We Need Honesty About the Economy

Larry Kudlow is at it again. Last Sunday, on CNN, he said the economy is getting better, fast. Among his many statements were:

• “I don’t think the economy is going south; I think it’s going north.” The economy fell 32% on an annualized basis in Q2. While there was an improvement in late Q2, it appears to be reversing as cases and deaths rise in the South and West.
• “You’re in a housing boom right now.” Building permits fell by 30% in Q1 and 10% in Q2 over 2019.
• “You’re in a retail-sales boom right now.” While retail sales recovered in July, they were down 25% in Q2 and are still below last year.
• “You’re in an auto car boom right now.” On July 29, GM reported second-quarter U.S. vehicle sales declined roughly 34.1% over the last year.
• “Manufacturing—look at the ISM indexes—all are booming.” For Q1, manufacturing productivity was down 30% over the prior year, for Q2 70%. While there was a glimpse of recovery in June, we will have to see if it holds, but we have a long way to get to “booming.”
• “New business applications are skyrocketing.” Business applications were down 2.9% in Q1 and rose 2% in Q2 over the prior year. Again some improvement, but skyrocketing, I think not.
• “The jobs picture remains strong.” The unemployment rate declined from 14.7% in April to 11.1% in June; however, the trend is once more reversing. With such high numbers, “strong” is far fetched.
• “Economic recession? I don’t buy it.” The Definition of an economic recession is two consecutive quarters of economic decline. A 5% fall in Q2 and 32% fall in Q2, I believe, meets the criteria.
• “The V-shaped recovery is in place. There is going to be a 20% growth rate in the third and fourth quarters.” The Conference Board is expecting 20.6% GDP growth in Q3 but 0.8% in Q4.

Now I understand that the administration is trying to push the narrative that the economy is excellent, and we must return to “normal.” However, as I have said many times before, this is a public health crisis, and until we fix the public health crisis, we cannot fix the economy. The surge in cases and deaths through the South and West have harmed the economy in those areas. As the COVID cases stabilize and fall, they should rebound. However, we are now seeing cases starting to surge in the middle of the country. Next up is the winter with flu season and more COVID cases as people stay indoors.

Many good CEOs believe that when talking to your employees during times of crisis, you need to be honest, and I totally agree. They can see what is going on, and if you paint everything in a positive light, you diminish credibility and lead them to fear the worst. So it is with the country. The administration needs to be honest, stop promoting solutions that are ineffective from people that believe “endometriosis and other potentially dangerous gynecological conditions are the residue of sexual intercourse with demons.”

For me, Larry Kudlow lost credibility with after his piece in 2005, “The Housing Bears are Wrong Again” in which he dismissed “All the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.” His piece in 2007, “Bush Boom Continues,” where he predicted the economy would continue to grow just as it was collapsing, only confirmed my views. A banker who worked with Kudlow at Bear Stearns was quoted in Vanity Fair, “Over his entire career, I can’t recall a single forecast that he made that was accurate. You know, there’s the old joke about the economist that predicted seven out of the last four recessions. Kudlow makes that guy look good.”

Sending out Kudlow weakens the belief in the Administration by Wall Street and CEOs, which slows any economic recovery. Be honest and this time “Is the public health crisis stupid.”

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