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.
The most annoying aspect of the press's "the weather did it" excuse is that analysts predicting the ISM and car sales results presumably knew how bad January's weather was, and would have (or should have) incorporated it into their predictions. But the misses compared to predictions were striking. For example, sales at General Motors and Ford declined 11.9% and 7.5%, respectively, from January 2013, vs. decline expectations of 2.3% to 2.5%.
This didn't seem to faze Tom Krisher and Dee-Ann Durbin at the Associated Press. What they offered as evidence that things aren't so bad could arguably mean that the vehicle market in most of the country is in even worse shape than the overall results indicated (bolds are mine throughout this post):
FRIGID WEATHER PULLS JAN. AUTO SALES DOWN 3 PCT.
Auto sales slid 3 percent in January as bouts of snow, ice and frigid temperatures in much of the country kept buyers snug in their homes instead of venturing out to car dealers.
People bought just over 1 million vehicles last month in the U.S., about 32,000 fewer than a year ago. It was the first year-over-year monthly sales drop since August of 2010, according to Ward's Automotive - but one that analysts said should be short-lived.
General Motors, Toyota and Ford - the top-selling companies in the U.S. - all reported falling sales due in large part to the weather, as did Volkswagen. But Chrysler, Honda, Nissan, Subaru and Hyundai dealers were happy. Sales ran counter to the thermometer and were up for all five brands.
The industry saw double-digit gains in the West, where the weather was good. But there were big declines in other regions hit by storms.
Chrysler's sales increase of 8% is particulary telling, as its dealer placements are more likely than the other brands to be similar geographically to GM's and Ford's. Chrysler's good month was attributed to the appearance of new models. That should cause concern that the GM-Ford lineups might be getting stale.
Here's another completely overlooked point in today's press reports: January was the second month in a row of disappointing car sales, as December's year-over-year increase was only 0.3%.
Additionally, if sales were great in the west, that means they sunk even more in the rest of the country to a level far beyond what the weather could explain away.
As to the ISM result, it's hard to imagine that the weather had much to do with the decline in certain of its components, and some economists quoted by USA Today agreed:
Other economists were slower to accept the weather-did-it theory.
Similar surveys in other nations were a mixed bag, after being uniformly strong in recent months, Regions Financial chief economist Richard Moody said. Also, new orders should not have been affected much by weather, Royal Bank of Scotland U.S. economist Omair Sharif said.
"If it were only weather in the U.S. then other countries should not have been impacted," Moody said.
An economist quoted by Bloomberg seemed to forget that the ISM report is a survey of manufacturers' sentiment — which shouldn't be greatly by several days of bad weather — and contains no hard numbers:
“The exceptionally cold weather and the harsh snow storms -- we all move a little bit slower in those periods and the economy is no different,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. Price is the top-ranked forecaster of the ISM index over the past two years, according to data compiled by Bloomberg. Still, “it should be some testament to the economy’s fundamental underpinnings that it was able to expand during such conditions.”
Wall Street Journal reporters Neil Shah and Eric Morath felt compelled to insist on their own that "The broader outlook for the U.S. economy remains upbeat."
As noted above, the markets weren't convinced — and it's usually not a good idea to try to claims that markets are irrational, which is in effect what today's "the weather did it" excuse-makers have done.
Cross-posted at BizzyBlog.com.