Friday, October 30, 2015

Ed Morrissey Shows His Amateurish Economic Abilities ... Again

     I haven't picked on ol' Ed in awhile.  Frankly, it seemed that he passed on the economic writing to the far more competent Steve Eggleston.  But after yesterday's GDP print of 1.5%, I had a feeling Ed would chime in with his, "the economy really sucks" line of thought.  Thankfully, he didn't disappoint.  So, let's explain why his analysis is incredibly amateurish.

     He starts by correctly noting that PCEs were very strong,  coming in over 3%.  It would have been a bit better if he'd actually looked at the report's detail, however.  Had he done so, he would have found that durable good spending was up a very strong 6.7% while non-durable spending increased 3.5% (see table 1 from the accompanying Excel information; it's on the right hand side of the BEA release).  Why is this important?  Because durable goods require financing, meaning consumers don't make these purchases unless they think they'll be able to make payments for a few years.  This is why the strong level of new car sales (that's a durable good, Ed) is so important; recessions don't happen when the consumer is buying bigger goods.  And this is the second quarter in a row this reading has been strong; 2Q DGs M/Ms were up 4.3%.  In short, this data alone tells us that the release probably isn't the harbinger of doom.

     But then Ed shows is analytical failings.  And I mean his amazingly amateurish "abilities."  He notes that Reuters mentioned the large inventory drag.  But then Ed drops the ball when he notes, "That might be the case, but the big decline in business investment was in structures rather than inventory."

     Actually, Ed, if you had looked at the accompanying Excel sheet, ESPECIALLY TABLE 2, you would have seen that an inventory correction subtracted 1.44% from GDP growth.  See especially cell T48 of Table 2, Ed.  In fact, Ed, according to the same table, total fixed investment added .47% to total growth.

     In contrast to Ed's perma-bear routine, people who know how to read tables and data and who also watch more than the one data point, yesterday's report wasn't nearly as fatal as Ed makes out.  As my co-blogger noted:

The big issue this year has been the effect of the 20% increase in the broad trade weighted dollar. Yesterday's report indicates that
(1) the consumer has not been harmed, and continues to power the US economy forward;
(2) the bleeding in the import/export sector has been staunched; and
(3) affected industries are making progress working through their accumulated inventories.

     This isn't to say there aren't reasons for concern.  As I've noted in my weekly equity columns for a number of months, corporate earnings may have peaked for this cycle.  And the shallow industrial recession caused by a combination of the strong dollar, oil sector contraction and weak international environment continues.  But ol' Ed doesn't mention any of these.  Instead, he continues in the same pattern he has since 2008: he waits for news he can spin negatively and then does so.

     In short, Ed is a partisan hack, who's analysis is poor and whose understanding of the topic is weak.

     He really needs to stop writing about econ; he's that bad.