September 24, 2010

Where do the leading economic indicators lead?

We regularly hear from various agencies, reporting on aspects of the economy and the recession, depression, or ‘Obamamession’ or whatever it is we’re in. What we buy, what we spend, what we save -  are all reported on, and commented on, and are supposed to foretell the future.  What  gets me about all this is how the numbers are ‘spun’ to show we’re in horrible straits, we’re not recovering, it’s getting worse by the day.

Take car sales. Last year we had Cash for Clunkers which ended in August, and sales were way up as people took advantage of the extra money taxpayers put up and traded in their gas guzzler for newer models. Then, we compare this year’s August sales to same month last year, and lo and behold, sales are down. Half the people who reported on this failed to mention the end of the incentive, but instead gave us a ‘woe is me’ reading of the figures.

Look at home sales, and you’ll get similar information. Sales in May were down considerably from April – 32% down - so that means that we’re stalled, the economy’s not moving, and the world’s coming to an end, right?  Nope – it just means that, without the $8000 taxpayer-funded incentives which ended in April, folks were not as interested in purchasing a new home.

The problem with these ‘economic indicators’ is, they become self-fulfilling prophecies. We hear, for example, that "banks aren’t lending money" and people think that all banks aren’t lending any money, so they don’t ask for a loan to expand a small business or kick off an entrepreneurial venture…then we don’t get any new jobs, so unemployment stays high. The truth of the matter is, lots of local banks are lending money to local businesses, just like they always have.

The indicators are also self-feeding. We hear complaints that credit card debt is out of control and people are in way over their heads with debt. Credit card companies begin to be more careful with rates and who can have how much credit, which should be a good thing. People start managing their credit card debt, paying off balances and being more careful with how they use credit, and that should be a good thing too. But it's really a bad thing, because some other indicator says that credit card use is a good thing. It’s all some crazy dog-chase-tail situation.

The best thing we can do is to understand our own economic situation as best we can, and act accordingly.  If you're comforable spending, go ahead and spend. If you'd rather save for a rainy day, go ahead and save. If you want a new fill-in-the-blank, buy it with your own money - don't wait for the government to help you pay for it.

If we listen to the experts, we’ll be too scared to sleep at night...and we need at least eight hours of sleep at night, or we’re all going to die… and if we all die, the economy will surely end up in the toilet… and...and...and...