'Take Economic News With Grain of Salt,' Experts Say

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The economy was never as bad as it seemed and will continue to recover quite nicely-if only the media will let it, according to two experts.

"There's no Iraqi war and no O.J. trial, so the media will focus on the economy, and they'll exaggerate the situation because there's nothing else out there," suggested Dave Colby, AVP-corporate economist for CUNA Mutual Group during the "Navigating an Uncertain Economy" session at CMG's Discovery Conference. "On top of that, we'll have all the presidential candidates out talking down the economy, too, so consumers are going to be pummeled by a lot of news on the economy."

Scott Knapp, an investment officer with MEMBERS Capital Advisors, agreed, citing copious examples of the media jumping on the economic bandwagon-just as happy to punch-up the highs as to exaggerate the lows.

Using slides to show past headlines and magazine covers, Knapp demonstrated the media's love affair with economic reporting.

Time magazine's cover from Sept. 27, 1999 had the banner headline "Get Rich.com," with a story glorifying the .com economy. A few months later, "Time" named Amazon CEO Jeff Bezos Man of the Year. "We're talking about a man whose company's business plan was, 'Sure, we'll lose money on everything, but we'll make up for it in volume,'" Knapp chuckled.

Even the relatively staid Barron's ran the headline, "Can Anything Stop This Economy?" on Sept. 4, 2000. "Even the more serious magazines bought into the idea that this economy was recession proof," Knapp said. But the agency that tracks such things after the fact dated the start of the most recession in March of 2001, just six months after the headlines touting the "Raging Bull" .com economy.

And the press was ready for that, too. "Optimism Rubbed Out as NASDAQ Reels Toward Worst Bear Market Since Depression" screamed the headline from the Feb. 27, 2001 edition of USA Today.

Most economists agree that consumers have been the all-important factor in keeping the economy going over the last couple of years, so continued consumer confidence is vital. One of the factors that consumers often give a lot of weight to is unemployment, if for no other reason than the fact that for folks who have lost their jobs-or the people who have friends and family who have-unemployment is a tangible, personal thing.

The problem is, unemployment isn't always a good indicator of where the economy is right now or where it's going in the future.

"Unemployment is a lagging indicator," Colby explained. "When times are bad, we put off laying off people as long as possible, so employment levels can remain artificially high at the start of a dip in the economy. Then, when the economy recovers, we wait before we hire people back, because we want to make sure that things really are getting better, and that can keep unemployment artificially low."

Right now, people are taking a very conservative approach because lingering uncertainty is deferring the recovery. "Expect to see real recovery in the second half of 2003," Colby advised, noting that under "more normal" circumstances, economic recovery would have moved more swiftly, but the concatenation of events like Sept. 11, 2001, the Iraqi war and the ongoing "War On Terror" has kept uncertainty levels high.

But are things as bad as they seem-or were they ever as bad as they seemed-in this economic dip? "In the 1970s, the Misery Index was created," Knapp observed, citing a formula that combines the unemployment rate plus the rate of inflation. "In 1979, we had unemployment at about 6% and inflation at 12%, so our level of misery was at 18. Now let's look at 2002. We had unemployment of about 6%, so very similar to 1979, but our inflation rate was only at 2%, so the misery index was at 8%. That's a 10-point difference! That's not so bad!"

In fact, when Knapp showed historical comparisons of the stock market, what's been happening in the market over the last couple of years isn't statistically more dramatic than in years past-so why all the gloom and doom? "Household ownership of stocks has risen significantly, so more people feel it personally," Knapp suggested. "Plus the unusual confluence of so many negative geopolitical events and the fact that our most recent point of referece was the euphoric boom of the 90s.

So what does it all mean for credit unions? To start with, look for the hidden opportunities out there, Colby counseled.

"The average U.S. household has about $6,623 in credit card debt outstanding," he observed. "This is a very inefficient use of credit, so the big opportunity is to help your members save money by teaching them to use credit more efficiently. A member loan is always the best credit union investment. All the new grads right now are a huge opportunity. The people with all those credit cards-they're good people, a good risk, so go help them out."

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