The economic news these days can be readily parsed into two separate types: increasingly positive “survey” data and increasingly worse “real” data.
I recently wrote about the flaws in the survey reports, so I won’t spend more time here discussing why these reports are best taken with a very large grain of salt.
First, the survey data that was released today:
U.S. Economy: Manufacturing, Confidence Reach Seven-Month Highs
May 1 (Bloomberg) — U.S. manufacturing and consumer confidence last month unexpectedly jumped to their highest levels since the credit crisis intensified in September, indicating the economy is on the mend.
The Institute for Supply Management’s factory index rose to 40.1 from 36.3 in March; readings less than 50 signal a contraction. The Reuters/University of Michigan final index of consumer sentiment jumped by the most in more than two years, climbing to 65.1.
Well, that all sounds pretty good. When asked about it, consumers and manufacturing representatives both came out sounding positive about things.
One of my chief observations about the consumer confidence (or “ConCon”) report is that it is extremely well correlated with both gasoline prices and the stock market. In this regard, saying that stocks are heading up because consumer confidence is rising is circular reasoning at its finest so it really wouldn’t be very helpful or explanatory to say that stocks went up because consumer confidence went up, because the opposite is often true. That doesn’t stop the headline writers however, like this one: “Jump in Consumer Confidence Gives Boost to Stocks.”
One of the things I especially enjoy about the “spin cycle” is when its operators have a tough time deciding how to spin the news. Here’s a particularly humorous example that flitted across the wire feeds yesterday – pay careful attention to the displayed times:
7:55AM ET CURRENCIES: Dollar Pressured As Recovery Hopes Rise
9:54AM ET CURRENCIES: Dollar Gains As Recovery Hopes Rise
If you watch these things long enough you will find yourself tuning them out and then chuckling at them.
Meanwhile, the real data, involving things like sales of autos and mortgage foreclosures, continued to trundle lower, or even set records, indicating that the spring thaw in the survey data deserves to be viewed with a healthy dose of skepticism:
Chrysler U.S. Sales Fall 48%; Toyota Trails Estimates
GM’s sales dropped 34 percent, and Honda Motor Co. declined 25 percent, also better than analysts’ projections. Ford slumped 32 percent, Toyota tumbled 42 percent and Nissan decreased 38 percent.
The results mean that the U.S. market contracted for an 18th consecutive month. While consumer confidence rebounded, April ended with Chrysler filing for court protection and U.S. officials warning of health risks from the swine flu outbreak.
When even Toyota and Honda are having a tough time, it’s rough out there. While I am sure there’s a bottom out there somewhere, I am growing weary of the constant attempts to spin one out of survey data without regard to what the actual data is still saying.
Here’s another bit of actual data that runs counter to the notion of imminent improvement.
Foreclosure filings in record jump
Servicers initiated foreclosure proceedings against 290,000 mortgage borrowers, a jump of nearly 20% from February’s 243,000, and the highest monthly total since the coalition began tracking data in mid-2007. Starts have risen by more than a third since January.
I don’t think we’ll hit bottom until the housing correction has run its full course, regardless of how many green shoots are spotted along the way. The data above may not be as bad as reported, because I don’t see that they’ve adjusted for the fact that February is a shorter month than March. Still, the number of foreclosures is heading up, not down.
Speaking of housing, here’s an odd pair of news stories out of the most indebted and underwater state in the union: California. The first describes a direct incentive from the state (which is beyond broke) to build more houses, and the second describes how a glut of houses is dragging down the housing market.
You just can’t make this stuff up.
Tax Credit Gives California Builders a Lift
California’s hard-hit home builders say they’re pouring more foundations and hiring more workers this spring, partly because of a state tax credit of as much as $10,000 for buyers of new homes.
Now, less than two months after the new-home credit became available, some lawmakers in California’s financially strapped government are proposing to eliminate the $100 million limit on the total amount of credits that home buyers can tap.
Deepening woes for the Imperial Valley
Reporting from El Centro, Calif. — The Imperial Valley is accustomed to the spectral look of failure: Houses around the Salton Sea have been abandoned for decades; the Planters Hotel in Brawley stood empty for years before it was destroyed by fire; Main Street in El Centro, the Imperial County seat, remains stubbornly vacancy-pocked.
But even by historical standards, the latest bust in the region’s cycle of hardship and hope has been profound.
Never-completed subdivisions resemble movie lots waiting for a picture set in a typical Southern California suburb. Men who had found high-paying jobs building homes are back in the fields — if they can find work at all.
I guess we can file that pair of articles under "Your Government At Work."
My advice is to enjoy the positive effects of the spin cycle for as long as they last. Spring is here, the weather is beautiful, and it’s worth enjoying, so get out there and have fun.
I’ll be right here monitoring the sausage factory spin machine so that you don’t have to.
by davos