Economists surprised consumers aren't superhuman

Retail sales plunged in February, sending financial markets into a tizzy. Who could have predicted such a shocker?

By Andrew Leonard
Published March 13, 2008 2:43PM (EDT)

The lead story in the Wall Street Journal at 7:00 a.m. PDT, Thursday, "Stocks tumbled after an unexpected drop in retail sales compounded concerns about the U.S. economy that triggered significant retreats in global markets and the dollar overnight."


The Journal bases its word choice on the fact that retail sales decreased by 0.6 percent in February, according to the Commerce Department, which is considerably "worse than the 0.2 percent slide that economists had forecast."

To which perhaps the most pithy response is the headline on a Dean Baker post this morning: "The Economists Who Never Saw the Recession Coming Are Sure that it Will be Mild."

Baker is being unfair -- the article that he references, "U.S. Will Avoid Deep Recession, Fed Says," actually portrays a pretty bleak view of the economy. But there's an underlying vein of truth. The consensus opinion of economists has consistently underestimated the ongoing economic downturn. And the idea that a slump in retail spending would be "unexpected" at this point in the game is just ludicrous. The truly puzzling aspect of consumer spending over the past year has been how well it has held up while the bottom dropped out of the housing market and inflation started to take hold.

A more accurate headline: "Stocks tumbled after a long-feared collapse in retail sales finally materialized."

Meanwhile, hedge funds are blowing up left and right, the price of a barrel of oil hit an astonishing $110, the dollar sank below 100 yen, and Carlyle Capital appears doomed. The Federal Reserve's $200 billion liquidity injection into the banking system on Monday already seems a distant memory.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Globalization Great Recession How The World Works U.s. Economy