Contradictory economic indicators reconciled in the direction of bad

If you remember back to the beginning of the year, there was a lot of ballyhoo about how fast the GDP grew in the 4th Quarter of 2006. Cheerleaders for the business sector used that great news to pooh-pooh the set of troubling indicators announced around the same time, such as falling housing prices.

Well, a few days ago the conflict in indicators sort of got reconciled, and it looks a lot like the falling housing market was closer to reality than the wildly rising GDP, according to this NY Times story from March 1:

The paradox has been solved: the economy was not bounding. The Commerce Department reported yesterday that economic growth inched ahead by 2.2 percent in the fourth quarter of last year, only slightly faster than the 2 percent growth recorded in the third quarter and substantially below the economy’s long-term trend rate of growth

The downward revision, by 1.3 percentage points, in the preliminary estimate of gross domestic product was almost three times the average adjustment since the early 1980s, which is 0.5 percentage point.

Coupled with a 17 percent decline in new-home sales in January and a 7.8 percent drop last month in orders of durable goods like computers and washing machines, the new data indicated the economy was much weaker than it seemed.

“I think we are going to discover that the economy is softer than the Fed thinks,” said Robert Barbera, chief economist at ITG Hoenig.