The Dow Jones shoots up 100 points.
"Hurray! The economy is finally recovering!"
That is until you do the job the media is supposed to be doing and put it in context. I circled the increase from 53.5 to the "strong" 55.3 between May and June.
I added the additional "POW!" to make it look like the old Batman TV show to give it more of an effect.
Filed under - "The Cancer is Spreading Less Slowly"
"WHAM!" would work too.
ReplyDeleteI love this chart. :)
ReplyDeleteNot exactly.
ReplyDeleteA PMI above 50 indicates expansion, and it's been above 50 for the entire period show on the chart. Growth was stronger a few months ago, got weaker, and is improving again. But we haven't seen contraction for a while.
They say a sustained PMI above 42.5 indicates expansion in the overall economy. I'm not sure I buy that, but manufacturing is doing fairly well. They probably assume a multiplier effect which has some basis in the data.
So then is say 55 "barely expanding?" or is it more of a bell distribution the further you deviate from 50?
ReplyDeleteWhat, no "BIFF!"
ReplyDeleteFunny how they don't mention the decline from 60 to 53.5?
It's enough to think the press is trying to manipulate public opinion.
How to lie with statistics #5 - omit the context.
The PMI is calculated from surveys of manufacturers. A PMI of 50 means no change, or the number of respondents reporting an improvement was equal to the number of respondents reporting worsening conditions.
ReplyDeleteA PMI of 53.5 means that the businesses reporting an improvement outnumbered the businesses reporting worsening conditions by 7%. A change in PMI from 53.5 to 55.3 means that the businesses reporting improvement outnumber those who reported deterioration have increased their spread from 7% to 11.6%.
According to the PMI, the economy is recovering slightly faster than it was previously, not merely deteriorating more slowly. A slowdown in deterioration would be something like a shift from 45 to 48. Numbers above 50 indicate recovery. At least in manufacturing.
New Orders Less Inventories spread, which leads the broader index by 3 months, has tumbled and the divergence between it and the ISM Composite is now at near record wide levels.
ReplyDeleteISM New Orders Less Inventories Decoupling Hits Unprecedented Levels, Implies Sub-45 ISM Composite
Getting a degree in economics Captain. Any thoughts?
ReplyDeleteNot worth it unless you get a masters to teach or a doctorate to claim you're a doctorate.
ReplyDeleteI would (in this economy) suggesting becoming a plumber or a mechanic or some kind of trade. Make a living working as much as is needed, not more. wait until the economy either returns to a capitalist market to pursue a higher degree, otherwise, there's no reason to try too hard.
Ryan's description is accurate. I think you're right that these numbers are weak. But they're not showing decline.
ReplyDeleteNo one really knows why the market had a flash rally this week. It was probably a combination of the PMI plus Greece plus a tiny improvement in initial unemployment plus lower oil prices plus who knows what else. We've dropped a lot in the last month to be cheering about last week.
Weakness might itself indicate problems. The economy has to grow at a certain rate just to maintain standard of living for a growing population. We certainly didn't get much bang for the stimulus bucks.
Whenever you're relying on surveys, you've got some inherent problems. Aside from the possibility that the responses are mistaken or untruthful, the downturn for those reporting worse conditions might be bigger than the upturn reported by the majority.
All of the other manufacturing surveys showed relatively strong growth earlier this year, with recent weakness. It's a tepid recovery. Manufacturing has a strong multiplier, but durable goods displace themselves - some demand could have been brought forward.
Manufacturing can pull us out of this by itself. Construction won't be growing any time soon to a substantial degree. So it will be a long, painful recovery. It's certainly no V.