Do Economic Reports Mean Nothing This Time Around?

Feb 28 2014, 2:34pm CST | by

Some of the Federal Reserve’s districts compile and release monthly economic reports for their regions.

In the last week or two, those reports were that the Fed’s Empire State (NY) Mfg Index plunged from 12.5 in January to 4.5 in February. The Fed’s Philadelphia Region Index plunged from a positive reading of + 9.4 in January to – 6.3 in February. The Dallas Fed’s Mfg Index dropped from 3.8 in January to 0.3 in February. The Richmond Fed’s Index plummeted from +12 in January to -6 in February.

The ISM national Mfg Index plunged from 56.5 in December to 51.3 in January, just barely above the contractionary 50 level. Within the index, the monthly decline in new orders was the largest in 33 years. The Fed’s regional indexes indicate the slowdown accelerated in February.

However, the Fed does not seem to think its indexes are of any importance. It says the economy continues on its recovery track.

Unlike in 2010, 2011, and 2012, the stock market also seems to believe this time around that negative reports are of no importance.

But when Friday morning’s release of the Chicago PMI Mfg Index showed it ticked up imperceptibly from 59.6 in January to 59.8 in February, and although remaining at a two-year low Pending Home Sales ticked up 0.1% in January, the stock market took off.

The Fed also utilizes a major measurement of national business activity, the Chicago Fed’s National Activity Index (CFNAI). It is a composite of 85 selected economic indicators that the Chicago Fed’s website says, “are drawn from four broad categories of national data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity. . . . The CFNAI provides a gauge of current and future economic activity and inflation in the U.S.”

A composite of 85 individual measurements designed to pull together the individual monthly economic reports. If ever there was an indicator of importance to the Fed that would be it, right?

Apparently not. The index is designed to hover closely around 0, a positive number indicating growth, a negative number indicating economic contraction. The Fed even says if the three-month moving average of the index declines to – 0.70 the economy has slowed so much “it indicates a recession has begun.”

The Fed’s CFNAI collapsed from +0.73 in November to -0.03 in December. The Fed reported this week that it plunged further into negative territory at -0.39 in January.

However, that did not seem to even register in the Fed’s continuing assessment that the economic recovery continues “at a moderate pace.”

Why bother compiling all this data to produce these regional and national indexes if they mean nothing, are even meaningless to the Fed?

The Commerce Department reported on Friday that GDP growth in the fourth quarter was not 3.2% as it originally reported, but only 2.4%. That is a substantial decline from the 4.1% growth of the third quarter.

Meanwhile, if they can be believed, the economic reports for January and February, including the Fed’s own indicators noted above, as well as reports on retail sales, factory output, employment reports, housing reports, and so on, indicate the first two months of the current quarter tracked well below the downwardly revised fourth quarter.

Wall Street firms and major banks continue to slash their forecasts for the economy. They got it right that 4th quarter GDP would be revised down from 3.2% to around 2.5%. Their forecasts for the current quarter, prior to this week’s reports, seemed to range between 1.5% and 1.8%.

In 2010, 2011, and 2012, the Fed rushed in with additional new QE stimulus when economic reports indicated the economic recovery was stumbling. This time around, it seems unperturbed even though its own indexes confirm the negative reports from virtually every corner of the economy.

In 2010, 2011, and 2012 the S&P 500 fell 17%, 19.5%, and 11% respectively when economic reports indicated the economy was stumbling. This time around, investors are not at all nervous. Unperturbed by the reports, the S&P 500, and particularly the Nasdaq, managed only minor pullbacks in January before roaring back to new highs, even as the economic reports worsened./>/>

Is it really different this time? Do economic reports mean nothing this time? The stock market thinks so.

Does the Fed also think so, or is it waiting for the market? In those prior years, it waited until the stock market had declined by double digits before rushing in almost in panic with more massive QE to rescue the economy.

Sy is president of StreetSmartReport.com and editor of the free market blog Street Smart Post. Follow him on twitter @streetsmartpost. He was the Timer Digest #1 Gold Timer for 2012 (Gold Timer of the Year), as well as the #2 Long-Term Stock Market Timer.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Soyuz rocket carrying two Galileo satellites lifts off
Brussels, Aug 22 (IANS) A Soyuz rocket carrying two Galileo satellites, the fifth and sixth of Europe's Galileo global satellite navigation system, lifted off from the spaceport in French Guiana Friday, the European Space Agency (ESA) has announced.
 
 
Fresh cases of Ebola recorded in Nigeria: Official
Abuja, Aug 22 (IANS) Fresh cases of the Ebola virus disease have been recorded in Nigeria, where the highly contagious disease has already claimed five lives, Minister of Health Onyebuchi Chukwu said Friday.
 
 
Fuel cell technology gets a boost
Washington, Aug 22 (IANS) In an impetus for fuel cell technology to build "smart" cars, scientists at Stanford University have developed a low-cost, emissions-free device that uses an ordinary AAA battery to produce hydrogen by water electrolysis.
 
 
3D-printed technology to make drug delivery better
Washington, Aug 22 (IANS) The US researchers have developed an innovative method for using affordable, consumer-grade 3D printers and materials to fabricate custom medical implants that can contain antibacterial and chemotherapeutic compounds for targeted drug delivery.
 
 
 

Latest from the Network

Looking forward to working with Modi government: Singapore PM
Singapore, Aug 22 (IANS) Singapore Prime Minister Lee Hsien Loong Friday said his country hopes to work with India in areas of infrastructure and education, and expressed his desire to meet his Indian counterpart...
Read more on Politics Balla
 
India beat Middlesex by 95 runs
London, Aug 22 (IANS) India returned to winning ways albeit in a warm-up cricket match, registering a comfortable 95-run win over Middlesex at Lord's here Friday. India were dismantled 3-1 in the Test series,...
Read more on Sport Balla
 
Pakistan: Tensions ease as PTI agrees to resume talks (Roundup)
Islamabad, Aug 22 (IANS) Tensions in the Pakistani political landscape eased Friday with the Imran Khan-led Pakistan Tehreek-i-Insaf (PTI) party agreeing to return to the negotiating table as the Senate or the upper...
Read more on Politics Balla
 
Ukrainian rebels kill four soldiers
Kiev, Aug 22 (IANS) At least four security personnel have been killed and 23 wounded in clashes with rebels in eastern Ukraine, authorities said Friday. Four Ukrainian servicemen were killed Thursday overnight in...
Read more on Politics Balla
 
Miley Cyrus concert banned in Dominican Republic
Santo Domingo, Aug 22 (IANS/EFE) The Dominican Republic government has banned a concert where US pop star Miley Cyrus was scheduled to perform in the nation's capital Sep 13. In a notice sent to the SD Concerts and...
Read more on Celebrity Balla
 
George Clooney's ex Elisabetta Canalis engaged
George Clooney's ex Elisabetta Canalis has got engaged. The 35-year-old beauty is set to tie the knot with Brian Perri in Italy next month, as is George and his new fiancée Amal Alamuddin, after the orthopedic surgeon...
Read more on Celebrity Balla
 
Mariah Carey's jealously to blame for split?
Mariah Carey's jealousy is reportedly partly to blame for her and Nick Cannon's split. The 44-year-old singer is said to have trust issues with her spouse - with whom she has four-year-old twins Moroccan and Monroe -...
Read more on Celebrity Balla
 
Jessica Alba is 'fearless' after motherhood
Jessica Alba has become ''fearless'' since motherhood. The 33-year-old actress admits her whole perspective of her career has changed since welcoming her daughter Honor, six, and Haven, three, into the world with her...
Read more on Celebrity Balla
 
Daniel Radcliffe wants fans to forget Harry Potter
Daniel Radcliffe wants his fans to forget about 'Harry Potter'. The 25-year-old actor is currently starring in romantic comedy 'What If', and despite its success, the actor is resigned to the fact the comparisons to his...
Read more on Celebrity Balla
 
Hamas executes 18 alleged collaborators with Israel
Gaza, Aug 22 (IANS/EFE) Palestinian militias Friday executed 18 people accused of collaborating with Israel, 48 hours after three top military leaders of the Islamic Palestinian movement Hamas were killed in an Israeli...
Read more on Politics Balla