Gold News

The Obsession With Economic Data

All you need to know about US manufacturing is that it's in decline...and has been for decades...

THERE IS something neurotic about the US obsession for monthly economic data, writes Dan Denning in his Daily Reckoning Australia.

It's hard to believe that in a $14 trillion economy, this kind of detailed reporting (really it's just a statistical survey) is as precise as the numbers and decimal points would lead you to believe. 

Is it really that precise? That accurate? 

But maybe that's the point of this strange addiction to data; it creates the impression that everything is being measured, monitored, and appropriately treated (or doctored).

Take Wednesday's news that an index of US manufacturing activity has just experienced its biggest one-month drop since 1984. The Institute of Supply Management's index read 60.4% in April and 53.5% in May. Any reading above 50% indicates expansion. And the index has expanded for 22 months in a row. But this is the third month in a row it's contracted.

All you really need to know about the state of US manufacturing is that it's been in decline since the 1970s. This roughly corresponds with the globalization of labor, especially in China. In real terms, US wages have been in decline ever since. And the entire structure of the US job market has shifted from highly skilled, high-paying manufacturing jobs to lower-paid, lower-skilled retail jobs.

If you wanted to put it in even simpler terms, there are now a lot more jobs selling things than there are jobs making things. But selling things doesn't really add much value. So aggregate wages decline. So does capital accumulation. This has been the case in most of the Western industrialized world for the last 30 years. Why would the monthly data suddenly tell us anything different?

Oh that's right! A weak US Dollar — competitive currency devaluations via low interest rates — was supposed to spur resurgence in US manufacturing and lead the country out of the recession. That and nearly a $1 trillion in Federal Reserve stimulus through asset purchases. Guess what...

It was an enormous failure. The markets told us on Wednesday — both the Dow Jones Industrials and the S&P 500 finished down over 2% — that Ben Bernanke's quantitative easing policy has not jumpstarted the US economy. Recession looms. It's not much of a surprise around these parts. But perhaps the market is just now factoring this failure into second-half earnings.

Is this the market correction the Fed needs before it can justify more intervention and asset purchases? It could work. But there is glaring inconsistency here, which we should probably address: if QE2 failed and stocks are now acknowledging that, why on Earth would anyone believe that QE3 would be more effective, much less desirable? 

Will the Fed have any support for market intervention (other than from the financial firms whose profits are subsidized by low interest rates)?

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Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

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