Giving weight to light data
Published 12:01 am Friday, September 2, 2011
If this recession has taught us anything, it might be the importance of reviewing the gauges by which we measure how the economy is doing and the weight we give such pronouncements.
For example, on Tuesday it was reported that “Consumer confidence drops to lowest level in 2 years.” On Wednesday, it was reported that “Lack of confidence doesn’t stop consumers’ spending.”
The source of information for both reports is The Conference Board, a nonprofit agency initially formed in 1916 as “a clearing house for information (and) a forum for constructive discussion” on the vital business issues of the day, according to its website. It’s not clear when it morphed into a day-by-day micro-analyzer and fortune-teller of the economy based on surveys. It’s not clear when the media simply began quoting its reports as gospel, never bothering to explain how the “analysts” come to their conclusions and forecasts.
It’s also not clear when it became accepted belief that somehow the “state of the economy” is predictable. (After all, even with all the high-tech gear these days, we still can’t always correctly predict the weather. And human behavior is at least as complex as a cumulus nimbus cloud.)
As the Wednesday Associated Press article reports: Ken Perkins of Retail Metrics Inc., a research firm, noted that the mood of consumers has been downbeat all year. Yet sales at retail chains remained relatively healthy.
“There’s been a little bit a of a disconnect,” Perkins said. “Consumers say one thing and do another.”
You don’t say. (That also holds true for voters, and any other group asked to self-report their behavior. Whether it’s sex or recycling, people tend to give the answer they think is “right” or sounds good. So it’s not so strange “consumers” might say they “lack confidence” in the economy and then go out and buy a new car. Few are going to brag, “I’ve got money to burn, baby.”)
At least one economist is bold enough to break from the The Conference Board. Ken Mayland, president of ClearView Economics, told the AP that he doesn’t pay attention to the board’s survey or one put out by Thomson Reuters and the University of Michigan.
“I’ve found that these confidence indicators can lead you astray,” Mayland said.
You don’t say.
Did the economy really exist as we know it before people were employed full-time to fret about it? If investors are urged to take the long view, why don’t analysts do the same?
No wonder The (trademarked) Expectations Index decreased to 51.9 from 74.9 last month.
