It’s not even remotely as important as the Iraqi election, but the New York Times’s impoverished coverage of the latest reading on U.S. gross domestic product deserves a mention. Both the headline and the thrust of the story by Times writer Louis Uchitelle suggest a big slowdown in economic growth. While this is statistically correct, it is analytically wrong. The main thought behind the story — that the economy has registered its “weakest quarterly pace in nearly two years, held down by a surge in imports” — is completely misleading.
Underneath the headline number of 3.1 percent real GDP growth was a huge 5.5 percent increase in private-sector output (less government spending and trade). Private consumption and business investment comprises 80 percent of GDP — a factoid the Times never relates. In fact, the tell-tale number in this latest GDP report is the outsized 15 percent gain in business investment — the single most important swing factor in economic activity.
Within this number, equipment and software investment jumped 13 percent. This is what Wall Street calls “cap ex”; it expands the entire economic infrastructure. Behind this investment explosion is the 20 percent rise in 2004 corporate profits. Business earnings allow firms to expand and grow the economy — and jobs, too. When profits rise, the economy expands. When profits fall, the economy contracts.
Meanwhile, the private domestic economy, which is the real engine of American growth, increased 5.4 percent in 2004 compared to 3.4 percent in 2003. Business investment more than doubled the gain for 2003. And, of course, 2.3 million payroll jobs were created this past year. Meanwhile, core inflation rose a tepid 1.5 percent over the past four quarters. Treasury bonds now yield a breathtakingly low 4.15 percent, a great omen for low mortgage rates and continued housing gains. At 5.4 percent unemployment, overall personal income is up about 5 percent. Pretty impressive, wouldn’t you say?
Not for the Times. The left-leaning Uchitelle worked hard to make the worst out of a good story. He obsessively emphasized the trade-deficit drag on output, a factor that statistically reduced overall GDP by 1.73 percentage points. This Alice-in-Wonderland arithmetic is totally misleading. To back up his pessimistic overreach, Uchitelle found a Wall Street economist from Goldman Sachs named Edward McKelvey who said, “foreigners are continuing to eat our lunch.”
Really? Is this guy referring to Europe’s more-than 10 percent unemployment rate? Or its continuously stagnant below 2 percent economic growth? Or similar recessionary conditions in Japan?
Later in his story Uchitelle finds a left-wing think-tank spokesman named Dean Baker, another negativist who foresees more trade gaps and a weaker dollar. Would it be asking too much of Louis Uchitelle to locate some optimistic private economists for the sake of journalistic balance?
He might have gone to Cato Institute’s Dan Griswold, who has an excellent new study on why “Bad news on the Trade Deficit Often Means Good News on the Economy.” The money sentence in his report: “an analysis of economic data from the last quarter century shows that a growing current account deficit (as a percent of GDP) is actually associated with faster, not slower, economic growth, as well as rising manufacturing output and falling unemployment.”
Putting aside Uchitelle’s obvious liberal bias, was it sheer laziness that prevented him from including this point of view in his Times story? Or does he just enjoy turning optimism into pessimism?
There are many even-handed business reporters on the staff of the New York Times. The provocative Floyd Norris is one of them. Mickey Maynard, who has been reporting on declining auto sales and the troubled airline business, and Jonathan Fuerbringer, who writes on the financial market, are two more. Kurt Eichenwald has done remarkable work on Enron. Landon Thomas’s profile of banker and Republican big-wig Steve Schwarzman was captivating. And we all miss the brilliant Sylvia Nasar. But Louis Uchitelle’s biased and slap-dashed work doesn’t even come close to making the grade.
It’s not hard at all to find the very good news in the most recent GDP report. But after Uchitelle’s latest economic hack job, all you can say about the Times is, “There they go again.”
— Larry Kudlow, NRO’s Economics Editor, is host with Jim Cramer of CNBC’s Kudlow & Cramer and author of the daily web blog, Kudlow’s Money Politic$.