Getting the Skinny on Services

Now more than ever, economic issues are at the forefront of investor interest. We all watch each announcement, looking for information that adds something to our understanding of economic prospects, potential corporate profits and ultimately which stocks and sectors to buy. Finding an edge requires some pretty sharp analysis and when there is something new, it can be exciting to us data nerds.

Brian Gilmartin asked a good question when the ISM services report came out: " [W] hy, if our economy is 80% 'services,' does the majority of the economic data tend to measure manufacturing, inventories, etc., or maybe putting the question another way, why isn't more economic data developed to measure the 'services sector' of the economy, when 'services' represent 80% of GDP?"

My initial thought was to review all of the economic releases to see what information there was about services. Sure enough, the data were very sketchy -- one could look at sectors within the employment report, but there was not much else.

However, this research led me to a release I had not been following, and neither had CNBC or our (unnamed) competing sites. The Quarterly Services Survey by the Census Bureau was launched in 2004 and heralded as the first new economic indicator in 40 years. The argument for the new survey is almost exactly what Gilmartin observed: If services are such a big part of the economy, why not measure activity more carefully? The Census Bureau hopes that this information will improve GDP estimates.

Any new report faces obstacles -- observers want a long data series for comparisons, trends and seasonal adjustments. Sometimes data can be retrospectively constructed: The analyst can take known data and ask what would have been the value of a new index. When this is not possible, the attention is limited.

The most recent report covers third-quarter 2008, which is, unfortunately, ancient history for us. We all know that the key moment for the economy, and for stocks, occurred in mid-September. Fourth-quarter 2008 was terrible on all measures. However, the third quarter was well into the recession, now defined by the National Bureau of Economic Research as having started in 2007.

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At the time of publication, Miller had no positions in the stocks mentioned, although positions may change at any time. Jeffrey Miller is president and CEO of NewArc Investments, a registered investment adviser, and Capital Markets Research.

Miller writes about the market, interpreting data, and finding the right expert at his blog, "A Dash of Insight. He is writing about the 2008 presidential campaign and the implications for individual stocks and the market at Election Stocks. His investment company, with programs for both individual and institutional investors, is NewArc Investments.

Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Miller appreciates your feedback; click here to send him an email.