The conventional wisdom is not always wrong. But because it depends so much on emotion, it can often mislead. As a result, it is in times like these that economic fundamentals become so important. Rather than dwelling on the bad news coming from the financial and housing sectors, we believe it is important to look at the underlying drivers of the economy. And those look very solid.
Back in 2002-03, the household measure of civilian employment was much stronger than the payroll survey, signaling economic recovery. However, at the time, many prominent economists, including Alan Greenspan, (wrongly) argued that the payroll survey was right about the economy, not the household survey.
Then, in late 2007, the household survey was weaker than payroll growth, signaling slower growth and gaining some adherents now that it was showing weakness. But in the past few months, the household survey -- which we have followed closely all along -- has turned up strongly. In the first four months of 2008, when the payrolls survey shows a loss of 65,000 jobs per month, the household survey shows a gain of 179,000 per month.
Look for more positive economic data in the months ahead, as the most predicted recession in U.S. history never comes to pass.