$$ More Pessimism……MSM Heaps It On…

• Posted by ToddSullivan
• on September 2nd, 2010

Some of this is simply comical…..

1st: From the FT

The equity markets have all enjoyed a strong bounce since the US purchasing managers’ index for August was published yesterday. Expected to decline on the month, perhaps by a sizeable amount, the PMI actually rose from 55.5 to 56.3. After a long string of weak data, this is a sufficiently large surprise to pose the question: is the US economy really slowing as much as many of us thought? Maybe I am just stubborn, but this indicator has not been enough to persuade me to change my basic view.

Most of the monthly economic indicators (and there are more of them than ever – see this FT Alphaville comment) are little more than noise, which are just as likely to confuse investors as to enlighten them. However, once in a while, a surprise in one of the leading indicators turns out to be an early warning of a major inflexion point in the economy. The difficult trick is to know when.

The US manufacturing PMI survey is undoubtedly one of the small handful of critical global indicators published each month. Taken at face value, yesterday’s PMI is at a level equivalent to a real GDP growth rate running at about 3 per cent in the third quarter, which is about double the growth rate I thought we were likely to get. So why not revise the expected growth rate upwards?

There are two reasons for being cautious.

First, while the PMI survey may generally be the best early guide to the monthly behaviour of the US economy, it is not the only one. There are other monthly surveys, including three regional surveys published by the Federal Reserve banks of New York, Philadelphia and Richmond. These Fed surveys all fell sharply in August. The first graph shows that, taken together, they have historically tracked the PMI reasonably well, which is useful because they can be used to provide an independent cross-check of the PMI data. Using the normal statistical relationship, the Fed regional surveys suggest that the PMI “should” have been around 52-53 in August, substantially below the actual reading, and consistent with much lower GDP growth in Q3. So maybe the PMI was subject to statistical noise this month.

Read the article carefully. This is the same thing we saw yesterday in the WSJ. Mr. Davies admits that the ISM is “the best early guide” on the economy but because his view of the economy contradicts the PMI he chooses to dismiss it and move onto admittedly less predictive data in the regional surveys. The chart he offers back the view that far from being a “normal indicator” the regional surveys prove to be wildly erratic. BUT, they back his view so they are given priority.

2nd Bloomberg runs an article today with the following caption of a floor trader (note the Dow was up 247 the day before):

The article, with the jist being “things suck so bad they can’t get worse” has quotes like this:

“Things can get worse,” said Martin Feldstein, a professor at Harvard University in Cambridge, Massachusetts, and president emeritus of the National Bureau of Economic Research. “When the economy is moving forward at a very slow pace, very close to zero, the risk is we could slip over into the negative side of zero.”

Yea, no shit Martin. Things can always get worse. Are they getting better?

“With growth at a stall speed of 1 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases,” said Nouriel Roubini, the New York University economist who predicted the global financial crisis.

What I love about Roubini’s quotes today is they are always filled “could” and “if”. Well, “if” I “could” grow wings out my ass I could fly. The questions is, what are the odds? He speaks in massive generalities and yet is quoted in the media as if he is giving us a detailed road map.

We always get the “predicted crisis” tagline on him. I think he has it on his business cards. We also NEVER get the commentary on his latest predictions (click to enlarge) or pointing out he was wrong for the better part of a decade. He basically nailed it in 07-08 after being wrong before and being wrong since:

3rd. CNN Money has this: (emphasis mine)

The number of first-time filers for unemployment insurance fell for a second straight week last week, but the level suggests that the labor market remains sluggish.

There were 472,000 initial jobless claims filed in the week ended Aug. 28, down 6,000 from an upwardly revised 478,000 the previous week, according to the Labor Department’s weekly report.

Economists surveyed by Briefing.com were expecting 475,000 new claims.

The 4-week moving average of initial claims — a number that tries to smooth out week-to-week volatility — was 485,500, down 2,500 from the previous week.

Claims have been stuck in the mid- to upper-400,000 range for about nine months, though last month they spiked above 500,000 for the first time since November, before edging lower again.

“This report is a step in the right direction, but this range is not where we want to stay,” said Robert Dye, senior economist at PNC Financial Services. “Labor market conditions are stabilizing, but we’re not generating as many jobs as we would like to since economic activity has stalled.”

Last week, the government said the economy sputtered to a near stop in the second quarter, growing at an annual rate of 1.6% during the period.

Dye expects economic growth to remain stagnant during the third quarter, but begin to pick up toward the end of the year and into 2011.

Continuing claims: The government said 4.456 million people continued to file unemployment claims for their second week or more, during the week ended Aug. 21, the most recent data available. That’s down 23,000 from an upwardly revised 4.479 million the week before.

The 4-week moving average for ongoing claims fell by 28,500 to 4.485 million.

Really? 1.6% GDP is “sputtering to a near stop”?? It isn’t great I will admit but hardly the near cataclysmic event the author seems to think it was. This goes to the general “glass half empty” outlook in general right now. That one sentence defines it. The author admits “the job situation is improving” but says it “is not enough”. Well, at what rate should they be improving post serious recession? Employment NEVER recovers as fast as people want it to. It always lags which is why it cannot be used as a gauge of the current health of the economy. But, because it is getting better but not as fast as we want it to, things suck. I am reminded of James Altucher’s Google Tends chart of the term “jobless recovery” in the press post recession.  In short the media  is always pessimistic on jobs because it never happens fast enough for them AND makes nice headlines I suspect.

Are things “dire” now? No. Reading the news though one would think we are teetering on the verge of collapse. Nothing goes up in a straight line. It moves up, sideways back a bit and then up again. You can’t extrapolate anything on a single reading. What is the overall trend? Things are getting better, not perfect, better. That doesn’t mean they suck though…do NOT let the media frame your outlook on things….figure it out for yourself.

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