Health Of US Economy Up For Debate

Partisanship cuts across virtually every issue in Washington, DC and the health of the US economy is no exception. Most media commentators would appear to fall on the side of those who believe the recent market upheaval is an ominous sign. Tuesday's decision by the Fed not to cut interest rates, for example, unleashed a torrent of negative stories on the economy. ABC World News, for example, said "people looking to borrow money, and hoping the Fed would make that easier today, came away disappointed." The CBS Evening News reported "30-year fixed rate mortgages are averaging 6.68% now. That's if a lender will actually give you one." The Washington Post said "the Fed's rosy outlook was rejected yesterday by some analysts," and the Los Angeles Times, in a front-page story, said "the fear on the Street is that the good times are coming to an abrupt halt."

The negative talk about the economy continues this morning. USA Today, in a story titled "Housing Market Troubles Still Look 'Pretty Gruesome,'" reports, "The housing market blues showed no signs of lifting Wednesday as the National Association of Realtors warned that US home sales in 2007 could fall to a five-year low, and a major home builder...warned of a 21% drop in quarterly revenue. 'It still looks pretty gruesome,' said Joel Naroff, president of Naroff Economic Advisors." USA Today adds, "Bloated home prices, feverish real estate speculation and widespread defaults of subprime mortgages have led to a housing slump that some economists fear could drag the US economy into recession." The Wall Street Journal runs a similar report.

Stocks rallied yesterday (for a second straight day) but there was no network TV coverage of the big gains in all major indexes, and only limited attention from major newspapers. As the Wall Street Journal reports, "Optimism about the economy sent the Dow Jones Industrial Average to another triple-digit gain." The Dow "finished ahead 153.56 points, or 1.14%, at 13657.86, capping the biggest three-day point and percentage gain since March 2003." The Nasdaq "rose 2.01%, or 51.38 points, to 2612.98, its biggest one-day point and percentage gain since 2006. It is up 8.2% this year." The Standard & Poor's 500-stock index "rose 1.41%, or 20.78 points, to 1497.49, ahead 5.6% on the year." The Financial Times, under the headline "Wall St Rallies In Volatile Trading" and USA Today, which runs a brief AP story in page 5 of its "Money" section, were among the news outlets that also reported the stock rally.

President Bush tried to turn the tenor of the coverage yesterday, in remarks to a group of journalists after meeting at the Treasury Department. Bush expressed optimism about the economy and called the business environment "sound." The Financial Times says the President "appeared aimed at reclaiming the initiative in the debate over economic policy at a time when Democrats are seeking to exploit widespread pessimism among middle-class Americans about the direction of the US economy." Likewise, the New York Times reports Bush's remarks had two aims: "to reassure Americans about the economy and combat Democratic criticism of his policies." It was, adds the Times, "an unusual presentation for Mr. Bush, both politically and economically. Presidents are usually advised not to wade into discussions of markets at a time when they are so unpredictable and anxiety-inducing." In fact, "immediately after the president's comments, Democrats excoriated him for saying that the economy was in sound shape, and many called on the administration to encourage federal housing agencies to step in and make more money available, perhaps by buying up troubled mortgages to avoid foreclosures."

The Washington Post notes that "despite mounting concern over the downturn in the housing market," Bush "dismissed proposals advanced by prominent Democrats to grant government-chartered Fannie Mae and Freddie Mac more freedom to buy mortgages and mortgage-backed securities. And he ruled out any taxpayer bailout of lenders threatened by the subprime home-loan crisis." The Wall Street Journal says the President "shrugged off concerns about stock-market turmoil, saying Wall Street is adjusting to a flood of liquidity and is beginning to 'readjust its assessment of risk.'" He also "dismissed recent polls showing that US citizens are feeling sour about the economy. ... He said he understands 'there's disquiet out there' but attributed much of the economic anxiety to concerns about the war in Iraq. '"I happen to believe the war has clouded a lot of peoples' sense of optimism.'" USA Today reports Bush said "financial markets will be able to work through current turbulence without torpedoing the economy, calling the business environment 'sound.'" The AP says the President "struck a reassuring tone," expressing "confidence that investors would eventually calm down."

Bush made similar points in an interview on Fox News' Your World: "I would point out that the economic growth in the second quarter was 3.4 percent. And I would remind people that this economy is pretty darn strong given the fact that the job picture remains strong. And so there was a correction. And you know, markets tend to correct. And the fundamental question is: Will they correct is such a way as to not derail the good, strong economic growth that we are seeing?"