I cannot help but laugh at the latest leading index headline: Index...

I cannot help but laugh at the latest leading index headline: Index Suggests U. S. Economic Expansion. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? A gauge of future economic activity inched up in July, a research group said Monday, indicating economic growth may pick up slightly in coming months despite turmoil in the housing market. The Conference Board's index of leading economic indicators rose 0.4 percent in July, as analysts were expecting. Over the past few months, the rise and fall of the index 'reflects the yo-yo situation in terms of the overall economy,' said Brian Bethune, an economist with Global Insight. July's uptick was driven by the employment market and high consumer expectations, he said. Monday's upbeat report follows the Federal Reserve's decision Friday to cut its key discount rate by a half-percentage point, a dramatic move meant to stabilize financial markets pummeled by a rapidly spreading credit crisis. In a statement explaining the action, the central bank said that while incoming data suggest the economy is continuing to expand at a moderate pace, 'the downside risks to growth have increased appreciably.' The Fed said it was 'monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.' The credit crunch started with rising defaults in subprime mortgages -- home loans made to people with weak credit histories. Analysts believe these problems, along with declining consumer confidence, could lead to a recession. That data is for July but it is just being presented now. In the past month stock prices have fallen like a lead balloon as have yields on the short end of the yield curve. Of course one could subscribe and get these reports quicker but that would not have changed the prediction of economic expansion any. Besides, the stock market is no more of a leading indicator now than it was back in 2000 or for that matter anytime in between. See Consumer Sentiment is an interesting indicator. There are several measures of 'consumer sentiment': The consumer confidence index, the University of Michigan index, and recent national polls. I showed a stunning inverse correlation between gasoline prices and the University of Michigan index. Gasoline prices have been dropping and that has a tendency to make some consumers feel better. If that number is even in the ballpark (and I'm sure it is), the Conference Board has consumer sentiment in the wrong column. A second problem is that consumer confidence is not a leading indicator either (it is closer to being a coincident indicator if indeed it indicates anything at all), and a third problem is obviously the reporting delay. and is as of 2007-08-20. Things have settled down a bit and as of 2007-08-22 the 3 month T-Bill yield is sitting at 3.78 and the 6 month T-Bill is sitting at 4.09 That's lot of rate cuts priced in. One thing that is a leading indicator and is not even on the Conference Board's list of leading indicators is corporate bond credit spreads. They have been blowing out so fast that it caused a complete collapse and bankruptcy of Sentinel. See I also see that one of the reasons given for the rosy outlook was based on jobs. This too is amazing for multiple reasons. For starters unemployment claims are ticking up as the In the week ending Aug. 11, the advance figure for seasonally adjusted initial claims was 322,000, an increase of 6,000 from the previous week's unrevised figure of 316,000. The 4-week moving average was 312,500, an increase of 4,750 from the previous week's unrevised average of 307,750. But more to the point housing is still anemic, corporate capital spending is not robust, there is overcapacity literally everywhere and certainly businesses are not going to be expanding in the face of a credit crunch. The unemployment rate has only one way to go from here and that is up. Supposedly there was a positive outlook for jobs in the leading indicators. As it stands that is sure going to be revised away as is the stock market. When it comes to consumer sentiment the report must be a survey of Martians and/or a simple measure of falling gasoline prices. But all things considered it's a fool's mission to try and predict economic activity 3 months into the future based on data that is already one month old. It's even more foolish when many of the leading indicators chosen have no past history of actually leading anything while other indicators that do lead are left out. I hope no one takes the economic headline seriously. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. 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