Why the Growth Bears Have It Wrong

The U.S. economy appears to have hit its stride in recent quarters, with above-trend growth fueled by strong domestic demand. That hasn’t kept skeptics from expressing their doubts. After all, forecasting is about weighing a range of outcomes and then picking your battles with the consensus. Yet, many of the arguments advanced by the growth bears are mostly wrong or misleading. Let’s take a look at three that have popped up recently.

Early in 2017, consumer and business confidence -- so-called soft measures of economic activity -- were riding high, but hard measures such as retail sales and core durables were sluggish. If activity was not picking up, there was reason to be skeptical of the improvement in confidence, or so the thinking went. With the benefit of hindsight, we know there was little reason to fret. U.S. domestic demand is growing at the fastest pace in three years, so the hard data has, for all intents and purposes, caught up to the soft data.