By Chris Pummer, CBS MarketWatch
Last Update: 12:01 AM ET June 1, 2004
SAN FRANCISCO (CBS.MW) -- The Wall Street Journal, The New York Times, major TV networks and financial magazines keep repeating a serious error I've meant to call them on, but haven't, because my own Web site makes the same grave mistake.
To hear Big Media tell it, the U.S. economy is in a fragile state of "recovery" that threatens to be undermined at any moment, by rising interest rates, by soaring gas prices, by another terrorist attack.
In fact, the economy has been in a state of rip-roaring "expansion" -- the strongest in 20 years -- yet the media persists in painting a dreary picture.
"I don't know how much is agenda and how much is ignorance or just lemming-type journalism," said Comerica Bank Chief Economist David Littmann, who's tracked the economy for 40 years. "We're in a mini-boom, and to characterize it as a recovery is to diminish it."
This isn't nitpicking, mind you. The media is a powerful influence on how we view ourselves, and refusing to come around to substituting one word for another is depressing the national mood.
Think about it: An expansion implies strength and virility, while recovery suggests lingering weakness -- the stroke victim in therapy for paralysis, or the reformed alcoholic still at risk of falling off the wagon.
Contrary to what conservatives might suspect, the media's dim view isn't due to a liberal conspiracy to derail President Bush's reelection. The personal politics of journalists overall may be a few degrees left of center, but business journalists on the whole are fairly centrist. I consider myself a compassionate moderate.
No, the driving force here is altogether different. Namely, as a sage editor of mine used to say, "Don't blame on malice what can best be attributed to incompetence."
The business media has always been a lagging economic indicator. We're the watchdogs who failed to bark menacingly at sky-high stock prices, who let the bear maul small investors for a year before finally barking long and loud, and who were chloroformed when it came to sniffing out massive corporate corruption. We're now loath to change our characterization of the economy, for fear we'll be ridiculed for cheerleading again.
Not a fine distinction here
In the 1980s, the definitions of recession, recovery and expansion were fairly well delineated. A recession was two or more quarters of declining economic output; a recovery was the period in which gross domestic product rose to its previous high; and an expansion was what followed thereafter.
The National Bureau of Economic Research since has emerged as the brain trust the media now relies on for calling recessions. Yet the NBER doesn't even use the word "recovery." By its terminology, an expansion begins once a recession ends, and it says we've been in one since November 2001.
If that's not sufficient proof, try these measures on for size:
The nation's GDP grew 4.4 percent in the first quarter of 2004, capping its biggest 12-month gain since 1984. By most forecasts, GDP this year is expected to grow 4.7 percent -- the best calendar-year performance in two decades, surpassing even our longed-for 1999.
The economy has created more than 1.1 million jobs since last August, with unemployment falling to 5.6 percent in April. That rate was lower, by a hair, in only two of 22 years from 1974-to-1995 -- 5.5 percent in 1988 and 5.3 percent in 1989.
Home ownership reached a record-high 68.6 percent in first quarter of this year -- up nearly 5 percentage points in the last decade
Yet the major media clings to the word "recovery" like a malpractice-fearing doctor too afraid to offer an optimistic prognosis to family members. For instance:
A May 19 Wall Street Journal story on a speech by Philadelphia Federal Reserve Bank President Anthony Santomero said he expects inflation to remain contained during "the U.S. economic recovery." (The Journal's words)
A May 15 New York Times story on Money magazine naming a new editor said: "By this time in the recovery, most people can at least bear to open their 401(k) statements . . ."
A May 18 Reuters story carried on NYT.com, the Times' Web site, said: "Mortgage rates dipped to near 40-year lows in the first few months of 2004, but have risen in recent weeks as signs of the U.S. economic recovery have solidified . . ."
A May 5 story on Motley Fool's Web site about the outlook for employment-services stocks ran under the headline: "As the economy recovers, temporary staffing firms may enjoy a boost."
A May 17 story on Fortune magazine's Web site ran under the headline "Oil Prices: Will this recovery run out of gas?"
Misfocused on jobs
When I alerted my boss to his use of the word "recovery" in a TV interview about rising oil prices, and its use by one of our columnists, he said: "You wouldn't call it an expansion if you were one of the people still unemployed."
Therein lies the root of the error.
Those who think we're still in a recovery apparently won't change their view until we return to the record-low 3.8 percent unemployment we enjoyed for a fleeting moment in 2000 during the most prosperous economy in history.
That's like not recognizing a bull market until the Nasdaq surpasses 5,000 again. I'd bet my retirement savings no one alive in the U.S. today will ever see sub-4 percent joblessness again, and here's why.
For decades, economists considered 4.5 percent "full employment," so the U.S. entered a labor-market utopia when we dropped far below that. But 3.8 percent didn't reflect real production needs. It reflected a gross overcapacity of human resources, as employers with delirious growth expectations rushed to net the little talent left in a labor pool then shallower than a sidewalk puddle after a light summer rain.
See no good, hear no good
Americans still bear some responsibility for not seeing past the media's mischaracterization, though the reasons are understandable, said Richard Geist, president of the Institute of Psychology and Investing near Boston.
"People got so fed up with bad economic news, they stopped paying attention to the reports on GDP and productivity growth, and earnings and employment gains," he said.
"The economic news also is being shut out by news of the war. The general feeling about the country and how we're doing is more pessimistic primarily because of Iraq. It's hard, in that context, to hear good news as good."
The Gallup Poll last week found we're growing dispirited again despite a host of encouraging economic news (And three cheers to Gallup for using the "e" word):
"Even as the U.S. economic expansion begins to provide real job growth, Gallup Poll economic data for early May show more consumers rating the economy as 'poor' than at any time this year. Half the public also says the economy is getting worse, not better. Is consumer confidence falling simply because consumer fears of inflation and higher interest rates are growing?"
Yes, and their fear owes entirely to a national media too timid to make clear a rise in inflation and interest rates from near 50-year lows is a good thing.
That's to be expected in an economic expansion.
Chris Pummer is an assistant managing editor for CBS MarketWatch in San Francisco.
Right....
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