The Fear Economy, Take 2

Another poll should make people happy but worried about the future.

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A survey conducted by insurance giant MetLife found that 85 percent of respondents believe the U.S. economy is headed in the wrong direction today vs. 64 percent a year ago, with roughly half predicting the economy will be worse this year than last year. Most economists would agree with that assessment. But here is the weird part: Eighty-five percent think their own financial situation will stay the same or improve.

What explains this phenomenon? Is it the unconquerable optimism of the American people? Perhaps. But maybe it's also the fact that unemployment remains at historically low levels, and despite the housing recession, most people are still sitting on big paper gains from the run-up. At the same time, much of the press continues to miss important pieces of positive economic news.

1) The loss of jobs in January was played up last week despite the fact that such preliminary reports are often revised—as was the case of the December number. Nor did the December number, which was adjusted way upward, get much attention.

2) A new report shows loan standards have tightened. Bad news for the economy, right? Yet investment strategist Ed Yardeni notes: "Bank credit rose to a record high $9.4 trillion during the week of January 23. It is up $956.1 billion [year over year], which is also a record high.... Recessions don't usually happen when bank credit is expanding. Lending standards are tightening, but that's after being ridiculously loose. The weekly data reviewed above suggest that while there may be a credit crisis, there is no credit crunch because bank credit remains available."

3) And look at today's Institute for Supply Management nonmanufacturing index report for January. It showed the largest month-on-month decline in the history of the data series, which dates back to 1997. Yuck. Yet the January ISM manufacturing index actually surprised to the upside. That's consistent with 2.5 to 3 percent real growth in gross domestic product. Jobless claims are also below levels typically seen in a recession. Economist Michael Darda of MKM Partners bottom-lines it for us:

The data point on ISM services for January seems out of step with the balance of the recent data, which has been weak, but not indicative of a collapse. Nonetheless, the recession debate will continue, and the Fed will probably continue to err on the side of over-easing monetary policy to ward off downside economic risks.