June 4, 2008

The Economy: ‘Expectations’ Are Taking Quite a Beating This Week

Don’t miss the significant reporting errors noted at the end of this post.


If this were a boxing match, with “The Economy” in one corner, and “Expectations” in the other, we’d be seeing a third-round knockout with “Expectations” taken away in an ambulance.

But if you think the news this week has changed the tone of the Associated Press’s business and economy coverage, think again.

There have been three pieces of pretty decent news so far this week:

  • On Monday, the Manufacturing Index published by the Institute for Supply Management (ISM) increased from 48.6% in April to 49.6% in May. While it showed that manufacturing is still in contraction (any reading below 50% indicates contraction; above 50% means expansion), it is just barely so, and the result punched out expectations that the number would come in at 48.5%.
  • Yesterday, the Census Bureau reported that new orders for manufactured goods increased 1.1% in April, pummeling expectations that they would go down by 0.1%.
  • Today, the ISM’s Non-Manufacturing Index (NMI) came in at 51.7%, showing expansion for the second straight month. While the result was a slight dip from April’s 52.0%, it flailed away at expectations that it would come in anywhere from 50.3% to 51.0%.

One place where expectations were definitely met is in the, as usual, negative tone and tenor of the Associated Press’s coverage of these stories.

The reaction to the improved manufacturing news came from the AP’s Ellen Simon, and was extraordinarily gloomy:

Manufacturing, construction, founder; prices rise

NEW YORK (AP) — Dark clouds continue to hang over the economy: The manufacturing sector shrank for the fourth consecutive month, construction spending has been falling for more than two years, future orders are down and prices are skyrocketing.

The few bright spots, such as strong exports, may be the only things between us and a protracted recession, analysts said on Monday.

Makes you want to just give up, doesn’t it?

Martin Crutsinger did the honors in his coverage of the new orders report. Though he clearly felt compelled to remind us of already well-known problem areas, his report was, for him, relatively evenhanded:

Factory Orders Grow In April

Orders for manufactured goods posted a surprisingly strong increase in April as demand rose in a number of areas including heavy machinery, iron and steel.

The Commerce Department reported Tuesday that orders were up 1.1 percent in April following a 1.5 percent increase in March. Those gains followed big declines in January and March that raised concerns about how much pain manufacturing industries would feel from the severe economic slowdown hitting housing and the financial sector.

You might notice that Martin said that March both increased and decreased in the space of two sentences. That’s a pretty good trick.

An unbylined AP article on today’s Non-Manufacturing Index release made sure to get in the negative headline (the choices were “slower” or “better than expected”), and looked really hard to say something harsh about the NMI details:

Service sector grew at slower pace in May

The service sector grew at a better-than-expected pace in May but slower than in April, suggesting that higher prices for food and fuel may be crimping business in retail, entertainment and agriculture.

….. Another worrisome reading in the service report was that inventories rose 7 percent, while order backlogs fell 1 percent. If that imbalance persists, companies may have to cut production or buying as they reduce excess inventories.

I don’t know how else to say this — The last excerpted paragraph fundamentally misreads what the NMI report tells us, and calls the financial literacy of whoever wrote and reviewed the article into serious question.

ISM’s indices are measures of business sentiment on the ground, not of actual results. “Inventories” didn’t rise 7%; ISM’s measured observations of inventory sentiment by those reporting went from 47% in April (contracting) to 54% in May (increasing). Those readings have absolutely nothing to do with actual changes in inventory levels.

The “order backlogs” error is similar. That reading, really called “Backlog of orders,” went from 50% in April (“unchanged”) to 49% (“contracting). It has absolutely nothing to do with how much the backlog of orders really might have declined.

There’s nothing necessarily “worrisome” about either reading, unless you don’t understand what those readings convey, as AP’s unbylined author and whoever might have reviewed the article clearly didn’t.

This is really weak, even for AP. While meeting expectations in conveying negativity, it has fallen short of what little was expected in terms of communicating accurate information.

Cross-posted at NewsBusters.org.

Despite Recession (/sarc), ISM Non-Manufacturing Index Stays in Expansion Mode, Beats Expectations

Filed under: Economy — Tom @ 2:08 pm

The Non-Manufacturing Index (NMI) issued by the Institute for Supply Management (ISM) came in at 51.7% for May. Any reading above 50% indicates expansion. NMI includes the problematic housing and financial services sectors.

That’s a slight drop from April’s 52.0%, but it beat Thomson News’s expectations of 51.0%.

13 of the 17 industries tracked reported growth. Two of them were Real Estate and Construction.

The weighted average of the ISM indices for May (15% for Manufacturing, which came in at 49.6%, and 85% for NMI) is 51.4%, a tiny drop from last month’s 51.5%. The economy as a whole continues to expand, though not briskly, or even in my view satisfactorily.

This nugget from the Thomson report should also be noted:

The old ISM headline index, business activity, rose to 53.6 from the 50.9 reading in April. That’s the highest reading for this index since December 2007.


Couldn’t Help But Comment (060408)

Car Carnage in May:
- GM – down 28%.
- Ford – down 16%.
- Chrysler – down 25%. Has Bob Nardelli beaten Chrysler down to the point where nobody will want it?
- Toyota – down 4%. Even with the slide, the company came within 9,300 vehicles of beating out GM for #1 in unit sales.
- Honda – up 16%.
- Nissan – up 8%.

If you think this is bad, see what will happen if Chris Pummer of MarketWatch gets his wish and gas goes to $8 a a gallon. Chris says we should rejoice if that happens.


This got lost in the shuffle last week, but it deserves a mention (HT Say Uncle via Instapundit):

Police: 3 dead in Nevada bar shooting that may have stemmed from feud
May 25, 2008 9:15 PM ET

WINNEMUCCA (AP) – Police say three men were fatally shot and two other people were injured early this morning at a bar in Winnemucca, and the shootings may have stemmed from a longstanding feud between several local families.

Winnemucca Police Chief Bob Davidson says a man entered Players Bar and Grill and fatally shot two members of a rival family before he was shot and killed by a patron. All three were pronounced dead at the scene.

Better headline: Possible Massacre Averted.


Here’s another one of those “unexpected” good-news econ reports:

April U.S. factory orders unexpectedly jump 1.1%

U.S. factory orders unexpectedly jumped 1.1% in April 2008, the U.S. Commerce Department announced Tuesday, primarily due to increased prices for gasoline and other petroleum products.

Economists surveyed by Bloomberg News had expected April 2008 factory orders to decline 0.1%. Factory orders increased 1.5% in March 2008.

Excluding a 7.9% decline in transportation goods, factory orders rose 2.6% April 2008.

The Census Bureau’s original is here.

Related, from AP’s Martin Crutsinger:

Orders for iron and steel were up by 5.5 percent. Orders for mining and oil field equipment jumped 48.6 percent and orders for electrical equipment and appliances surged 28.1 percent.

Orders for nondurable goods rose by 2.8 percent.

If you go to Crutsinger’s second paragraph at the link, you’ll see a drop-dead obvious mistake:

The Commerce Department reported Tuesday that orders were up 1.1 percent in April following a 1.5 percent increase in March. Those gains followed big declines in January and March that raised concerns …..



California also had a primary yesterday for all relevant offices except president.

Good news for fiscal conservatives: It looks like Tom McClintock, “admired for his unyielding opposition to tax hikes,” is going to be a congressman.

Cindy Sheehan? Not so much (HT Instapundit).

To be fair, Sheehan is running for Congress against Nancy Pelosi as an Independent and wasn’t on yesterday’s ballot. Trouble is, as the link indicates, she needs 10,198 signatures, presumably of people in the congressional district, to get on the ballot in November. Rots of ruck, babe.

If she were serious instead of grabbing for one last shot at relevance, Sheehan would have run against Pelosi as a Democrat in yesterday’s primary, where she might have had a chance in a far-far-left district in a very low turnout election with a strong grass-roots/nutroots effort. Now, even if she miraculously collects enough signatures to qualify in November, she’ll get clobbered.


Per a tip from reader Dan — RomneyCare’s fines hit home:

Nearly 100,000 Massachusetts taxpayers have been fined for failing to obtain health insurance, even as a major survey concludes the effort to create near-universal coverage in the state is meeting key goals.

Five percent of taxpayers failed to obtain health coverage last year, and more than half of those – about 97,000 – were forced to forfeit their personal exemption – worth $219 – after it was determined they could have afforded health care.

Do the math: That’s $21.2 million.

This year (collected on tax returns to be filed next year) the fines will increase to as much as $912. I would expect that one other thing will increase: the number of people leaving the People’s Republic of RomneyCare.

Positivity: Finding Private Halley

Filed under: Positivity,US & Allied Military — Tom @ 5:58 am

From Minnesota:

Last update: May 25, 2008 – 12:03 AM

In the Vietnam War, a soldier jumped into the line of fire to save Dennis Berg. Never forgetting this man’s sacrifice, Berg spent years trying to learn his name to honor him.

This Memorial Day, Dennis Berg will quietly honor “the best friend I will ever have” — a man Berg never met, but whose ultimate act of heroism haunted Berg for four decades.

On a sunny morning in November 1966, while traveling by convoy on a road that split the jungle near the village of Xuan Loc in southeastern South Vietnam, Pfc. Russell Louis Halley sacrificed his life to save Sgt. Dennis Berg’s.

It would take 27 years for Berg to learn who had saved him. And it was not until two years ago, by telling Halley’s hometown of Waterloo, Iowa, at a Memorial Day ceremony of Halley’s heroism that Berg finally came to terms with the happenstance of combat by which his life had been saved and another’s lost.