One of the reasons I push back against certain mainstream coverage of economic events is that through a combination of cheapness and laziness, they manage to report the spoonfed headline, which is misleading in its brevity.
For example: Yesterday’s Leading Economic Indicators (LEI) was reported as follows:
The economy should expand modestly in coming months as a healthy job market continues to trump weakness in housing prices, a gauge of future business activity showed yesterday.
The Conference Board said its index of leading economic indicators rose a higher-than-expected 0.3 percent in May, lifted by rising stock prices, higher consumer expectations and the availability of jobs.
Economists said that jobs should continue to be plentiful, despite an unexpected surge in jobless claims last week. The Labor Department reported that unemployment claims totaled 324,000 last week, up 10,000 from the previous week, to the highest since mid-April.
It doesn’t take much digging through the LEIs to make you realize how superficial and misleading the coverage of this actually is.
To Preface this, note that the LEI has been indicating economic softness over the past few quarters. (disclosure: I am less than an ardent fan of the Conference Board who published the LEI). This recent softness shown has been despite the fact the LEIs been reformulated a few years ago — why? because it was showing too much economic softness due to the inverted yield curve; The new reconfiguration made it much harder to show weakness.
What was the big outlier in yesterday’s tick better than expected 0.3 vs 0.2 ?
Last month’s decline in jobless claims was courtesy of a seasonal adjustment due to last year’s Puerto Rico strike. Of course, that begs the question as to why last months seasonal adjustment is doing impacting the LEADING (as opposed to trailing) economic indicators.
There were other questionable aspects of LEIs. Building permits added 0.08 — despite the collapse in the NAHB HMI (which showed decreasing sales, traffic and permit apps) and last week’s reported decreased Housing Starts.
Consumer expectations added 0.05. Meanwhile, nearly every other poll shows consumers have been cranky. Seventy Percent of Americans Say Economy Is Getting Worse; Congress and the White House are at their lowest polling levels since Nixon. U of Mich Consumer Sentiment hit a 10 month low. But according to the LEI, consumers are upbeat.
Then there are the Capex and Manufacturing sectors. Despite the fact that Manufacturers’ orders for non-defense capital goods order are unchanged, the LEI report shows that manufacturing has rebounded — and capex is rebounding.
Bill King adds:
The Philly Fed index has been in decline for 3.5 years; so Street shills and permabulls have ignored it. But one uptick and the shills are extolling its virtue. And like the LEI, coincident Philly Fed components are soft. ‘Current shipments’ fell 4.3; employment fell 7.3; average workweek is flat; ‘manufacturing growth for next 6 months’ decreased 13.9, its lowest reading this year! Future orders fell 11. The Philly Fed says, “The outlook for growth diminished somewhat in June, although manufacturing executives still expect conditions to improve over the next six months.” ‘Expect’ is now a euphemism for HOPE.
Where is the strength in the Philly Fed survey? New orders increased 9.6 points. Future shipments increased 3. Price indices declined a tad. Unfilled orders and delivery times declined; but they’re not a definitive sign of economic strength.
The preponderance of component declines in the Philly Fed makes its jump to 18 from 4.2 unfathomable. As always, but even more so with economic opinion surveys, the devil is in the details/ components.
The same group of folks who have told us that Real Estate has bottomed, that sub-prime woes were contained, that there is no inflation, and that job creation has been robust are now claiming the soft spot, which they denied in its entirety is over.
Why am I releuctant to believe them?
(Now excuse me while I go flip some Blackstone Group . . . )
Expansion of Economy Is Expected to Continue
NYT, June 22, 2007