Headlines versus Underlying Data

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

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. spencer commented on Dec 2

    But within the job numbers the index of hours worked fell so that despite a nice increase in average hourly earnings average weekly earnings fell in nominal terms.

  2. spencer commented on Dec 2

    The President made a statement to the press — no
    questions so I would not call it a press conference — about the economy.

    He began by saying that thanks to limited government spending the private economy was robust.

    I’m sorry, I was laughing so hard I did not hear the rest of the statement.

  3. Andy commented on Dec 2

    >>> The President made a statement to the press — no
    questions so I would not call it a press conference — about the economy.

    He began by saying that thanks to limited government spending the private economy was robust.

    <<< Speaking of living on a different planet... I think his is "spinning" a bit faster than ours.

  4. calmo commented on Dec 2

    Disconnect from headline to text is right. Sometimes I think the disconnect is from the head to the neck; other times from the eyes to the brain or the brain to the mouth/hand
    This I thought, deserved a Nobel Prize:

  5. blue commented on Dec 2

    What we need is an Economic Onion News, something that takes the headlines (as provided by the wires) and ‘extends’ the squirrelly data to include fake (and funny) quotes and information that mocks the headline relentlessly.
    I feel like most of what I have to do is delicately parse data anyway, at least this way I could laugh while doing it.

  6. royce commented on Dec 2

    Barry, there’s a fair chance your mischaracterizing the recent Boeing sales as resulting from diplomatic pressure. The Chinese aviation market is growing, and they need planes. When they need big airliners, they’ve really only got a choice between two vendors, so Boeing is bound to make sales even without diplomatic pressure.

  7. blue commented on Dec 2


    yeah, the chinese know that and the airline market knows that but shhHHHH the administration wants to think they got soMEThing accomplished besides providing us with the footage of bush trying to open a locked door.


  8. Angryinch commented on Dec 2

    Your young friend Cody is pretty cocksure for a guy whose publicly-displayed portfolio is not only down vis-a-vis the broad market over the past two years, but also significantly down vis-a-vis his stated benchmark (the XTC telecom index.)

    I’ve followed his work for a while and, needless to say, his bravado is not matched by his performance.

    I’ve also noted his repeated dismissal of “technical analysis voodoo”. Perhaps if he looked at a chart more often, his fundamental bias would be tempered since he often makes portfolio purchases on emotion and at chart junctures that would give a T/A guy the cold sweats.

  9. Lord commented on Dec 2

    There is good news and bad news, but as we fear losses more than we celebrate gains, bad trumps good. It is human nature. Also, good news may be somewhat more predictable than bad which also lowers its’ value.

  10. Chad K commented on Dec 2

    As you’ve said in the past… using headlines as either an indicator or counter indicator for certain types of trading is useful… Since the majority of average stock holders act based on headlines, [the headlines] will be valuable to anyone trying to make a buck from their movements. Finding the top of the bull and the bottom of the bear through percentage of articles talking about booms or busts… apparently valuable.

  11. Barry Ritholtz commented on Dec 2

    This is what I was referring to:

    “The other day in Beijing, a senior Chinese government official threw up his hands in exasperation, when he nearly pleaded with me, asking, “What can China do to reduce the bilateral trade tensions with the US?” He then went on to answer his own rhetorical question by expressing frustration over US restrictions against Chinese purchases of high-tech products. “I guess that means we’ll have to buy some more Boeing aircraft,” he said literally a couple of days before the news broke of a large order of Chinese jet purchases.”

    Global: Hardly a Flat World
    Stephen Roach (from Abu Dhabi)

  12. spencer commented on Dec 2

    Maybe the reason for the pessimism is that the misery index — unemployment plus inflation —
    is at 9.9% . This is the highest level in over a decade.

  13. B commented on Dec 2

    Thanks for the recommendation on the book. I plan to hock a copy at the library if I can or as a last resort Amazon. I’ve got a zillion books as well and I hate to buy more if I know it’ll take me months or years to read it. My appetite for knowledge is larger than my window to expand it.

    Comments on China regarding trade, the future, fear, America’s competitiveness, etc. First, to the people who’d feel better if the world was in misery and we had no competition because everyone else lived in a cardboard hut, China’s wealth is a boon to global stability and our economy. Second, I really wonder how much of the trade gap is really worth bitching about. ie, How much are plastic Barbie Dolls made in sweat shops? Or, are t-shirts with your likeness printed on them? (Btw, much of the American apparel business is located on obscure American territorial islands in the Pacific that have tax haven status yet are employing people in a sweat shop environment. So much for the plea of American jobs, apple pie, etc.) Thirdly, how much of our imports from China are products made by or for American companies? Companies that will, like locusts, move their factories to the next cheapest labor spot as China becomes more expensive to do business with? aka Nike-types. I’ve already heard from some that China is getting too expensive and a major Taiwanese electronics powerhouse has said its next major factory expansion will be in Vietnam for that very reason. ie, China has no leverage and intellectual capital comparatively. Fourth, the Chinese are of no threat any time soon and maybe never in many knowledge worker industries. Software, banking, finance, consulting, pharma, bio-sciences, agri-technology, entertainment, logistics, etc.

    I use the locust analogy as it is likely the most appropriate. China makes our goods but we own all of the high paying jobs in the business chain. How many companies do you see with a Chinese name? We import hundreds of billions of dollars worth of their supposed stuff. Where are their global brands that send their stuff here? Ain’t none. In fact, there is an argument they will never be a large player in the high value space. Now never is a long time but it’s been forty years and the Japanese haven’t cracked much of the code. Japan has never emerged in these industries and more because you need to speak the international language of business. As westernized as Japan is, few people really speak english. I know because I’ve been there often as my fiance is Japanese. When she came to America to get her master’s degree, she could barely speak english. My point is, China is the same situation. There is no threat on any horizon in most high value, high paying jobs from them. Who cares if they make iPods, Barbie Dolls and LCD TVs?

    What we should really be jamming down their throat is intellectual property rights. The engineering, industrial design, development, marketing, research, sales and other high value jobs are in the US. Perfect example is Nike. Nike has created tremendous wealth in the US with design, marketing, sales, finance, logistics, engineering, IT, and other high value jobs while offshoring the manufacturing. That offshoring of low value jobs has allowed them to create more wealth than if they would have tried to make shoes in the US and likely failed or been a marginal player.

    McKinsey, link below, is already stating China has a white collar labor shortage and educational problems that will stunt growth. I guess we never hear about that from the fear mongers. All we hear is they are graduating 50 billion engineers a day.


    The reality is more likely that globalization is causing dislocations in the legacy economy within the US and other legacy democracies. Those dislocations cause fear and worst case anxiety thinking. Remember Japan in 1980? I was still in high school but I remember it well as my family was highly blue-collar/manufacturing centric. There will be a digestion period and changes to the structure to our economy, but we are at the top of the heap of coming out smelling like a rose compared to all other nations.

    Btw, something else we never hear about are the advances in manufacturing. The US is still, far and away, the world’s leading manufacturer. And, we are close to a revolution that will cement that lead. Soon, many of the huge, labor intensive factories will be replaced by lean, automated factories as some already have. Time to market and logistics will outweigh cheap labor. Hence, being located in the world’s largest market will be highly desirable. We will see manufacturing relocate back to the US over time in many areas that are outsourced for labor reasons. As long as the politicians restrain spending and don’t shackle us with taxes and red tape and we don’t shut off immigration due to globalization fear mongering, we will likely be setting up for one arse kicking next twenty years. Long live The King. :)

  14. touche commented on Dec 3

    B, we’re not maintaining our position high on the food chain. In fact we’re sinking. Our current account deficit has grown to $750 billion per year and both national and household debt are growing much faster than GDP.

  15. Rod commented on Dec 9

    B, what planet are you living on?
    You think the US is staying ahead of China (and India) in science and technology fields?
    Attended a college graduation lately?
    How many of the graduates in the scientific/technical fields are from the US? And how many will stay here after graduation?
    That number is shrinking as the brain drain from the US picks up speed. If you really think we provide the jobs in IT and software, you are badly out of touch. The labor of those jobs is long gone to China and India, and the production is following.

    BR: We’ve been beating that Drum for years:

  16. Hoang Kim commented on Dec 24

    We are going through similar misinterpretations as those in the recession at the beginning of the 90’s. When unemployment benefits stop, the DOL assumes the person got a job. I personally know over 50 research engineers (not software people, but MSEEs, PhDEE’s, MSChE etc) who are out of work. As short-sighted and naive CEO’s enter the ranks, they are looking at short term profits and returns, unlike the wisdom of their elders who understood the accumulated ROI for an experience R&D staff. Business Week’s headline story about “Outsourcing Innovation” reported CEO’s claiming that they were only outsourcing “the mundane and easy” stuff to China. Where do you think our new grads learn how to be experienced and innovative? They first need to do those mundane things. Engineers get better with practice, and by outsourcing research and design jobs to China, we are training their engineers for them at our expense. You pay them to design your product, they take half as long to do the next customer’s design by using what they learned on yours. If you don’t think that will catch up to us, you are naive. Engineers who have been well paid were also good consumers. The domino effect is causing people to cut back, hold on to their cars longer and put GM out of business. Let’s sell to China, but keep training our homegrown here.

Read this next.

Posted Under