Two hours after the start of trading on the New York Stock Exchange Tuesday morning, the Dow Jones industrial average had risen 165 points. Mid-morning headlines from Bloomberg, the Wall Street Journal, MarketWatch, Reuters and other news outlets all attributed the burst in investor optimism to a big jump in the Conference Board's consumer confidence sentiment index.
In other news, the Case-Shiller national home price index fell by a huge 19.1 percent over the first quarter of 2009. But by the logic of instant stock-market analysis, investors dismissed the ongoing housing sector implosion. Which presents us with a conundrum.
Hard data indicating that the bottom has yet to be reached in the housing market gets short shrift, while survey data suggesting that a growing number of Americans believe the worst is over is eagerly seized upon.
Markets are forward-looking, it is true, so maybe it is smart to pay more attention to what consumer attitudes suggest about future economic activity than to bad news that is already in the rearview mirror. But one has to ask: Why would a growing number of people be feeling more confident in the first place? The U.S. economy is still shedding more than half a million jobs a month, the biggest corporate bankruptcy in history -- for General Motors -- could begin within a week, and the nation's largest state economy -- California -- is burdened by 11 percent unemployment and a non-functional government.
But so what? Because the wondrousness of "animal spirits" is that they don't have to be rooted in hard data. If enough Americans believe that the economy will get better, so the theory goes, they'll start going to the mall again and finally make that long-deferred purchase of a new car, and by the power of positive thinking, create a new economic reality.
How the World Works is having a little trouble believing in such magic on this Tuesday morning. But what else could be sparking the buy orders? Surely not Obama's nomination of Judge Sonia Sotomayor to the Supreme Court?
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