Kudlow: Economy Isn't Collapsing, Nor Will Stocks

By Larry Kudlow, CNBC Anchor

NEW YORK (CNBC) -- Despite the disappointing jobs report for March, it's very difficult to make a realistic case that the economy is falling off a cliff, or that some kind of double-dip recession is on the way. Or that a Ben Bernanke QE3 is likely.

Sure, the 120,000 gain in nonfarm payrolls -- roughly half of expectations -- is causing a downgrade in growth psychology. Ditto for the 31,000 drop in household employment. But if you smooth out these numbers over three months, payrolls have averaged a 212,000 increase, while small-business household jobs are still up a big 415,000.

But let's not forget other data points: ISM indexes in the mid-50s are still reasonably strong. Consumer confidence has been rising. Jobless claims have been falling. Car sales are solid. And chain-store sales are beating expectations. It still looks like a 2.5 to 3% economy.

Not 5%, as it should be coming out of a deep recession. There are too many policy obstacles for that. Overspending, huge tax threats, a highly interventionist Fed policy, and Obamacare regulations, mandates, and taxes have damaged the animal spirits and held back growth from the normal spring-back off a deep recession. And these policy issues are not going to be resolved until well after the election. So instead of growing at 4 to 5%, as is the post-WWII norm, the recovery is only 2.5%.

But that has all been built into the stock market, which has over the past three years rallied on the strength of the tremendous performance of private-sector businesses. As per Monday's Wall Street Journal lead article, U.S. businesses have emerged from the recession stronger, more profitable, and cash-flow rich. The business recovery is not going to falter, although businesses are not going to rush to hire new workers until they see a resolution of the various fiscal, monetary, and regulatory problems.