How much faith can we really put in these numbers, anyway. Once again we got a peek behind the curtain at how these numbers are really made this week when the Institute of Supply Management (ISM) that assembles the US PMI data had to correct their number not once but twice.
Some weeks the economic talking heads seem to be scrambling for something to report. And then there's weeks like this week. On Monday there was a Chinese PMI and a US manufacturing PMI. On Tuesday we had US car sales and Eurozone inflation numbers. Today the April trade deficit and nonfarm productivity numbers are released. And on Friday we get US nonfarm payroll figures and the unemployment rate. Talk about a busy week.
So far, things have been quite upbeat. Chinese PMI beat expectations (both the official government-released PMI number of 55.5 and the HSBC/Markit number of 49.4), indicating that things are picking up in the formerly-cooling Chinese manufacturing sector. As for the US, ISM's PMI number of 55.4 fell roughly in line with consensus expectation. Tuesday's May car sales numbers beat all expectations, hitting pre-recession levels with GM sales up 12.6%, Chrysler up 16.7% and Ford up 3.0%. Only the Eurozone inflation numbers have disappointed so far, with official numbers pegging the May rate at 0.5%, far short of the European Central Bank target and further sign that the ECB will almost surely sink rates into negative territory when their next monetary policy meeting wraps up tomorrow.
But how much faith can we really put in these numbers, anyway. Once again we got a peek behind the curtain at how these numbers are really made this week when the Institute of Supply Management (ISM) that assembles the US PMI data had to correct their number not once but twice. At 10:00 AM they came out with a number of 53.2, far short of expectations, causing a short-lived sell-off in the markets. 90 minutes later they came out with an official press release to adjust the number to 56.0, blaming the problem on “a software error that applied last month's seasonal adjustment factor to the new data." Then they quietly adjusted it again, this time to 55.4, right in line with expectations. Quoth Ian Shepherdson, Chief Economist at Pantheon Microeconomics, “Amateur hour at the ISM strikes again.”
The quickly revised numbers are revealing. Firstly it exposes that these numbers are essentially black boxes; data goes in on one end, and some group like ISM comes out with a number at the other end. What happens in the middle? Who knows, just give us the number! The incident also exposes just how willing people are to believe these numbers and make knee-jerk trades off of them. The sell-off started with the number's release and the rally dutifully started after the correction. (Incidentally, a plausible technique for insider trading for those in a position to make such “slip-ups” happen.)
So when the unemployment number comes in this Friday, whether it's at 6.4% as consensus is predicting, or above or below that number, are you going to believe it? And perhaps more importantly, are you going to make investment decisions based on it? Perhaps we need to start thinking more carefully about what numbers we trust to tell us about the markets and why we trust them in the first place.
Today, June 4th, marks the two-year anniversary of Bob Chapman's passing. So much has happened in the world over the past two years yet it seems like only yesterday I was talking with him, laughing with him, and learning from him. The IF is a very important mark Bob made on the world and I am glad to say the IF is going strong because of the support of the authors and our subscriber family.
Bob is remembered as inspirational, honest, a teacher, a gift, a genius, a true American patriot, authentic, powerful, brilliant, a mentor, amazing, courageous, a father figure, wonderful, motivating, an advocate for the sovereign individual, the people's champion, wise, brave, a light in a dark place, a voice of reason, a hero, fascinating, outstanding, calm, coolheaded, in tune, knowledgeable, experienced, empowering, kind, loving, generous, selfless, Mr. America, a scholar, enlightening, extraordinary, respected, dedicated, a gentleman, caring, a brave soul, a champion of family, committed, playful, inquisitive, charitable, insightful, intelligent, compassionate, selfless, a great warrior, wholesome, inquisitive, good-humored, religious, a fighter for truth and honesty, a man of gentle speech, unique, special, a breath of fresh air, a defender of freedom, an honorable veteran, an ambassador of freedom, smart, graceful, determined, sharp, gutsy, a mountain of integrity, one of a kind, a miracle, and a true friend.
To me, Bob is ALL of your descriptions and I am fortunate enough to have the honor to claim him as my Dad.
I invite you to revisit the more than 1,700 messages left in honor of Bob and the photo album of his life, remember what he lived for and celebrate all he did for so many. http://www.legacy.com/guestbook/dignitymemorial/guestbook.aspx?n=robert-chapman&pid=157941281
"It is not the length of life, but the depth of life."
-Ralph Waldo Emerson
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