Have you seen the Washington Post’s great “Fact Checker” feature? It features Post reporter Glenn Kessler scrupulously evaluating the accuracy of public figures’ statements, and then rating them on a scale of “Pinocchios”. I’m pleased to announce that Patrick Gillespie’s new post on CNNMoney.com on how to tell if the U.S. economic recovery is “real” and sustainable has inspired me to launch a similar series evaluating such statements (including by journalists) on a scale of “face-palms.”
To his credit, Gillespie – and the colleagues with whom he worked – seem to understand that America’s recent growth doesn’t necessarily mean that it’s out of the economic woods, much less that it’s making progress in fostering prosperity with staying power. To shed more light on the question, they “surveyed numerous economists.” And here’s what they found, and reported with a straight face: More than six years after the outbreak of an historic financial crisis triggered by insane levels of personal spending and home-buying, two of the best gauges of genuine economic health are growing levels of personal spending and home-buying.
Not that boosting consumption and housing couldn’t juice GDP. They could. But if Americans haven’t learned from the economy’s near-death experience that such spending itself doesn’t create healthy growth – and in fact can be a recipe for disaster when artificially propped up – what has the nation learned? In fact, as I’ve reported, those sectors’ combined share of inflation-adjusted U.S. economic activity today is even higher than it was at the end of 2007, when the recession officially started.
And that’s not the only problem with this CNNMoney post. None of the journalistic or economic contributors seems to realize that stimulating consumption per se has only limited effects on growth if most of what’s consumed is made overseas and imported. With U.S. trade deficits on the rise once more now that even modest growth has returned, way too much American spending is creating production and jobs overseas, not domestically. Even worse, what such excessive spending does create is more debt – something else already in oversupply in America.
Gillespie & Co. are on firmer ground with the third “lesser known” economic indicator on which they focus: manufacturing. Industrial and other goods made in America do indeed increase growth in sustainable ways, along with hiring and incomes. But their manufacturing gauge of choice is the series of purchasing managers’ indices compiled and released by the Institute of Supply Management. Almost with each passing month, because of major methodological flaws, these PMIs bear less and less resemblance with U.S. manufacturing reality.
So I’ll give Gillespie’s post five face-palms on my new 1-5 scale – the worst possible grade. And I’ll offer him and the other contributors to his post a new, almost completely ignored indicator that can reveal much more about America’s economic progress than the measures he discusses – whether the number of media reports peddling such hokum is rising or falling.