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Not All Pretty Below The Headlines

From the diaries by Erick

There have been a number of things that I have learned in the business and investing world over the last two decades. One of those things is to look beyond the headlines of reported news, figures and others statistics to understand what is going on below the surface. Over the last several months, there has been no shortage of headlines attempting to paint an improving economic picture. Digging deeper into the data, however, reveals that is far from the case.

Just this morning we received the September durable goods order data published by Census Bureau. The headline number showed durable orders up 9.9% month over month, which makes for a nice reversal from the August reading that saw a more than 13% order contraction. Sifting through the data, we find the bulk of the strength was due to aircraft orders, which rebounded significantly after falling more than 97% in August. A better reading on the domestic manufacturing economy is to look at the durable goods figures less defense and less transportation, which leaves us with non-defense, non-aircraft orders. Month over month, non-defense, non-aircraft orders were flat and that follows flat orders in August and more than a 5.5% fall in July.

While there are those of us whose job it is to sift through all sorts of data – government, third party, polls, studies and of course corporate/industry data – in order to understand what is going on and how it affects the stock market, the general media will simply parrot the headline number.

The best example of this was found in the September Employment Report, which showed a drop in the unemployment rate to 7.8% from 8.1% in August. Again, the headline was the drop in the unemployment rate. Few reported that the drop in that rate was due to the continued shrinkage in the labor force combined with a pick up in part time work. Despite the drop in the reported unemployment rate, the number of Americans that were unemployed or underemployed remained at 14.7% in September. That metric is a far better measure of what is really going on in terms of job creation, but its not one that is mentioned by the general media.

Another example can be found in the way the news media reports on the stock market each and every day. Most if not all talk about the daily moves in the Dow Jones Industrial Average, which is an index comprised of 30 stocks. By comparison, professional investors, money and mutual fund managers use the S&P 500, which with 500 companies is a far better representation of the overall stock market.

In the coming days and weeks ahead, I’ll be sifting through a variety of economic, industry and company figures in order to provide a better view on what is really going on out in the world of Wall Street and investing.

Between now and Election Day we will be getting a number of key data points as to the health of the U.S. economy. They include:

  • 3Q 2012 Gross Domestic Product (GDP) – Friday, October 26
  • Personal Income & Spending (September) – Monday, October 29
  • ISM Manufacturing Index (October) – Thursday, November 1
  • October Employment Report – Friday, November 2

Arguably, the two biggest economic figures to emerge over the coming weeks will be the 3Q 2012 GDP reading and the October Employment Report. Given the data reported by a number of regional Federal Reserve Banks, polls, surveys and the like, it’s hard to see any pronounced improvement in either soon to be had report. That said, we’ll need to sift below the reported headline to really assess the damage lest we succumb to the sugar-coated “all is well” view the general media will no doubt feed us.

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