Merrill Lynch’s weekly economic report (note: PDF) from May 9 is a good, pithy summary of the myth vs. reality situation. Although I am sort of surprised that this is emanating from a Wall Street firm. Whatever, Steve Roach was pretty straight too, although he was exiled for his pains. Maybe I’ll have to add David Rosenberg to my truth-tellers list.

We identify and rebut the following five myths:

1. The first quarter GDP report says no recession
2. The April employment report was benign
3. The Fed is done and the next move is to hike
4. The credit crunch is over
5. Housing looks set to stabilize

The short summary is that:

1. Recession isn’t defined by GDP (as Martin Feldstein of NBER has pointed out) and the actual indicators show that one began between September 2007 and January 2008.
2. Employers cut hours, not jobs, to the equivalent of a loss of 400,000 jobs. Wages declined and are showing a clear disinflationary trend.
3. The Fed said it expects the economy to remain weak for quarters, not months.
4. If the credit crunch were over, the Fed would not be further weakening its balance sheet by accepting new kinds of loans - auto, student, credit card, etc.
5. The inventory situation is going from bad to worse.

Good piece.

Edit: I should also add that ECRI says: “the WLI is not yet pointing to a business cycle recovery.”