This morning's weekly jobless claims report garnered a lot of attention. The Labor Department said first-time jobless claims climbed 58,000 in the week ended Saturday, to 450,000. It was the most claims since the summer of 1992, and the biggest jump since then as well.
But as important as the claims report is, what's notable here is how heavily economists and bond market players are focusing on it. Usually such weekly economic data are considered second-tier. To truly gauge what is happening, analysts tend to concentrate on the monthly numbers, which are less volatile and therefore are understood to give a truer picture of the economy.
Of course, the problem with the monthly data is that they are so long in coming. The reports from this month will start to come in October, but they will straddle the world that was before Sept. 11 and the world that came after it. It will not be until November that the monthly data present anything like a reliable trend. That is a long time to wait.
So the focus turns instead to things like the claims data, confidence polls, weekly chain-store sales. Anecdote, which economists usually scoff at, has come to the fore. "Some of the best indicators right now are the little tidbits you get," says Miller Tabak bond strategist Tony Crescenzi. "Cabbies saying their revenues are down. Or hearing from hotels on vacancy rates."
Such evidence, however, does little to develop any sense of certainty on where things are headed, or even where they are now. The desperation to make sense of what's going on, says Banc One Capital Markets head of capital markets research Dana Johnson, "is really putting a premium on high-frequency data that is not collected and massaged with the meticulous care that is taken with the monthly data. We're operating in a real foggy area."
Even foggier than you might think. The aftermath of the attacks itself has made short-term data even less reliable. The jobs reports of the past two weeks, for example, have been incredibly skewed by what economists are calling the
effect. Last week's claims report showed a big drop -- many people who would have been making their first trip to the unemployment office were instead glued to their television sets, calling their friends, trying to make sense of what happened. Last week they got around to making the trip, and so there was this big jump.
Anything with a hint of anecdote is also more unreliable than usual, says Lehman Brothers economist Ethan Harris.
"Every single survey where people give subjective answers to questions is of dubious nature now," he says. Some confidence surveys, for example, have come in far better than one might expect; it seems that people spoke more from a sense of patriotism than from the fears in their hearts.
The monthly consumer confidence index put out by the Conference Board this week was an exception, showing a sharp drop, but the results of this report, too, were suspect. The majority of the survey responses came from before the attacks, in part because after Sept. 11 people didn't feel too much like filling out surveys. Many of those who did likely did so because they felt they had something to say. It was not a normal sample.
The unreliability of the data, the impossibility of reaching anything like clarity, is damaging in itself. "While an uncertain outlook is now a cliche, uncertainty itself is the enemy of growth," wrote Morgan Stanley chief U.S. economist Richard Berner in a note this week. A point worth dwelling on.
For the next couple of months we will be living in an environment where nobody will be able to make a reliable forecast of how deep the recession will be. Companies will not know how hard a hit they will take, and one has to think that when it comes to ordering from suppliers they'll err on the side of caution. Workers will not know if they'll weather the job cuts. Bankers will have no way to know which troubled businesses will make it through to the end of the downturn, which will make them cautious about extending credit. And so more businesses will fail.
Only time will bring about a sense of clarity, says Harris. At some point, "people will begin to understand the depth of the downturn and how long it will last," he says. "Just the reduction of the uncertainty will be positive."
Until then, we'll just have to keep soldiering on through the dark.