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Reading Past the First Paragraph Seems to be a Rare Skill

One of my pet peeves since the time I&

By Dr. Joe Webb
Published: September 2, 2009

One of my pet peeves since the time I've been writing about economics has been what seems to be a grand divide between what economics news is reported in the press and what I see when I look at the original press releases or data that those news reports are based on.

On Tuesday, the big headline was that the ISM's Manufacturing Index was finally above 50, showing growth in the manufacturing sector. This long-awaited event had the index at 52.9, the first time it was at this level since June 2007, and the first time it was above 50 since January 2008. The stock markets started to rise on this news, but then it seemed that wiser heads prevailed... or at least the ISM announcement started to be read in more detail.

The ISM Index is comprised of many components. The new orders component jumped to 64.9, which was very good. The verbatim comments in the press release from manufacturers strongly implied that the new orders were only replacing of low inventories at customers, and not a general rise in demand. That is, the new orders they were getting were not going to be sustainable at this higher level.

The prices paid component, which is a measure of inflation, took a big jump, moving from 55 to 65. This was not good news. We do want prices to rise because that would show an increase in demand, but we know that overall demand is still slack, and that any rise should not be this strong at this point in any recovery.

Imports were down, and exports were up, and eventually it seemed that everyone realized it was because the dollar was weak and would not be getting better. A rise in imports would have indicated a increase in raw materials use. These materials are not naturally available here, and an increase in imports levels would have been more in order with an unfolding and sustainable recovery.

Finally, with the surge in new orders, one would have expected that the need to employ more workers would go up. The report, however, showed that manufacturers are not hiring, and if anything, they are still cutting back, because the employment component was still below 50.

The unevenness of this ISM report shows that we are still bumping along the bottom of the slowdown, and we're not really getting better yet.

The GDP for the second quarter went through another round of revision, and was kept at -1%. Productivity for the second quarter, however, was revised up, and was above 6%. Until GDP exceeds productivity growth, there will be no general trend to increase employment.

On Thursday, September 3, we get the ISM non-manufacturing report. Last month's was disappointing.

On Friday, we get another look at the unemployment rate. Last month, it fell to 9.4%, but only because so many workers exited the workforce. Had they all stayed, it would have been 9.6%. Until the number of people in the workforce starts to rise (which would, paradoxically, make the unemployment rate go up) we cannot really say that we are rebounding.

* * *

Here's are two “Dr. Joe's Inbox” items that might be of interest.

  • Why loose money actually slows long-run economic growth despite the assertion by the Fed and others to the contrary.
  • The CMO of Pitney Bowes had some interesting comments about their media shift. This is, of course, interesting because the company's most visible products have been postal meters and mailing equipment.

* * *

Monday is Labor Day, and the Monday after is a Print 09 week, so my regular column will not appear. This Friday, however, look for an update to our recovery indicators. See you at the show!

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink.com's Economics and Research Center.

What do you think? Please send feedback to Dr. Joe by emailing him at drjoe@whattheythink.com.

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