Key data about the U.S. economy's performance released this past week was mostly dismal. Wednesday brought news that seasonally adjusted March retail sales, instead of climbing as predicted, fell by 0.3 percent. Later that morning, the government reported that manufacturing and trade inventories and sales both fell in February.
The worst news came on Friday, when the Federal Reserve reported that March industrial production, defying predictions of a tiny decrease, fell by 0.6 percent for the second straight month. The manufacturing component fell by 0.3 percent, and February's 0.1 percent manufacturing increase was revised to show a 0.1 percent decline. The Fed's Friday report was especially problematic for the Associated Press.
A month ago, the wire service's Christopher Rugaber jumped on February's original tiny positive manufacturing result of +0.2 percent (revised down to +0.1 percent even before Friday's report) as "a sign manufacturing may be stabilizing after a difficult year." So much for that. Nonetheless, Rugaber soldiered on with his "stabilizing" meme on Friday by citing a separate report showing that manufacturing expanded — in one state.
On Friday, a Zero Hedge contributor accurately noted that the three indicators described in the first paragraph — falling retail sales (down 0.6 percent in the past three months), declining business sales (down 3.1 percent in the past eight months), and uncomfortably high inventories compared to sales are "three classic recession signals."
The Fed's reported industrial production decline make it four, as "The US economy has never – ever – seen Industrial Production drop YoY (year-over-year) for seven months in a row without being in a recession."
The experienced economics writers at AP and other business news outlets almost certainly know these things, and aren't reporting them. Instead, the AP's Rugaber desperately searched for hopeful signs (bolds are mine):
US FACTORY OUTPUT FALLS AGAIN, BUT SIGNS OF STABILITY APPEAR
U.S. factory output dropped in March for the second straight month as manufacturers churned out fewer cars, metal parts and machinery. Yet other recent data suggests that the sector's long-running malaise could brighten in the coming months.
Let's stop right there.
AP's headline and the first parapraph are what most people who use computers, tablets and smartphones will see. Those people will think, "Oh, manufacturing has been hurting but looks like it's finally rebounding. That's a relief" The evidence of that is quite thin, as we'll see.
Continuing (numbered tags are mine):
... Those (reported) figures suggest that American manufacturers are still struggling with the triple whammy of weak overseas growth, the strong dollar and sluggish consumer and business spending at home. [1] Automakers cut back sharply, as sales slowed last month after a record 2015.
While the dollar has slipped in recent weeks, it has risen in value in the past year compared with foreign currencies. That makes U.S. products more expensive overseas and imports cheaper. Meanwhile, Americans have been reluctant to spend freely this year despite steady job gains and lower prices at the gas pump. [1]
... But Greg Daco, an economist at Oxford Economics, pointed out that only about a third of manufacturing is contracting, far below the one-half that typically shrinks in recessions. [2]
Another factory report released Friday suggested that goods production in the U.S. could be stabilizing. The New York Federal Reserve's Empire State index, based on a survey of manufacturers in the state, rose in April [3] to its highest level in more than a year.
And earlier this month, the Institute for Supply Management, a nationwide trade group of purchasing managers, said that its survey showed manufacturers expanded in March. [4]
Notes:
[1] — The good news is that AP is at last acknowledging, months after the fact, that business and consumer spending have been weak. But the bad news is that the wire service's writers are now on a campaign, as I noted after the retail sales report last week, to blame consumers for being "reluctant to spend freely," saying in effect: "We know you guys have the money to spend and aren't spending it. So if there's a recession, it's your fault."
That's pure Keynesian claptrap. People who are holding on to their wallets are doing so because because they know the economy is weak, that their sources of income aren't secure, that the Obama administration has been conducting a seven-year war on prosperity through regulation and by fiat, and that no one can predict what industry or group they will choose to target next.
[2] — The quick response to Mr. Daco's contention is, "So what?" Unless someone has a reason to believe that the one-third of industries which are suffering will turn around, they'll still continue to cause an overall contraction.
[3] — So one state's decent result is a reason to believe that whole country might be stabilizing? Give me a break.
If we're going to play that game, let's note that the Kansas City Fed reported in late March that "Tenth District manufacturing activity remained negative, while producers’ expectations for future activity weakened." The Tenth District includes Kansas, Colorado, Nebraska, Oklahoma, Wyoming, and portions of western Missouri and northern New Mexico. Data published last year covering 2012 and 2013 indicate that the manufacturing GDP in the five states which are entirely in the District (about $90 billion) exceeded that of New York ($68 billion).
The obvious point is that one state's decent news doesn't make up for an entire country's over awful news as seen in the Fed's report — except, apparently, at the Associated Press when a Democratic administration's economy is floundering.
[4] — Rugaber went on to note that "The Fed's industrial production report is a direct measure of output rather than a survey (like ISM)." He was implying more precision in the Fed's work than is actually present, but his point about ISM being a survey and not an attempt at measurement is a valid one — and is why he shouldn't have used it as an attempt to provide a counterweight to the Fed's work. Additionally, as I noted in mid-February, ISM's survey seems to suffer from a positive selection bias. That is, it seems that facilities which are doing well or holding their own tend to fill out the surveys, while the ones which are struggling don't. Otherwise, why have the regional surveys tended to show far worse results than ISM for over a year?
Rugaber's effort at AP used pathetic arguments in an attempt at damage control. Sadly, it probably worked to a great degree because most readers, as noted above, probably didn't bother to go past his headline and opening paragraph.
Cross-posted at BizzyBlog.com.
