Economic news is important both in its own right, and in how it shapes the terms of political debate. That’s especially true now, when the news seems to be pointing in both directions at the same time. To oversimplify, if you’re a professional owner, things are ok, but if you work for a living, well, not so much. One example is the news from Ford, which Man Eegee diaried earlier. Let’s see what else we can find.
The US stock market did a header on Friday, falling about -2% for the day, reflecting anxiety over corporate earnings (Citigroup, Intel, General Electric, DuPont, Alcoa, Tyco, Yahoo, Motorola, and IBM all reported disappointing earnings), worries about both Iraq and Iran — especially Iran — the bin Laden tape, and big trouble on the Tokyo Stock Exchange. So what might be moving the market and telling us about the economy this week?
For starters, more than 150 members of the S&P 500 Index report their earnings this week. Big names include Microsoft, American Express, 3M, General Motors, Johnson & Johnson, and Sun Microsystems. We’ll see if last week’s pattern continues. Several companies’ stocks took hits after they met earnings expectations but failed to predict big sales for the coming quarters. Some, like Yahoo, produced big gains but fell short of even bigger expectations. Yahoo fell -12% on its earnings report.
The week has already started with a bang, with Ford announcing a Five-Year Plan called the Great Leap Forward; — no, that’s somebody else, it’s The Way Forward. Nothing highlights the tension between labor and capital like when a corporate announcement involving a plan for 30,000 layoffs gives a boost to the company’s stock.
Bank of America announced earnings per share equal to last year’s, but, below Wall Street expectations. B of A blamed the rush of bankruptcies just before the new bankruptcy law took effect October 17. Of course, if that’s why earnings fell short of what analysts expected, that means analysts somehow managed not to expect a rush to the bankruptcy court. Maybe the analysts are being normally obtuse or mendacious, or maybe something else is going on.
Another big headline today concerned the Conference Board’s index of Leading Economic Indicators. It rose +0.1% for December, not exactly a confidence-inspiring performance. This index is supposed to tell us whether to expect economic growth in the near future. Looks like a tossup.
What else is on tap? Well there are all those earnings, then we have (in the US market) retail sales figures Tuesday, December existing home sales Wednesday, December durable goods (cars, refrigerators, that sort of thing) Thursday, and December new home sales and fourth-quarter Gross Domestic Product on Friday. If the numbers are strong, look for the bulls to point to economic growth and the bears to say the Fed is going to have to keep increasing interest rates, leading to an inverted yield curve and recession. If they’re weak, the bears will point to lagging growth and the bulls will say the Fed is sure to stop raising interest rates soon. In any case, there will be something for every market pundit.
It’s easy to find yourself caught up in the confusion of trying to interpret individual bits of data and guess where the market, or the economy, is heading. Like it or not, the health of the US economy affects all Americans, but the news has different effects depending on where you sit. The UAW and Wall Street had opposite reactions to the Ford announcement. It’s a good illustration. The wingnuts may talk up a winning streak in the Index of Leading Economic Indicators. The response is two-fold. First, it’s always possible to debate the numbers themselves, and their meaning. But arguing there allows them to control the frame. The more effective response is to shift the debate from the statistical aggregates to what events in the economy mean in the lives of real people. The families of 30,000 Ford workers (all Ford workers, really), don’t care much today about a +0.1% gain in the LEI.
