Thursday, August 20, 2009

“Leading” Indicators a Sucker Play - on the Streets of Philadelphia…

Let’s take a look at this released on the minute article, the consensus was for a .7% increase, it rose less than expected to .6%:
U.S. Leading Economic Indicators Index Rose 0.6 Percent in July

By Bob Willis

Aug. 20 (Bloomberg) -- The index of U.S. leading economic indicators rose in July for a fourth consecutive month, another sign the worst recession in seven decades is almost over.

The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.6 percent, less than forecast, after a revised 0.8 percent increase in June, the New York-based group said today. The July gain marks the longest series of increases since 2004.

Fewer job losses, rising stock prices and a renewal of factory output all indicate government efforts to stem the financial crisis and revive the economy are paying off. Even so, a jobless rate forecast to reach 10 percent and falling home values are a reminder that any expansion will be muted as consumers rein in spending and boost savings.

“The recession has bottomed,” Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report. “The focus is no longer are we going to get out but what the recovery is going to look like.”

The index was forecast to rise 0.7 percent, according to the median of 52 economists in a Bloomberg News survey, after an originally reported increase of 0.7 percent in June. Estimates ranged from gains of 0.1 percent to 1 percent.

Six of the 10 indicators in today’s report added to the index, three subtracted and one was neutral.

Interest Rates

The biggest lift came from a positive spread between long- and short-term interest rates,
followed by drops in jobless claims, a longer factory workweek, rising industrial supplier deliveries, stock prices and orders for capital goods. Weaker consumer expectations, declining money supply and falling building permits pulled it down. A gauge of new orders for consumer goods and materials held steady.

New applications for unemployment benefits fell to an average of 559,000 in July from 616,000 in June. Figures from the Labor Department today showed that claims unexpectedly rose to 576,000 last week from 561,000 the week before, indicating companies are trying to cut costs further.

The factory workweek rose to 39.8 hours in July, the highest since January, from 39.5 in June, the Labor Department said Aug. 7. Automotive plants are boosting output in response to signs that demand is recovering as they benefit from government incentives of up to $4,500 for consumers who trade in gas guzzlers for fuel-efficient vehicles.

A 1 percent gain in the average level of the Standard & Poor’s 500 Index in July from the prior month contributed to the leading index. The S&P 500 has soared 48 percent since March 9, when it reached its lowest level in more than 12 years, as data signaled the economy may be turning around.

Meanwhile, consumer expectations for the next six months fell in July and continued falling this month, according to the Reuters/University of Michigan survey of sentiment released last week.

Seven of the 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.

Coincident Indicators

The Conference Board’s index of coincident indicators, a gauge of current economic activity, was unchanged after falling 0.4 percent the prior month. The National Bureau of Economic Research, the arbiter of when recessions begin and end, follows this index to help it time downturns. The index tracks payrolls, incomes, sales and production.

The gauge of lagging indicators fell 0.3 percent following a 0.7 percent decrease in the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Economists surveyed by Bloomberg this month said the economy will grow at an average 2.1 percent pace in the second half of this year after contracting over the previous 12 months. The anticipated expansion won’t be enough to prevent the unemployment rate from reaching 10 percent for the first time since 1983, the survey also showed.

The recession may already be over, according to Edward McKelvey, a senior economist at Goldman Sachs Group Inc. in New York. A July gain in industrial production, the first in nine months, and the likelihood that output will keep growing because of depleted inventories is “the best” sign the contraction is over, McKelvey wrote in an e-mail to clients on Aug. 18.

Nonetheless, he said, “a lot has to happen before we can state this conclusion with conviction.”

Last Updated: August 20, 2009 10:00 EDT

Look at that time stamp. Bloomberg had this article mostly written before hand but still was able to fill in the blanks and got it out on the same minute of its release? Come on, no one should see the data before the release.

Now, let’s talk about what’s really leading and what’s not.

Is the stock market really a leading indicator, or is that just another MYTH? I SAY MYTH. Did the stock market predict the current economic malaise? NO? Myth busted.

While I’m at it, I want to point out the MYTH that stocks have returned on average 7 to 8% annual returns over the “long haul.” BS! Here’s the truth, and it is heresy to all the people who make their living from Wall Street – ALMOST ALL STOCKS EVENTUALLY GO TO ZERO in the long haul. The only thing that does go up in the long haul are the manipulated stock indices which replace failed companies with new ones. For example, the DOW Industrials has 30 companies - the only one still in existence is GE, a company that has made itself functionally insolvent due to its involvement with finance and derivatives. That’s called substitution bias, and that’s the truth about stocks – in the long haul.

How about interest rates being a leading indicator? Perhaps, when the FREE MARKET is setting rates… But that’s NOT what’s happening now. On the contrary, the FFR is now ZERO and has been for quite some time. Treasury and other market rates are being MANIPULATED via the Fed’s “quantitative easing” and other manipulations via the Primary Dealers, such as making false bids to create the appearance of strength in the debt markets. MANIPULATION does not make a leading indicator, it makes a contrary indicator.

Now, the next most influential indicator within this “leading” indicator is the jobs data! We have highly manipulated numbers there and we have tons of people falling off the rolls as their benefits run out. Please read Employment Situation in Chart Form – Damn, I knew I should have moved to New York and found a job on Wall Street!

The other considerations of this index are mostly negative, the most important one being consumer credit which is a true leading indicator. And from my position, once a society is saturated with debt, the one and only TRUE LEADING ECONOMIC INDICATOR is the ratio of DEBT TO INCOME. Incomes are falling, debt is rising, and that spells trouble for the future.

Believe what you want to, to me this “leading indicator” is nothing but a sucker’s prayer.

Now, the Philadelphia Fed Survey, came in better than expected at an index value of 4.2 versus the expected -1.0…

Philadelphia Area Manufacturing Unexpectedly Expands

By Shobhana Chandra

Aug. 20 (Bloomberg) -- Manufacturing in the Philadelphia region unexpectedly expanded in August for the first time in almost a year, a sign the economy is pulling out of the recession.

The Federal Reserve Bank of Philadelphia’s general economic index climbed to 4.2, the highest level since November 2007, from minus 7.5 in July, the bank said today. It was the first positive reading, signaling expansion, since September.

Manufacturing may contribute to a recovery in coming months as factories speed assembly lines after cutting inventories at a record pace in the first half of 2009. The government’s cash-for-clunkers plan has stabilized auto sales, leading to production gains at General Motors Co. and Ford Motor Co. that may ripple through the economy and lift other industries.

“As manufacturing firms reduce inventories to more comfortable levels, they will start to look at increasing output and employment in the next several months,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “We’re moving towards growth in the third quarter.”

While this is the first positive growth in over a year in this index, keep in mind that the overall business activity fell dramatically and that a zero reading means that it has simply leveled off. A small month over month uptick at this stage to me is simply noise, it does not mean the trend has changed. While the collapse has been arrested for now, it is built upon government stimulus (that is adding to the debts). That’s again called MANIPULATION and as those drugs wear off the people on the Streets of Philadelphia are going to be left with one heck of hangover.

Ask yourself this… What has changed to the positive for the economy for REAL? I see changes to financial accounting rules. I see a willful government who has bankrupted itself in the name of security and on behalf of the central bankers. I see a Fed who prints money and manipulates the bond market. I see statistics that are manipulated. I have a real hard time seeing REAL growth that’s going to last and is going to provide good jobs for the indebted people on the Streets of Philadelphia…