By Bloomberg's Richard Breslow
Economic Numbers Don’t Mean Anything Anymore
It may be August and the dog days of summer for trading interest, but the economic numbers this week are important. At least for now. They’ll determine how we spend the balance of the month characterizing the economy. Whether September has any relevance for Fed fund futures traders. And if the mindless buying of equities and risk continues apace.
Weak numbers follow strong ones, ad seriatum, and no one seems to have any credible idea why. The economic surprise index is knocking the cover off the ball, while mixed in we get the odd and horrific non-farm payroll report or GDP print.
Confidence in economic projections is low. That makes data dependence a dangerous conceit. Signal quality is bad, unreliable and with no shelf life.
Given the season, it’s hard not to worry whether the economy has caught the equivalent of the “sweating sickness.” Merry at breakfast, dead by dinner. And nary a soul could name a cause nor a cure. And that remains true 500 years later. Of course in matters economic we’ll get explanations by lunch time and everyone will have seen it coming, if only they’d been listened to.
Last week’s 2Q GDP guess came in at less than half the expert forecast. The market sliced a quick 10% off pricing for a rate-hike at the next meeting and left December at a paltry 35%.
Cue the Fed speakers. Williams, Kaplan and Dudley said what’s one number, don’t rule out a hike. That’s a real problem. No one understands the numbers so numbers don’t mean anything. But that’s how we’re meant to measure the economy and make investment decisions They need to spend more time trying to understand why no one “gets” the economy than where they hope its going. Finger-crossing shouldn’t be an input to an econometric model.
The ISM surveys and Friday’s payroll report will do a lot to script how Fed Chair Janet Yellen writes her Jackson Hole presentation and tell us how to trade the next few weeks. At least until the next set of data.