Even in bad times...

...Larry Kudlow maintains a balanced optimism about the American economy. Here he takes The New York Times to task for trying to find the bad news inside the good news:

It’s not even remotely as important as the Iraqi election, but the New York Times’s impoverished coverage of the latest reading on U.S. gross domestic product deserves a mention. Both the headline and the thrust of the story by Times writer Louis Uchitelle suggest a big slowdown in economic growth. While this is statistically correct, it is analytically wrong. The main thought behind the story — that the economy has registered its “weakest quarterly pace in nearly two years, held down by a surge in imports” — is completely misleading.

Underneath the headline number of 3.1 percent real GDP growth was a huge 5.5 percent increase in private-sector output (less government spending and trade). Private consumption and business investment comprises 80 percent of GDP — a factoid the Times never relates. In fact, the tell-tale number in this latest GDP report is the outsized 15 percent gain in business investment — the single most important swing factor in economic activity.

Within this number, equipment and software investment jumped 13 percent. This is what Wall Street calls “cap ex”; it expands the entire economic infrastructure. Behind this investment explosion is the 20 percent rise in 2004 corporate profits. Business earnings allow firms to expand and grow the economy — and jobs, too. When profits rise, the economy expands. When profits fall, the economy contracts.