I sometimes think I live in a different planet than some people. My friend Cody, for instance, lives in a very different economic world than I: Both are real, yet
both have very different connotations.
Call it the Headline versus the Underlying Data interpretation difference.
Examples: This week’s headline data was very optimistic: holiday sales up 22%, Durable
Goods very strong; new home sales plus 13%, GDP revised to a huge 4.3%, Core
inflation mild, Non Farm payroll plus 215k.
The below-the-headline data dump was far less encouraging: Retail sales data
was mixed, huge promotional pricing will likely pressure margins. New home sales
data was less than the margin of error and according to Census Bureau
Statisticians, was statistically insignificant; Regardless, history shows double
digit Monthly New Home Sales gains are followed by negative growth next month.
Then there’s Durable Goods. This week, Morgan Stanley’s Steven Roach reported
from China that US officials are pressuring the Chinese to buy more US goods —
so the easiest way to do that is Boeings Jetliners. Lo & Behold, Boeing has
a few big sales to China. Outside of this political pressure, the rest of the
Durable Goods numbers was disappointing.
We’ve already discussed the absurdity of relying on only those items not
going up in price as a measure of inflation. That’s before I mention $500 plus Gold, and the nearly inverted yield curve. Oh, and has anyone noticed that the Fed is tightening?
Non Farm Payroll was not bad. Slightly below consensus, and still laden with lots of construction jobs and low paying fast food positions. Trailing 3 month aveage is 92k per month.
As to GDP, we saw consumer consumption hit an all time high as a percentage
of GDP. That’s thanks to borrowing and spending — not actual production. If you
think debt-laden spending is a sign of a healthy economy, well, sold to you.
The bottom line is that those who believe in variant perception are being
given an opportunity to prove they eat their own cooking. The disconnect between
the headlines and the underlying data is big and getting bigger. CNBC does a
great job at providing the backbeat to the dance.
And that spells opportunity some time in the not too distant future . . .
UPDATE December 2, 2005 2:57pm
The very political perma-optimist Brian Wesbury is in today’s WSJ, bemoaning the Pouting Pundits of Pessimism