Economic Strength?

The indicators for economic strength should be a factual matter.  One might write them down and then monitor them.  Many economists take this approach.  This week will see several important  government reports on the economy including the second quarter GDP revision, pointed to as overly weak when the first estimate came out.  There will also be the payroll employment report.  Interested traders can try out their guesses on our payroll employment game.

Barry RItholtz has done a lot of work on forecasting and explaining the employment numbers, and I am sure we’ll be seeing a prediction from him in the next two days.  You should look at his past work before playing the game.

Meanwhile, check out his latest observations about economic strength and then come back for our viewpoint.

Link: Consumer Confidence and Commodity Weakness Heralding An Economic Slowdown.

The data keeps coming, and its getting harder for the perma-bulls to rationalize the information. Earlier in the month, University of Michigan Consumer Confidence plummeted the lowest level since last October; the blame went to Terrorism fears and higher …

What bothers me is that the criteria for measuring and/or predicting economic growth keep changing.  What has not changed is a strong period of economic strength with great corporate earnings, accompanied by a declining PE multiple.  I think this represents a great opportunity for investors.

Consumer confidence has put in some very strong readings during the time Barry and others following the "Cult of the Bear"  have been predicting economic collapse.  At those times, the consumer numbers were given short shrift and the focus was on rising oil prices, etc.  Now that oil prices are coming down, Barry looks at an indicator reflecting the higher prices.

By the way, I am still wondering what happened to the Baltic Dry Index, which was only cited when at the lows.

I would like to see pundits put forth some indicators that they believe are effective and stick with them.  Solid economic growth does not always have a pattern of each indicator working in lockstep.  Barry would be a good leader for this, since he generally exemplifies intellectual honesty.

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One comment

  • Barry Ritholtz August 29, 2006  

    When I mentioned the Baltic Dry indicator in June of 2005, it was at 2821 — it subsequently bottomed below 2000.
    Its at 3602 now — a significant move off the lows, but far far below the recent top over 6000.
    The BDI correctly anticipated rates rising from 2003-06 (maybe it was a little early). And the BDI has a good track record as leading indiactor for the Global Dow Jones Index. It is, however, far too broad to measure anyone country.
    I am specifically referring to a slowdown in the US economy — and not neccesarily the global economy . . .