Another week to read what you like into the economic tea leaves.
The sharp February drop in the University of Michigan index of consumer sentiment was described by Sudeep Reddy as “the latest ugly sign of an economic downturn” and by Paul Krugman as more evidence that “the wheels are coming off this economy.”
Ugly indeed, though this series is quite capable of sending a false signal.
By contrast, Mark Perry crows that the “U.S. economy is alive and well” on the basis of the 0.1% rise in the Fed’s industrial production index in January relative to December, and a 2.3% gain over January 2007, though all of that year-on-year growth comes from the first half of 2007. Still, so far we haven’t seen the sharp decline that might have been expected if a recession has actually begun.
Other key indicators also support the conclusion that growth has slowed but has not yet made a recessionary move into sharp decline. For example, nominal retail sales were up 0.3% for the month and 3.9% year to year.
Real disposable personal income likewise eked out a 0.2% gain for the month in December and 2.1% for the year.
Taken as a group, these numbers would not refute the conclusion of Paul Krugman, particularly if some of these series end up being revised downward. But neither are the presently available numbers inconsistent with the assessment offered on Thursday from Federal Reserve Chair Ben Bernanke:
At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt.
Also this week, the Congressional Budget Office revised its forecast for GDP growth up by 0.2% for the year on the basis of the anticipated impact of the recent monetary and fiscal stimulus. CBO now anticipates 1.9% growth of real GDP for 2008 as a whole, more on which from Menzie and Greg Mankiw.
So take your pick of what to read into all this. To try to make it simpler, let me pose it as a multiple-choice question. Will real economic growth in the first half of 2008 be (a) slow, or (b) negative?