June 22, 2008 at 1:00 pm by Tom Lydon
When it comes to the big picture of the economy, our investments and exchange traded funds (ETFs), are we just being Eeyores?
When you look at the cold, hard facts, and compare the statistics from today to those of 25 years ago, it is easy to be mislead, says Neil Irwin for The Washington Post. Headline data must be taken with a grain of salt, and Irwin asks us to look at the credibility of the financial news media when they report various facts and figures: consumer confidence is at 30-year lows, only 12% of Americans think the economy is in good shape and so on.
There’s no doubt the economy is soft, he says, and we’re very possibly in a recession. But the economy is also holding up better than it did in the recessions of 1990 and 2001. Are our continuing economic troubles just a self-fulfilling prophecy?
But Barry Ritholtz at the Big Picture says that comparing today’s statistics with those of 25 years ago without any context is misleading.
Here are some reasons why it may not just all be in the attitude:
- Prices have outrun wage and income growth, leading to the first major decrease in the standard of living for the United States in the modern world.
- Medical and education costs have risen along side food and gas prices. Local taxes, property taxes and municipal taxes have all risen, too, but median incomes have not.
- The U.S. savings rate has slipped into negative territory for the first time since the Great Depression.
- We’ve got war fatigue, as the costs and casualties of the Iraq war have weighed on our psyche for more than five years now.
- A quarter or two has passed into what nobody will officially label a "recession." Sentiment data leads some to think there is something more contracted and intense waiting, if we keep letting the economy "pass."
Rather than predict whether we’re in a recession or not, it may be best to just invest simply by watching trends to determine what you should and shouldn’t buy. Then you can be sure you’re moving into the second half of the year without your emotions being involved.
