- The Big Picture - http://www.ritholtz.com/blog -

BusinessWeek Cover Story: Disingenuous or Denial?

Posted By Barry Ritholtz On February 6, 2006 @ 5:30 am In Economy,Financial Press | Comments Disabled

0607_covdc [1]"Why the economy is so much stronger than you think." –BW


I was initially perplexed by this magazine cover, and it took me a few moments to figure out why.

Eventually, I concluded that it was one of two things; either this is a disingenuous cover, or the Editors at BW are in Denial.

If its disingenuous, then it comes across as an awkward attempt to be slyly contrarian by (follow this twist if you can) repeating the dominant view as if it were the minority perspective. With BusinessWeek itself rather Bullish about both the market and the economy, perhaps they are trying to convince themselves.

On the other hand, previously strong economic reports have begun to show the signs of slowing down.  After a good three year cycle, GDP has begun to weaken, we see real wages actually negative, the sabings rate has dropped to zero, and the mighty housing sector has irrefutably begun to slow.

Not to worry, BW admonishes us, the Econopy is stronger than you think. That sounds alot like denial to me.


Let’s take a closer look at the mainstream media’s financial reporting about the economy:

First off, the economic headlines — misleading though they might be — have been primarily positive: GDP (ex-Q4), Unemployment Rate, Earnings growth, Real Estate gains, Merger Activity, Share Buybacks, Employment, and low inflation have all been reported by the MSM as very positive economic developments. A superficial glimpse anytime over the past year shows strong growth. 

Its only a few ornery cusses (like myself) who have been pointing out that the reality beneath the headline data paints a very different portrait. A closer look at how various economic components are calculated reveals that the CPI dramatically understates [2]inflation [2], or that job creation this cycle [3] is so very poor, or why the Unemployment rate is misleading [4].

Indeed, as one of the few people who actually believe the economy is not all that strong — and is about to get considerably weaker [5] over next the 18 months — I wonder who BW is addressing this cover article to.

Second, as the special year in preview forecast [6] revealed, the vast majority of Pundits were very bullish. I was the only person [7] who suggested a greater than 10% correction was a possibility (One other pundit thought a 10% correction was probable). Wall Street Economist and Strategists have been constructive on both the market and the economy for some time now. With few exceptions, the crowd of experts have continually overestimated growth, forecast too aggressively on job creation, and to this day still underestimates inflation.

If the economy is actually stronger than this consensus, then we must have a helluva robust expansion going on.   


The Disconnect: Perhaps BusinessWeek is addressing a different audience — the large group of people who in poll after poll rate the president poorly on his handling of the economy.

What BW fails to grasp is that most people aren’t thinking about the economy; I’m not sure if all that many people even have an opinion on the Macro issues. But they do have a sense of their own financial situation: Are they getting ahead, are they falling behind, is their standard of living rising or falling, how much confidence do they have about the future, etc.

On that score, much of the country has become increasingly pessimistic.

This is the source of "the Disconnect." Their own personal financial situation has gotten considerably worse. Their health care costs a lot more, but their employers now cover less of it; Food, Energy, Education, Housing, Healthcare all cost more — but their real wages (after inflation) are actually negative. Even the one bright spot — their Real Estate gains — are only relative. Why? The rising tide has lifted all boats homes. So while they can get more for their own homes, moving up now costs considerably more also. This makes gains somewhat illusory in relative sense — unless you move to a cheaper part of the country, or downsize, or rent post-sale.

Bottom line:  While most of the headline data up until recently has been positive, beneath the surface the recovery has been lumpy, being as overly dependent on government stimulus and Real Estate as it has been. It is starting to show signs of increasing weakness. People who do not rely on abstract models (i.e., non-economists) and instead only interpret their own financial situations are have been economically uncomfortable, and more recently increasingly so.

Perhaps BusinessWeek’s editors need to get out of the office more . . .



Why The Economy Is A Lot Stronger Than You Think [8]
By Michael Mandel, with Steve Hamm in New York and Christopher J. Farrell in St. Paul, Minn.
BusinessWeek, FEBRUARY 13, 2006

Cover Image: Unmasking The Economy [9]

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2006/02/businessweek-cover-story-disingenuous-or-denial/

URLs in this post:

[1] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/0607_covdc.gif

[2] dramatically understates : http://www.thestreet.com/_tscs/comment/barryritholtz/10248963.html

[3] job creation this cycle: http://www.thestreet.com/_tscs/markets/economics/10258387.html

[4] Unemployment rate is misleading: http://bigpicture.typepad.com/comments/2005/02/new_column_up_a_1.html

[5] considerably weaker: http://online.wsj.com/public/resources/documents/econoblog06152005.htm

[6] special year in preview forecast: http://bigpicture.typepad.com/comments/2005/12/business_week_f.html

[7] I was the only person: http://bigpicture.typepad.com/comments/2005/12/chart_of_the_we_1.html

[8] Why The Economy Is A Lot Stronger Than You Think: http://www.businessweek.com/magazine/content/06_07/b3971001.htm

[9] Cover Image: Unmasking The Economy: http://www.businessweek.com/magazine/content/06_07/b3971002.htm

Copyright © 2008 The Big Picture. All rights reserved.