As I travel around the country and talk with people across the industry, from producers to material suppliers to contractors, I have come to learn that pessimism has become pervasive. People will believe just about anything as long as it is negative.
Earlier this summer, after a jobs report showed 83,000 new private-sector jobs were created in June, the Drudge Report compared the U.S. economy of 2010 to the Depression year of 1932. This is an overreaction, and is indicative of the severe case of economic hypochondria that seems to have gripped the nation. Common sense seems suspended.
For example, every 10 years, the government hires hundreds of thousands of temporary workers to conduct a census. Between April and June, employment fluctuates by an amount that often swamps underlying employment trends. The summer reports should have reflected that, adjusted for the Census, private-sector payrolls increased by 33,000 in May, then accelerated in June to 83,000. While both months were disappointing compared with previous recoveries, the data shows six consecutive months of private sector job creation.
New orders for durable goods, a leading indicator, were up 16.5% in the first half from the same six-month period in 2009. Machinery orders alone were up 23% in the past 12 months. This is clearly not a depression.
Yes, housing has fallen. But what should we expect after a huge government program to support housing activity ends? Remember Cash for Clunkers? The program artificially boosted sales, then they fell before normal economic activity resumed. The same thing will happen with housing in the months ahead.
Not looking back
So could we be repeating 1932? These fears are based on a faulty comparison with history. That year, the money supply fell by 16.5% - the third of four consecutive yearly declines between 1929 and 1933. Meanwhile, President Herbert Hoover pushed through the largest tax hike in American history, exacerbated by senseless tariffs.
No doubt the government is making business difficult, as the uncertainty of new laws, spending, taxes, and regulations is throwing a wet blanket over American entrepreneurs. But productivity is so strong, that the economy is growing despite increases in the size of government. We are creating jobs, even if the growth rate is less than previous recoveries. Profits are still rising, and analysts are still raising second quarter earnings estimates for corporate America.
I believe strongly that pessimism creates value, and that optimism has traditionally been rewarded. I remain optimistic for the future of our economy, and our industry's recovery.
A Personal Note About the Oil Spill
Back in November 2005, I thanked the many people who were so kind to us in the aftermath of Hurricane Katrina, as our firm is headquartered in New Orleans. I had calls and e-mails from friends, clients, and colleagues, many of whom offered us their guest rooms and homes. At press time, the Great Oil Spill was behind us after devastating our coast and economy between losses in tourism and the moratorium on deep water drilling, which has done the most economic damage. I had the same outpouring from so many, but this time it was coupled with the frustration that they could not offer any relief or do anything to help, as the ordeal lingered hopelessly for three months. Thanks to all of you for your kind thoughts and words; this industry is blessed with some of the most wonderful people I have ever met, and I am lucky to call so many my friends.