As the economic situation continues to improve slowly, by fits and starts, I’m starting to hear a growing chorus of doom and gloom from various pundits and gurus. Their basic point may be well-taken, and could indeed ultimately turn out to be correct, but it boils down to something like “So things are improving a little bit. So what? Soon, the bottom will fall out.” I tend to treat such analyses as a variation on the old Chicken Little theme (“The Sky Is Falling!”), but that doesn’t mean there can’t be at least a germ of truth in such gleefully dire predictions.
Let me offer two recent examples for your consideration:
1. Matt Clinch, CNBC, “Why US Jobs Market Is Going to Get a Lot Worse,” April 8, 2013.
2. Henry Blodget, Business Insider, “HUSSMAN: Wake Up, People — The Economy’s Lousy and Earnings Are Going to Tank,” April 8, 2013.
To what extent this genre of alarmism is simply calculated to attract eyeballs on the Web, I leave as an exercise to the reader. But both stories make some valid points, particularly when it comes to pointing out that the Fed’s policy of “quantitative easing” may be pumping lots of money into the markets, but that this doesn’t necessarily affect important fundamentals such as consumer and business confidence, which leads to more spending on the demand side and a greater willingness to hire more employees to help keep with the resulting increases in demand for their goods and services.
There’s a growing and uneasy consensus that recent manipulations of the capital markets over the past 5 or so years has removed too much of the natural elasticity in the economy, preventing it from going through its normal ups and downs. Of course, that happened because high-level economists and politicians decided they didn’t want to risk the results of a prolonged free-fall to plumb uncharted market lows when the market was headed into the Stygian depths of depression. But now that things are approaching something we can all recognize as more or less normal, artificial manipulation of the money supply and the markets is becoming increasingly vexing and troublesome (I’m voicing what I perceive as the underlying beliefs behind such sentiments, not acting as a spokesmodel for or even representing myself as an adherent to same).
Alas, I think we’re just dealing with the peripatetic nature of market and employment movements. A little bit up, a little bit down, some occasional sideways moves, and a lot of action on a small scale adds up to larger trends. My own personal belief is that confidence — both on the consumer and business side — is an important control over markets and the overall economy. Bring confidence up, and everything goes along with it; knock confidence down, and everything recedes apace.
Right now, our employment and economic indicators include a rich and confusing mixture of contrary and even contradictory signals. Some things are up, others are down, and nobody has a clear sense of direction be it either positive or negative. I have to believe this indicates a pattern typical of slow growth and slow decline where people and the markets can’t yet decide which way things are going. Do I see this as cause for concern: Yes, but only moderate concern. Do I see this as a harbinger for the Apocalypse? By no means! And remember, there’s always time to panic later, when the bottom really does fall out. For now, I remain convinced that we’re in an extended holding pattern, as confidence seeks to determine which way its arrow is pointing most strongly: up or down? Thus, sideways for the moment is the best any of us can foretell…