“IT’S THE ECONOMY, STUPID!”
First-time unemployment claims ticked down this week. That’s good. Two days later, consumer sentiment figures come in lower than expected. That’s not so good. But then we learn that the manufacturing index in the New York region moved higher – most encouraging. What’s going on, you say. What numbers best measure the current state of our economy? Are we any better off than the proverbial blind men describing the elephant? Maybe not. The U.S. economy is, after all, a massively complex mechanism generating a GNP close to $15 trillion; by far the largest in the world. Peering inside at its internal workings and figuring out which vital signs to rely upon is a challenge. It is undertaken by legions of economists, analysts, statistically-sophisticated chart makers, pundits, stockbrokers, hedge fund managers, treasury and Federal Reserve officials, financial consultants and planners and individual investors who have staked their reputations and their capital on figuring out what the economy is up to and where it’s going. Indeed, a not insignificant proportion of economic activity is generated by those very people whose task it is to provide clues almost daily about these crucial matters. Much of their efforts go into taking countless test borings into our economic activities and producing mountains of data which, if gathered accurately and correctly analyzed, promise to provide answers or at least informed guesses as to what is happening.
Many have their favorite index which they believe to be the most revealing barometer of current economic conditions, viewing other gauges as unreliable, volatile or prone to miss important data points. For some, it is the price of gold or of a barrel of oil, or the direction of interest rates. Plenty of folks eagerly wait for the start of corporate “earnings season” when large companies disclose their bottom lines and project future earnings and profits. Some counter by observing that since many multi-nationals secure much of their revenue overseas we’d best look elsewhere to gauge the state of our domestic economy. Accordingly they focus upon inflation rates, hourly wage levels, unemployment numbers, hours worked per week, personal incomes, savings rates, inventory levels and retail sales as best reflecting conditions here. Manufacturing, others say, is what holds the key to America’s future economic well-being. So what’s happening in this area is critical. Others point to service businesses as the driving force of our economy currently and in the foreseeable future.
The debate is endless; the outpouring of data mind-numbing. Imports, exports, productivity levels, housing construction, sales of existing homes, mortgage rates, mortgages under water, levels of commercial loans by banks, the value of the dollar, and of course data from overseas – China, India, Japan, Brazil Europe. Toss this all into the mix. What does it add up to? Do we end up just drowning in data? Can we actually get a handle on something so complex, fluid and subject to changes in sentiment, mood swings and irrational behaviors? Still we have to make do with what is currently available.
Sure, “it’s the economy, stupid”, but wading through the mountains of information selecting the right data, devising appropriate policies will ever remain the challenge.