Submitted by Alhambra Partners' Jeffrey Snider [6] via Contra Corner blog [7],
Last week my good friend Fred Everett emailed me the Wall Street Journal’s take on GDP. They were, as you might expect, quite optimistic about what 3.5% implied toward future acceleration finally out of this seven-year depression:
The U.S. economy expanded steadily again during the third quarter, a sign of sustained growth fueled by American consumers and businesses despite mounting concerns about the health of overseas economies.
[8]
The problem with that assessment is that it is simply untrue. GDP expanded with very little aid from American consumers and businesses, especially since PCE contribution to GDP was among the lowest since 2009 (and true capex wasn’t any better). As my recent analysis of GDP history shows [9], that is a reason to be very pessimistic about trends due to the simple fact that over time GDP converges with American consumers and businesses, who continue to be quite and “unexpectedly” dour [10] despite all these hugely positive narratives.
As it turns out, a few hours later, the Wall Street Journal seems to have become aware of all of this. The opening paragraph in the same article now reads [11]:
The U.S. economy expanded at a healthy pace during the third quarter, a sign of sustained growth fueled by government spending and a narrower trade deficit despite mounting concerns about the health of overseas economies.
While the last clause in that sentence maintains the sunshine optimism, it is hardly the same interpretation, is it? “Sustained growth” has never been “fueled” by government spending and there is nothing to indicate, short of a total collapse in demand domestically, that the trade balance will remain “narrower.” Actual and significant improvement in American consumers and businesses would indeed “fuel” sustained growth, but it has been a decade since anything like that has been experienced (and even then it was largely insufficient and artificial). Despite the headline number for GDP, that doesn’t erase this deficiency.
Did they simply just run that paragraph assuming that 3.5% would necessarily mean what they said? Was it all just hope that no one would notice?
This is, to me, beyond simply bias toward whatever orthodox narrative is convention – which right now means the FOMC’s idea of recovery. Content and pesky facts should matter more than the narrative, which becomes all-too-clear in the retraction; it completely changes the context, and thus meaning, but yet the dominant sentiment remains unaltered despite the illogic of the correction. In this case, as with so much commentary, the data can change but that does nothing to modify the narrative as it is “too important” to simply let go.