More data says "no recession." So why is everyone so uneasy?

The Census Bureau released their data for estimated monthly sales for retail and food services for the month of September this morning, and the numbers came in much stronger than most economists expected.

For the past month or so, many economists and pundits have been growing more and more pessimistic, with many of them declaring that a recession is all-but inevitable.

We have been on record several times saying that all the pessimism is overdone, and that those calling for additional government stimulus (they are often the same as the ones declaring an imminent recession) are mistaken. See for example this post from the end of August, in which we said:
Finally, we would like to point out the fact that economic growth of 1%, while anemic, does not indicate an impending crisis. The commentators in the NPR clip above imply that 1% growth is "just above stall speed," as if an economy that does not grow fast enough will automatically stall, in the same way that an airplane that does not go fast enough will stall. But that is a false analogy. Airplane engines require a certain amount of speed in order to force air into the engine, but there is no law of physics or of economics that says that a country must grow at a certain speed or else it will simply "stall" and go into a recession.

This view comes from the idea that economies are fragile things that will naturally break down unless they are constantly tinkered with and stimulated by governments. In fact, economic activity is the natural state of human affairs. Left to themselves, people will grow crops, start businesses, invent solutions to problems, look for cures to diseases, and generally "do economic activity" that will enable them to make money for their families in greater and greater amounts. It is government tinkering and interference that disrupts this natural pattern. Thus, the cure for the sluggish 1% growth is not more stimulus but rather removal of some of the "persistent drags" that we talked about above.
Today's data, and other economic measurements that have come out since we wrote that, have confirmed our analysis. The economy does not seem to be heading into a double dip, and today's strong retail-sales data makes it virtually impossible to continue to maintain that it is. However, growth could be much stronger, being held back by a host of damaging government policies.

So why is there such a pervasive feeling of economic angst out there? Well, for one thing, because the media continues to serve up pundit after pundit predicting disaster. For another thing, unemployment remains dreadfully high, because businesses understandably are reluctant to hire when government regulations make it more expensive to do so, and when the Fed and the Congress make it hard to predict the future stability of the dollar and of tax rates.

Even more importantly, we believe that these misguided policies are creating an environment very similar to that in the 1970s, when some innovative businesses in innovative industries were able to grow as they paved the way for the major changes that would take place in the next two decades, but when most businesses had a very hard time achieving real growth. We have been discussing this theme for quite some time -- see for instance this previous post and this previous post.

Forbes publisher Rich Karlgaard recently made this point again in an interview on, and we agree with many of the points he raised in his analysis of the economic similarities with the 1970s and the implications for technology (click the video in that story to listen to Mr. Karlgaard's interview).

What this means for investors is that you cannot simply "own the market" or "just index" -- an approach that became popular in the more economically friendly environment of the 1990s, when there was not the same kind of performance gap between more innovative companies and everybody else, the way there was in the 1970s.

We have always argued that the kind of businesses you choose as destinations for your investment capital matters a great deal. We believe that message is even more important in times like this, and that the combination of widespread economic unease even when economic data show signs of growth, indicates that we are probably in a period that is more like the 1970s than the 1990s.