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 BizzyBlog.com.