Gene Epstein on why the economy really has been moving, from todays' Barrons:
If Wall Street analysts would only look beyond the Hudson or, in the Fed chairman's case, the Potomac, they'd stop attributing so much of the consumption boom to the bull market. Other, far more noteworthy trends have done the heavy lifting.
First, there's the highest housing affordability ratio in a quarter century, born of the combination of rising incomes and low mortgage-interest rates. Then there is the rise in real (inflation-adjusted) wages and salaries, caused by another benign set of forces: the lowest employment rate in 30 years and the greatest rise in productivity in more than 15 years.
The single most important force behind this economic expansion has not been the roaring bull market, but the fact that we have witnessed the most sustained rise in real wages and salaries since the 1960s. That force has truly turbo-charged the consumption boom. Once we factor it in, we find that the wealth effect, on a dollar-for-dollar basis, seems weaker than usual. And no wonder: Stock prices rose so far, so fast, that all those instant paper millionaires had a bit of trouble spending the phantom cash, even if they had less difficulty acting the part.
Finally, a long-lived bear market will mean a lot less time watching the talking heads of CNBC and CNN-FN announce new unemployment insurance claims or the monthly balance of payments from the floor of the New York Stock Exchange the way you'd report the ball scores. When the team keeps losing, the fans stop watching, which is what will likely happen if the market keeps losing ground. So attendance at real ball games might start to climb, and those buses to Atlantic City might get more crowded. |
