Holy Cow! Not Another Economic Forecast Devoid Of Evidence

Posted In: Consumers, Economy, Home Prices, Housing, Recession

This morning, I read a piece by Marshall Eckblad of the Dow Jones Newswires on the CNN Money website. Bank of America Corp. Chief Executive Ken Lewis shared his outlook on the U.S. economy and housing market earlier today, after which Eckblad wrote:

Chief Executive Ken Lewis said Monday that the U.S. economy would see “sluggishness” through the rest of 2008 but eventually would stabilize this year and then begin its recovery in the early part of next year. Lewis made the comments during a conference call with analysts to explain the bank’s second-quarter earnings results…

Lewis said one component of those optimistic forecasts is his projection that the peak of the housing crisis is growing closer. “We see housing price depreciation being mostly over this year, maybe going into next year,” Lewis said.

Sound familiar? It should. Consider the following from Mr. Lewis:

In an interview with Bloomberg on Tuesday, Bank of America’s Chief Executive Officer Kenneth Lewis said the U.S. economy will pick up speed due to a recovery in the housing sector. Lewis predicted, “You’ll see the economy begin to pick up in the third and fourth quarters,” and the slowdown in home sales is “just about to be over.” He went on to say that the housing market will begin to improve in the next month or two, forestalling a recession, according to Bloomberg. Lewis believes that job growth will lift home prices and reinvigorate construction by early 2008.

I wrote this over a year ago on June 21, 2007.

The Wall Street Journal’s Mark Gongloff pointed out yesterday that some individuals keep calling for a turnaround in the economy, housing market, what have you, only to be proven wrong time and time again. Gongloff said:

Like Chicago Cubs fans always looking to the next season, there are analysts who have been calling for a turnaround for months despite evidence to the contrary, yelling their hearts out for what so far has been a losing cause.

According to their theory, this has all been a fever dream, a midcycle slowdown like the one the economy suffered in 1998, when stocks briefly swooned, but the technology bubble quickly went right back to inflating. This is the same crowd who dismissed the collapse of the housing market because it’s just a small part of gross domestic product and who said the subprime mortgage meltdown would be no big deal.

And now, $400 billion in losses and one bear market later, they’re still calling for the rosy outcome…

Maybe these individuals should pay closer attention to the evidence. Or use better evidence. Take FOXBusiness.com’s Brian Sullivan for example. This morning, he wrote “Still Looking for the Recession” morning and said:

I went to Atlantic City this weekend for my birthday and stayed at the new Water Club by Borgata…

Whoa! You lost me at Water Club by Borgata. Atlantic City’s first cosmopolitan hotel, which bills itself as “the ultimate resort destination,” charges $479 a room on Fridays and $529 on Saturdays during the summer.

Two problems with this piece of “evidence.” One, the place is new. A good number of East Coasters, like their counterparts along the Pacific, have a reputation for being trend-followers. Let me guess, the place was probably packed, right?

Two. If you can afford room rates like these, it would probably require a great deal more economic pain to cancel your stay, as opposed to what Joe Six-Pack and Suzy Soccer Mom could tolerate. I don’t think we’re at that point (yet).

From the reports I’ve been getting, wealthy Americans have been doing okay when it comes to spending and buying homes. As a matter of fact, I for one believe the purchase of high-end properties by the rich is what’s been skewing median prices upwards in some areas across the country. It’s not that the housing market is getting any better— it’s just that the rich are buying (what they see as) bargain-priced properties.

One more thing. $1,008 a weekend for a hotel room? As long-time announcer Harry Caray of the Chicago Cubs used to say, “Holy Cow!”

Sources:

“2nd UPDATE: Bank of America CEO Sees Economy Rebound In 2009”
Marshall Eckblad
CNN Money, July 21, 2008

“The Economy: How Bad Can It Get?”
Mark Gongloff
Wall Street Jorunal, July 20, 2008

“Still Looking for the Recession”
Brian Sullivan
FOXBusiness, July 21, 2008

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