AP's Crutsinger Acknowledges Likely Q1/15 Contraction; Rugaber Ignores

May 5th, 2015 8:55 PM

It appears that someone might need to schedule an intervention with the Associated Press's economics writers.

In his dispatch published a half-hour after the government's March release on international trade at 8:30 this morning, the wire service's Martin Crutsinger quoted a normally upbeat economist who was singing the blues about the result's effect on previously reported first-quarter economic growth. Now, he said, the economy "undoubtedly contracted slightly in the first quarter" by an estimated 0.3 percent. But about an hour later, the AP's Christopher Rugaber ignored this assessment — and that of many others — in his writeup covering the 10 a.m. release of the Institute for Supply Management's Non-Manufacuring Index. Don't these guys talk to each other?

Following the release of that trade report, which showed the highest monthly trade deficit ($51.4 billion) in over six years, it wasn't difficult to find several other outlets identifying sources who are now predicting that revisions to the first quarter's originally reported gross domestic product will show that the economy contracted.

At Reuters ("U.S. trade data points to first-quarter economic contraction"), reporter Lucia Mutikani quoted Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York, as follows: "It looks like we are going to have negative GDP for the first quarter, just based on trade ..."

At CNBC ("US economy probably shrank in Q1 after all: Moody's/CNBC survey"), reporter Ben Berkowitz cited a post-trade release survey: "Economists now believe that the U.S. economy probably contracted slightly in the first quarter, according to a Moody's/CNBC survey," estimating that "the economy shrank 0.3 percent in the first quarter."

An unbylined report at Bloomberg ("Trade Gap in U.S. Swells to Six-Year High as Imports Surge") cited Michael Feroli, chief U.S. economist at JP Morgan Securities LLC in New York , "the second-best forecaster of the trade balance over the past two years," who "now sees GDP contracting at a 0.5 percent rate in the first three months of the year."

As would be expected at what is arguably the most Obama-compliant newspaper in the land, the Los Angeles Times wouldn't concede the likelihood of a contraction, only noting that "The new data could mean the government will report the economy contracted." But Times reporter Jim Puzzanghera indicated that March's imbalance may not have been a one-off event when he wrote:

The (West Coast ports labor) dispute ended in late February, and Southern California port officials said it could take up to three months to clear the backlog.

This means that April and May "could" show similarly huge trade deficits.

To his credit, the AP's Crutsinger recognized the current consensus that the economy contracted in the first quarter. But his quoted expert wasn't nearly as concerned about the ports backlog as the LA Times:

Paul Ashworth, chief U.S. economist at Capital Economics, said the massive trade deficit means the U.S. economy "undoubtedly contracted slightly in the first quarter." He estimates GDP in the January-March period fell 0.3 percent instead of the 0.2 percent growth the government reported last week.

However, he notes that the surge in imports stems largely from the resolution in February of a labor dispute at West Coast ports, which worked to clear their backlogs in March.

"Assuming that most of the catch-up is now complete... then imports should fall back in April, bringing the trade deficit down to a more normal level too," Ashworth said in a note to clients.

That means the road ahead should be brighter. Economists are looking for growth to rebound in the current April-June quarter to around 2 percent, climbing to a 3 percent average in the second half of the year.

It would seem that Ashworth will only be right if the "Southern California port officials" cited at the LA Times are wrong. If Ashworth is wrong, we're probably not going to see even the 2 percent second-quarter growth he estimated. Currently, the Federal Reserve Bank of Atlanta is predicting 0.8 percent. Additionally, in a real shocker, the usually optimistic economy assessors over at Moody's, in the wake of today's trade report, knocked down their second-quarter growth projection from an annualized 3.0 percent to a paltry 0.6 percent. However, showing that old habits are hard to break, Moody's also insisted that "our view of the economy hasn’t changed."

Somehow, the AP's Rugaber managed to ignore all of this negativity in his coverage of the ISM Non-Manufacturing Index, a sentiment survey which increasingly seems divorced from realities on the ground. As the economy contracted sharply during the first quarter of last year, the NMI, which is supposed to tell how us how over 80 percent of the economy is doing, showed strong expansion. It looks like this year will see a repeat performance of this serious disconnect.

Rugaber ran with ISM's optimism, while at the same time giving uninitiated readers the false impression in his first two paragraphs that the NMI is based on hard numbers, which it clearly isn't. Only in his final paragraph did he explain that it's a survey; but even then, he made a bigger deal of it than it really is:

U.S. service firms' growth accelerated in April, fueled by more orders, rising sales and an uptick in hiring. The figures provide solid evidence that the economy is recovering from its first-quarter stumble.

The Institute for Supply Management said Tuesday that its services index rose to 57.8 in April from 56.5 in March. The April reading is its highest level in five months. Any reading over 50 indicates that service providers are expanding.

... The ISM is a trade group of purchasing managers. Its survey of services firms covers businesses that employ 90 percent of the American workforce, including retail, construction, health care and financial services companies.

The survey's responses come from a sample of service firms. Rugaber led readers to believe that ISM somehow "covers" (i.e., gets responses from) each and every one.

Here's all Rugaber would say about GDP:

Sluggish consumer spending contributed to a sharp slowdown in growth in the first quarter. The economy expanded at just a 0.2 percent annual rate, down from a 3.6 percent pace in the second half of last year.

Economists blamed much of the slowdown on harsh winter weather and other temporary factors, such as a labor dispute at West Coast ports that disrupted the shipping of parts and raw materials. But some factors, such as the strong dollar, will likely persist for much of the rest of the year.

Borrowing a tactic first employed by global warming's data fiddlers, Rugaber played "hide the decline" in covering GDP.

Longtime readers won't be at all surprised to learn that Rugaber's report remained in the AP's Top Ten business stories early this evening, while Crutsinger's was nowhere to be found.

Cross-posted at BizzyBlog.com.