Another batch of negative economic reports Tuesday: One showed inflation sharply higher; another found consumers in a glum mood; and a third reported housing prices continuing to fall. Nevertheless, the stock market ended the day up.
Let's start with the report on housing: The S&P Case/Shiller Home Price Index showed average prices in 20 large cities in the country down about 9 percent from a year ago.
Mickey Levy, chief economist at Bank of America in New York, says there's no silver lining there.
"Housing prices are declining at an accelerating rate. I don't think we're close to the bottom," Levy says.
Fellow economist Stuart Hoffman at PNC Financial Services Group agrees.
"We will still see buyers holding back, either because they can't get a mortgage or they're waiting for maybe interest rates to go down, or, most likely, thinking house prices are going to fall — totally different mentality than a couple years ago, and that means the bottom isn't here," Hoffman says.
Given the dismal shape of the housing market, it's not surprising that the monthly report from the Conference Board showed consumer confidence falling. But the depth of the index's decline — from nearly 88 to 75 — did surprise observers, Hoffman says.
"All in all, the consumer's in a very glum mood, and all this talk about recession and falling house prices is almost becoming a self-fulfilling prophecy anymore, and helping to bring on a recession and maybe having it start sooner rather than later," he says.
Despite all that gloom, President Bush said Tuesday that the economy is not in a recession — but he acknowledged that it's in a slowdown.
On top of the bad news on housing and consumer confidence, the government reported Tuesday that producer prices rose 7.4 percent during the past 12 months. That's the sharpest rise in wholesale prices since 1981, at the end of a long period of slow growth and high inflation known as "stagflation."
But Hoffman says he doesn't think we're seeing a repeat of those difficult times.
"I would not say this is the start of a multiyear, prolonged malaise for the U.S. economy, and inflation at the same time picking everybody's pockets," he says. "I think that's much too dire and not an appropriate analogy to say that the worst of times are here to stay."
That's because inflation lags growth, Hoffman says, and the current slow growth will slow price increases, especially because there's no sign of wage inflation.
That consolation helped the stock market recover from a mild sell-off Tuesday morning and end the day higher.
The high inflation numbers will put some pressure on the Federal Reserve, Levy says.
"The Fed is very concerned about inflation, and it should be, and it's also very, very concerned about maintaining its inflation-fighting credibility," he says.
Levy says that means that on Wednesday, when Federal Reserve Chairman Ben Bernanke goes before Congress to report on the state of the economy, he will argue that the central bank has not taken its eye off inflation.
But both Levy and Hoffman say the Fed remains focused on heading off recession and will soon cut interest rates again.
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