Wednesday, August 3, 2016

Steve Hayward of Powerline: Economic Jackass

     I assume that having a self-destructive nominee is getting the Powerline boys interested in writing about non-political things.  Today we have Steve Hayward with a post titled "Charts That Make You Go, hmmmmm."  In it, he posts charts of auto sales and commodity prices, both of which have moved lower recently.  He then posits: "Here are some charts from early this week that suggest the economy may be at a turning point to the downside, showing car and truck sales suddenly peaking and starting to slump, and commodity prices sliding—a sign of slack forward manufacturing perhaps."

     Here's a little lesson in basic (and I mean basic) economics.  According to the Conference Board (and generally accepted analytical methods), there are 10 leading indicators:

  1. Average weekly hours, manufacturing
  2. Average weekly initial claims for unemployment insurance
  3. Manufacturers’ new orders, consumer goods and materials
  4. ISM® Index of New Orders 
  5. Manufacturers' new orders, nondefense capital goods excluding aircraft orders 
  6. Building permits, new private housing units
  7. Stock prices, 500 common stocks
  8. Leading Credit Index™
  9. Interest rate spread, 10-year Treasury bonds less federal funds
  10. Average consumer expectations for business conditions 
Anybody see auto sales or commodity prices?  Me neither.  

So, why are these indicators moving south?  If you looked around the web today, you might head over to Bespoke Investment Group, which had this nifty chart of oil inventories:

High inventories lead to lower oil prices, which in turn have dropped over the last few weeks. However, industrial metal prices, which would foreshadow Mr. Hayward's manufacturing weakness, are actually rising:

As for auto sales, let's take a look at the ever useful blog, Calculated Risk, which noted yesterday:

Based on a preliminary estimate from WardsAuto (ex-Jaguar and Porsche), light vehicle sales were at a 17.78 million SAAR in July.

That is up about 2% from July 2015, and up 6.5% from the 16.69 million annual sales rate last month.

CR's post included this chart:

If you look really closely at the chart, you'll see a red line at the far right end.  It went up pretty smartly last month, putting a stake in the car sales are turning south meme.

It's gotten to the point where if I see it on Powerline, I know it's 100% wrong.