February 3, 2014

After Markets Plunge Again, Business Press Theme of the Day Is: The Weather Did It

After opening the day at about the same level as Friday’s close, the three major U.S. stock indices fell by over 2 percent Monday (DJIA, -2.08%; S&P 500, -2.28%; NASDAQ, -2.61%).

About half of the rout took place in the first 30 minutes after the 10:00 a.m. release of two reports, one on manufacturing activity and the other on construction spending. The former, from the Institute for Supply Management, showed that its January Manufacturing Index came in at a mildly expansive 51.3% (any reading over 50% indicates expansion), down by over 5 percentage points from December and missing expectations by 4.7 points. The latter, from the Census Bureau, showed that seasonally adjusted construction activity barely budged in December. The market’s decline continued throughout the rest of the day as disappointing news on January car sales rolled in. As will be seen after the jump, inclement January weather got a disproportionate share of the blame in the business press for these really weak results — an explanation which clearly didn’t impress the markets.

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Nagin’s Democratic Party Affiliation Disappears at AP As Bribery Trial Begins

Though there were some exceptions (e.g., this one caught by Geoffrey Dickens at NewsBusters a few days ago), most press reports as the beginning of the trial of former New Orleans Mayor Ray Nagin tagged him as a Democrat.

Apparently, there’s a quota on “D” references at the Associated Press. A lengthy AP story by Kevin McGaill carried at Time.com and AP’s national site has no reference to Nagin’s party affiliation. Nagin was part of the odd couple of Democrats (former Governor Kathleen Blance is the other) who failed to do what they needed to do to prepare New Orleans and the Bayou State for Hurricane Katrina in 2005. Excerpts from the longer Time story follow the jump Excerpts from the longer Time story follow the jump (bolds identifying opportunites to identify Nagin’s party affiliation are mine):

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Dana Loesch on ‘The View’

I can see why progressives don’t like her: She’s an articulate, reformed hard-leftist (Skip to 1:10 for the beginning the discussion) —

Great job, Dana.

January 2014 ISM Manufacturing, With a Contrarian View (Report: 51.3%; Big Comedown and Big Expectations Miss)

Filed under: Economy,Taxes & Government — Tom @ 9:56 am

The report will be out at 10:00 a.m. (Update, 10:05 a.m.: Make that “10:00 a.m. or so”) Business Insider’s prediction is for 56.0%, down from December’s 57.0% (Update, 10:20 a.m.: ISM recalibrated its seasonal adjustments in this report, changing December to 56.5%). Any reading above 50% indicates expansion.

In advance of that, a column by Alan Tonelson at MarketWatch makes a pretty good case that the Institute for Supply Management’s Manufacturing Index, even with the caveat that it’s a survey and not a hard measurement, has become ineffective in what it’s supposed to do:

How reliable are ISM manufacturing readings? Not very
Opinion: Manufacturing output, job growth overstated by surveys

… Its surveys of domestic industry’s health have been generating encouragingly strong numbers since the U.S. economic recovery began in mid-2009. More specifically, the ISM’s headline figures signal that American manufacturing has not simply staged a cyclical comeback from a deep recessionary dive, but has been strengthening independent of the broader economy’s fortunes.

Yet these encouraging ISMs have been accompanied by government manufacturing readings painting a very different picture — of a domestic factory sector whose rebound has been entirely cyclical and unmistakably petering out. Worse, the gap between rosy ISM results on the one hand, and the glummer data on manufacturing production and jobs from the Federal Reserve and the Bureau of Labor Statistics on the other, has been widening markedly for 20 years.

… Perhaps most unusually, 2013’s rate of manufacturing growth after inflation was matched by 1995’s performance, according to the Fed. But the 1995 ISM was not the same as 2013’s 53.7, but 49.5, a below-50 figure that indicates contraction.

Just as revealing: In both 1996 and 2010, the nation’s factory output grew by just under 7% after inflation. But the former’s ISM was a feeble 50.1 and the latter’s a robust 57.3.

The ISM seems to do a good job capturing huge swings in manufacturing output and employment reported by the Fed and the BLS. But any finer changes too often contrast strikingly with the government numbers — which are both based on much bigger, more varied sets of evidence than the ISM’s survey of 400 member companies. These discrepancies, plus the anomalies in the institute’s own figures, strongly suggest that anyone serious about following American manufacturing’s fortunes needs to look far beyond the ISM.

Yours truly has noted how ISM’s index hasn’t seemed to reflect underlying reality for some time. At first, I thought there might be some cooking going on, but was reassured by ISM that it isn’t possible.

Now I believe it’s more likely a matter of the ISM survey responsdents not reflecting the overall manufacturing facility universe.

With that, let’s wait for today’s numbers.

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HERE THEY ARE (permanent link):

Economic activity in the manufacturing sector expanded in January for the eighth consecutive month, and the overall economy grew for the 56th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

“The January PMI® registered 51.3 percent, a decrease of 5.2 percentage points from December’s seasonally adjusted reading of 56.5 percent. The New Orders Index registered 51.2 percent, a significant decrease of 13.2 percentage points from December’s seasonally adjusted reading of 64.4 percent. The Production Index registered 54.8 percent, a decrease of 6.9 percentage points compared to December’s seasonally adjusted reading of 61.7 percent. Inventories of raw materials decreased by 3 percentage points to 44 percent, its lowest reading since December 2012 when the Inventories Index registered 43 percent. A number of comments from the panel cite adverse weather conditions as a factor negatively impacting their businesses in January, while others reflect optimism and increasing volumes in the early stages of 2014.”

Of the 18 manufacturing industries, 11 are reporting growth

“Weather” should be of limited relevance in a survey such as this.

The kinds of decreases we’re seeing are more than “weather.” The two I bolded (New Orders and Production), both of which have high relevance to GDP, nosedived. The third key GDP-related element, Backlog of Orders, went into contraction, declining from 51.5% to 48.0%.

The overall reading and the GDP reflectors are still in expansion, but not by much.

This seems to be far more than a one-month dip attributable purely to “weather.”

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UPDATE, 10:30 a.m.: Let’s see how well the business press picks up this point from the report’s spokesperson, noted at Zero Hedge

ISM’S HOLCOMB SAYS WEATHER DOESN’T ACCOUNT FOR ENTIRE SLOWDOWN

ZH also says today’s report represents the “biggest miss (vs. expectations) on record.”

UPDATE 2: My CNN email indicated that the markets opened at breakeven this morning. So it seems that this ISM report, along with far worse than expected sales drops at Ford and GM, are what have driven the indices down by about 1% in first-hour trading.

Monday Off-Topic (Moderated) Open Thread (020314)

Filed under: Lucid Links — Tom @ 6:05 am

This open thread will stay at or near the top today. Rules are here. Possible comment fodder may follow. Other topics are also fair game.

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Christina Hoff Sommers debunks another Obama State of the Union Lie“No, Women Don’t Make Less Money Than Men; It’s the bogus statistic that won’t die—and president deployed it during the State of the Union—but women do not make 77 cents to every dollar a man earns.”

More here“The Gender Wage Gap Lie”

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Another group doesn’t like Obamacare“Health-care law loses support among uninsured, poll shows”

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Jerks: “Government shuts down 11-year-old’s cupcake business” Apparently in that part of Illinois, you can’t sell baked goods unless it’s from “a bakery” or a separate kitchen.

Next on the regulatory agenda: Potluck dinners. After all, attendees are “compensated” for their efforts when they exchange baked goods with each other, so why shouldn’t they be shut down? What madness.

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The previous item, plus this one, make me wonder why anyone not on the government’s gravy train would want to live in Illinois:

Pam Harris is a mom in northern Illinois whose son, Joshua, needs constant care because of a rare genetic syndrome that causes severe intellectual and developmental disabilities.

Pam receives a modest subsidy from a Medicaid-waiver program that allows her to stay home and take care of Joshua. She isn’t a state employee; she just gets a check so Joshua can be at home and not in an institution.

But in 2009, Gov. Pat Quinn and the Service Employees International Union got involved. Quinn issued an executive order authorizing the state to recognize an “exclusive representative” – a union – for home care providers like Pam.

If your son is disabled and you have to pay union dues just to be able to take care of him, you’re in a place where statism has gotten completely out of control.

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At the Washington Times (HT Gateway Pundit, who has a good summary of the scandal’s sorry saga) — “Eric Holder Bars Lead Investigator From Testifying Before Congress in IRS Probe.” I say: Stop all funding of the Department of Justice until that posture changes.

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Sanity“(Alabama Senator Jeff) Sessions Warns House GOP: Immigration Bill Is Bad Politics, Bad Policy.” It’s a suicide pact for the country and the party. There’s NO upside.

Related: “Rubio: Obama’s lawlessness is the biggest impediment to passing immigration reform.” Barring a change of stance at the White House, that irrefutable logic applies the passage of any law during the next three years.

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At Ohio Conservative Review“Common Corruption: What Ohio Can Expect with Common Core.” That’s why it must be stopped.

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The unfortunate citizens of Venezueal get no relief“Venezuela’s toilet-paper shortage oddly worsening, despite Maduro’s ‘new economic order’” On our current path, this is our future.

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This guy, a former TSA agent who just identified himself after over a year of anonymity, has shown that the agency is a privacy-invading, over-bureaucratized joke.

Blast from the past, November 2010: “ICE-Sanctioned TSA Sexual Assaults Must Stop.” But they haven’t.

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Megan McArdle, on Amazon’s revenue and earnings misses:

fourth-quarter sales of $25.6 billion were considerably below estimates of $26.08 billion, and earnings per share were 51 cents instead of the 69 cents that analysts had been expecting.

That’s not just disappointing for Amazon; it’s also not great news for the U.S. economy. When retail foot traffic and sales were disappointing in December, the standard explanation was that people must be moving their purchases online. Obviously, they weren’t — at least, not nearly as much as analysts expected. Given how dominant Amazon is in e-commerce, this should cause most of us to revise our expectations of fourth-quarter retail sales, as well as growth in gross domestic product. And not in a good direction.

Positivity: Catholic schools’ secret

Filed under: Education,Positivity — Tom @ 6:00 am

William McGurn in the January 31 New York Post:

… In the popular view, Catholic schools succeed because they have greater discipline. There’s something to that, though it helps to remember that the Latin root for the verb “to discipline” is not “to punish” but “to teach.” It’s a lesson that begins with recognizing the equal and God-given dignity of every human being.

In short, the Gospel that commands us to love one another obliges us to treat each person we encounter as we would Christ. That’s not an easy thing to ask of a school, even a Catholic school.

But the Sister Noreens and Sister Patricias have not devoted their lives to Catholic education to do the easy. They’ve dedicated them to making a difference.

Go here for the full column.