Any more weak economic data and the call will go out to the grand pooh bahs of the National Bureau o...
Any more weak economic data and the call will go out to the grand pooh bahs of the National Bureau of Economic Research, the arbiter of all things cyclical, to convene in order to determine the start date of the recession!
While the 0.4% increase in industrial production in May came as a big surprise, the monthly manufacturing barometer from the Philadelphia Federal Reserve could not have been worse.
The overall index, which is not a composite but reflects instead manufacturers' assessment of the level of general business activity, plunged 18.5 points in June to 1.7, a level not seen in one and a half years, when US exporters were recovering from the effects of the Asian slump.
All the component indices, with the exception of prices received, fell in June. The new orders index took a 13-point dive to 5.1, the shipments index slipped 10 points to 8.2, the unfilled orders index fell 11 points to -14.4, the lowest level in three and a half years, and the inventory index fell 12.5 points to -5.1. Firms reported slower delivery times - the index fell from 12.2 in May to -9.6 in June - suggesting no supply bottlenecks.
The prices paid index remains stubbornly high at 30.8 while the index of prices received by manufacturers inched up three points to 10.5.
If the bond market really believed the message of the Philly Fed Index - almost no growth in manufacturing - not to mention retail sales going into reverse in April and May, it would probably be having a better day instead of struggling to recoup losses following the Fed's report of an unexpected increase in industrial production.
The Fed uses the goods portion of the employment report - goods being manufacturing, construction and mining - to compile its report. Specifically, it uses aggregate hours worked, or the number of people times the number of hours, as a proxy for output.
The Fed tweaks the numbers based on the hard data it has on autos, steel and probably everything else, given Fed Chairman Alan Greenspan's passion for this kind of stuff.
"Whenever you see a huge swing in hours, you know you're not going to get it in the IP data," says Susan Hering, chief economist at Carr Futures in Chicago.
Aggregate hours in manufacturing, which accounts for 88%of IP, fell 1.9% in May, according to the Bureau of Labor Statistics.
Declines of that magnitude occur infrequently and generally in conjunction with a blizzard or other act of God that paralyzes a large part of the country.
The Fed must have determined that output wasn't as bleak as the employment report would suggest because it reported a 0.4% increase in IP in May following two 0.7% increases in the previous two months.
Industrial production is one of the few bright spots in a two-week stretch of remarkably weak economic news.
Manufacturing's cyclical cohort, housing, got another bad report card today in the form of the June homebuilders survey. The National Association of Home Builders reported that its housing market index slipped 4 points to 58, the lowest level since November 1997. Since peaking in November/December 1998, the NAHB index has slipped 20 points.
All three measures that homebuilders survey fell this month. "The data suggest things slowed significantly in May," says Ward McCarthy, economist and managing director at Stone & McCarthy Research Associates. "It's unusual for it to occur in such an abrupt fashion unless there's a catalyst, of which I'm not aware."
Fed officials sound unconvinced by the data, too. Last week, Greenspan let it slip via Argentine Economy Minister Luis Machinea that the case for raising rates has become less convincing. Still, even Greenspan would admit it's too early to declare victory. McCarthy thinks the Fed, like the economy, is just taking a breather.
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