October 20, 2003

Today's Macroeconomic News Is Mixed

The Wall Street Journal's Greg Ip reports on mixed macroeconomic news:

WSJ.com - Leading-Indicators Index Falls 0.2%: ...The Conference Board said its index of leading indicators fell 0.2% in September, the first decline in four months. "The economy is improving ... although the road ahead will likely remain bumpy," said Ken Goldstein, an economist for the independent business-research group. Economists estimate the economy grew at a blistering 6.1% annual rate in the third quarter ended Sept. 30, according to a survey by Macroeconomic Advisers LLC, a St. Louis forecasting firm. That would be the fastest quarterly pace in almost four years. Macroeconomic Advisers estimates the economy grew 6.9%.

However, most of the expansion in economic activity took place in July and August, when the effect of tax cuts and the mortgage-refinancing boom were strongest. There are signs consumer spending cooled in September as the impact of mortgage refinancing and tax cuts faded. The Conference Board said six of the 10 indicators in its index declined, led by the money supply, and the relationship between long-term and short-term interest rates. Positive contributors were the manufacturing workweek and stock prices. Economists see growth decelerating to a still-respectable 3.8% fourth-quarter rate, according to Macroeconomic Advisers...

Posted by DeLong at October 20, 2003 10:55 PM | TrackBack

Comments

Much ado about short term trends. The pattern for the economy will take time to emerge. Why expect anything other than more of the same unless the fundamentals change drastically?

Posted by: bakho on October 21, 2003 11:24 AM

Despite all the obvious improvements -- It turns out that all the production improvement (according to Ned Davis Research) has come from just three sectors: Technology (+25%), Automotive (+22%) and Energy (+5.5%).

Automotive is easily dismissed: 0% financings and rebates. Hardly the stuff of robust recoveries. Indeed, GM made more money last year from mortgages than from selling cars.

Technology growth is partially an echo of the Y2K upgrade cycle -- but that only explains some of the improvements. Some of the numbers rflect the very low comparisons in the few quarters post 9/11. There are also some real cost saving technologies out there, and they are capturing a lot of the new enterprise installations. Software has been doing much better than hardware; In my opinion, that's because its easier to quantify cost/benefit analysis from software.

Lastly, Energy could be reflecting the increased demand due to stimulus. If the economy was dramatically improving across the boards, I suspect energy demand would be moving even higher still.

Bottom line: Core industrial production is still negative year over year. The remaining sectors -- Consumer Goods, Business Equiptment, Business Supplies, and Materials -- comprise 71% of industrial production. The Core Industrial Production (ex - auto, energy and tech) contracted at annual rate of -0.4% last quarter.

Of course, the Q4 GDP of 3.8% won't create jobs, and in fact, may lose them.

Posted by: Barry Ritholtz on October 21, 2003 01:23 PM

Despite all the obvious improvements -- It turns out that all the production improvement (according to Ned Davis Research) has come from just three sectors: Technology (+25%), Automotive (+22%) and Energy (+5.5%).

Automotive is easily dismissed: 0% financings and rebates. Hardly the stuff of robust recoveries. Indeed, GM made more money last year from mortgages than from selling cars.

Technology growth is partially an echo of the Y2K upgrade cycle -- but that only explains some of the improvements. Some of the numbers rflect the very low comparisons in the few quarters post 9/11. There are also some real cost saving technologies out there, and they are capturing a lot of the new enterprise installations. Software has been doing much better than hardware; In my opinion, that's because its easier to quantify cost/benefit analysis from software.

Lastly, Energy could be reflecting the increased demand due to stimulus. If the economy was dramatically improving across the boards, I suspect energy demand would be moving even higher still.

Bottom line: Core industrial production is still negative year over year. The remaining sectors -- Consumer Goods, Business Equiptment, Business Supplies, and Materials -- comprise 71% of industrial production. The Core Industrial Production (ex - auto, energy and tech) contracted at annual rate of -0.4% last quarter.

Of course, the Q4 GDP of 3.8% won't create jobs, and in fact, may lose them.

Posted by: Barry Ritholtz on October 21, 2003 01:28 PM
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