Inquiring minds are digging into the touted numbers of the day, the conference board index of leading indicators.
Index of Leading Indicators
|Leading Indicator Contribution||May||June||July||Aug||Sep||Oct|
|Average Weekly Hours Manufacturing||+.00||+.00||+.00||-.07||+.00||+.13|
|Average Weekly Initial Claims||+.04||+.00||+.14||-.02||-.03||+.08|
|Manufacturers' New Orders, Consumer Goods and Materials||-.01||+.00||+.13||-.11||-.03||+.01|
|Index of Supplier Deliveries||-.32||+.04||-.42||+.01||+.06||-.01|
|Manufacturers' New Orders, Nondefense Capital Goods||+.10||-.05||+.07||+.10||-.04||+.01|
|Building Permits, New Private Housing Units||+.21||+.03||-.07||+.10||-.16||+.27|
|S&P 500 Stock Market Index||+.02||-.14||+.11||-.41||.0.4||+.10|
|M2 Money Supply||+.13||+.35||+.59||+.71||+.10||+.10|
|Interest Rate Spread, 10-Year Treasury Bonds Less Federal Funds||+.32||+.31||+.31||+.23||+.20||+.22|
|Index of Consumer Expectations||+.23||-.14||-.26||-.25||+.06||+.07|
Month in, month out, one of the biggest leading indicator components is the treasury-Fed Funds Rate spread.One might think that the direction of the spread would be important, but one would think wrong. Month-after-month, the conference board woodenly add points to this leading index component.
In these zero-bound conditions, I suggest using the direction of the 10-year rate itself would make more sense, with a falling rate an indication of weakness.
Is the stock market a leading indicator or a coincident index of stock market sentiment? If it was leading, what did it say at the 2007 stock market peak? What did it say at the March 2009 stock market bottom?
The idea the stock market leads the economy is complete nonsense. It is coincident at best, and lagging at worst.
Building permits are a leading indicator, but most of this month's rise is a rebound from last month's bleak report.
The average workweek hours for the last 7 months have been 41.4 41.4 41.4 41.4 41.3 41.3 41.5
Is that meaningful? The conference board seams to think so. I think it is random noise until there is a clear trend.
Is M2 money supply a reflection of capital flight out of Europe? A reflection of excess reserves parked at the Fed? Flight of money into savings accounts from CDs that yield nothing? All of the above?
My conclusion is a couple indicators are better, the rest is meaningless noise or worse yet, biased nonsense.
Jumping to Conclusions
Bloomberg reports U.S. Stocks Gain as Economic Indicators Temper Europe Concerns
Well the stock market is now in the red as of 11:30 Central, but it is not the headline that caught my eye, but the willingness of people to cling to every meaningless uptick in everything as if it is something other than random noise.
“The pace of U.S. economic growth is the most important story for stock investors,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $333 billion, said in an e-mail. “The next big catalysts for the stock market will probably be a growing appreciation that not only is the U.S. economy not recessing, but U.S. economic growth is actually accelerating next year.”
Mike "Mish" Shedlock
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