Wednesday, October 18, 2006

Brian Wesbury: A Wise Pundit's Views on The Market & The Economy

Yesterday's Wall Street Journal carried an incredibly good editorial by Brian Wesbury, the chief economist for First Trust Advisors, L.P. Wesbury is a frequent guest on CNBC's early morning SquawkBox program, as well as Larry Kudlow's program.

I tend to listen to Wesbury very carefully, and with a good deal of confidence. His economic reasoning has been sound and sensible for as long as I can recall. His recent article is no different.


He mentions a crucial driver of the recent rise in equity market indices- the Bureau of Labor Statistics' annual recalibration of employment statistics. This time, the recalibration added 810,000 jobs to the previously-stated total for the US economy, or almost .5% of the available US labor force.

Added to this, last week the Treasury announced that the latest estimate of the country's budget deficit is roughly $248B, which is much less than the CBO's estimate of $337B, and the White House's $423B forecast.

These numbers both speak to how much stronger the US economy is, regarding employment, as well as fiscal rectitude, than seemed to have been, or still be, commonly realized among media sources.

Wesbury then goes on to write in the editorial,

"While cynicism and pessimism are part of human nature, handwringing based on out-of-date models and inaccurate data is unnecessary. Bad data and bad models are a dangerous combination that can bias political views and impact policy decisions. Recent revisions reflect the problem: the very data that caused so much indigestion previously now reveals a strong and resilient economy."

Is this not what Alan Greenspan has been saying for years? Stepping back from the various shocks to our economy over the past 24 months, is this not also rather obvious? Despite $3/gallon gasoline, the economy takes it in stride and continues to roar onward.

Yet many so-called economic pundits rush to opine immediately on data which, now revised, tells a completely different story about the US economy. Oh, my!

I won't discuss Wesbury's editorial in full- it's worth reading in its entirety. But there is one more point he makes that I would like to address, because it is an area of significant dis- and misinformation for many people.

He discusses the differences between two methods used to calculate employment: the BLS Establishment Survey, and the BLS jobs survey. The former was, to quote Wesbury, "designed in a paternalistic age of large businesses and time-clock punching." The latter report is the result of phone calls asking people if they are working.

His point is that, in our new economy, lots of people work, and make significant money, doing non-full-time-large-corporation work. One example that quickly comes to mind is the move by Wal-Mart to more part-time employees. Would that not reflect less 'establishment' full employment, even if the cash compensation earned by people working in Wal-Mart's was unchanged?

What I like about Brian Wesbury's expressed opinions is the depth of thought, and extent of knowledge he displays about key economic statistics, in relation to the real economic world in which we live.

From his editorial, and the recent corresponding equity market index gains, we see that, throughout this year, the economy has never been in as much trouble as many on-air and published pundits would have us believe. Notably among the former, I think, is CNBC's 'economic' reporters. It's fair to ask how much this type of disinformation, or misinformation, has affected investors during the last nine months.

By the way, buried in the first third of Wesbury's article is his own rough estimate that, using a capitalized business profits model, US equity markets are 35% undervalued.

Cause for reflection, is it not?

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