the economy; “GDP is slowing? Good the economy is “not too hot”, Now the Fed can lower rates!” Let’s get this party going!

  2. jcer says:

    One word to describe the equities market, currently eratically exhuberant.

  3. mtnbika says:

    Sell in May and run away!

  4. UnRealtor says:

    Seems this Bloomberg writer suffers from Bush Derangement Syndrome (BDS), and is not a “journalist” but an evangelist for her cause.

    In paragraph # 1, she throws out the DNC’s ‘tax cuts for the rich’ meme, and in paragraph #2, she throws out the ‘failed Mideast policy’ meme.

    The first, is just silly, and the second, is a complete non sequitur and has no place in an article on economics, other than to perform the equivalent of an Aresnio Hall “Woot! Woot!” to an imaginary audience that uniformly shares her BDS worldview.

  5. Theo says:

    I think your #2 is a perfectly valid analogy.

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