Analyzing the business cycle in real time is a task that's always
threatening to lead us astray, but in the current climate the hazard may
go into overdrive. All the usual gremlins are with us, but there are
additional complicating factors to consider these days, including: the
uncertainty and high-stakes poker of the fiscal cliff negotiations in
Washington; a recession in Europe that coincides with a (dormant?)
fiscal crisis on the Continent; and deciding how, or if, Hurricane
Sandy's lingering effects are distorting the incoming data.
Consider yesterday's auto sales news for November,
which rose sharply to the highest annual rate in nearly five years. Is
that a sign that the U.S. economy is chugging along? Or is the demand
surge a one-time response to the hurricane, which unexpectedly cut short
the working lives of thousands of autos in one fell swoop.
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"Vehicle sales are one of the encouraging spots of our economy," notes
Gary Bradshaw of Hodges Capital Management. But will the party last?
That depends on how much of the demand surge is storm related. "November
was a very good month, but December has the potential to be even
better," predicts Jesse Toprak, chief analyst for TrueCar.com.
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Consider, too, the conflicting news on manufacturing for November. As I noted
yesterday, the ISM Manufacturing Index delivered a warning to optimists
with a below-50 reading, a signal that economic activity in the sector
is contracting, albeit only slightly. But a rival benchmark from Markit
Economics tells us that growth in the manufacturing sector strengthened
Separating the legitimate signals from the anomalous ones is always a
challenge, and it's not going to get any easier in the months ahead. I
expect that we're going to see an unusually wide range of numbers as the
economic updates roll in through the end of the year and into January.
Prepare yourself for equally dramatic forecasts that purport to know
what it all means with absolute certainty.
Don't misunderstand: There's plenty to worry about. But the numbers
aren't uniformly awful, at least not yet. Meantime, there's another
large uncertainty that may bring relief. Imagine that the fiscal follies
in Washington ends and a reasonable deal is engineered. Would that
unleash a wave of positive sentiment across America? Would it translate
into a new round of positive economic momentum? Or is that merely
wishful thinking? Again, hard to say until—if?—we see the details of any
Expectations for the U.S. economy seem to be quite low—again. But we
are in a strange period with little precedent. There's still only one
solution: study a broad data set to make informed decisions. That's a
terrible way to evaluate the economy… except when compared to the