Buy Low ... Sell High
JACKSON HOLE, Wyo. -- Wonder whether the economy will end up growing even faster this quarter than it did last?
Me neither. There are lots of ways to guess, though.
(or gross domestic product) column in the table above
tracks actual growth rates. The Hours column
aggregate hours index
report). The ICI column
index of coincident indicators
Conference Board). The NAPM column
Purchasing Managers' Index
National Association of Purchasing Management). And the Philly column
tracks a bunch of economic forecasters (from the
Federal Reserve Bank of Philadelphia).
Of the four variables in our table, aggregate hours do the best job of predicting growth swings. They've failed to signal speedups or slowdowns only thrice in their latest ten tries, and they're currently riding a six-quarter win streak.
Things get worse from there. The coincident indicators have missed four times since early 1997, the PMI six -- including a recent four-quarter skid. (At least some of that probably had to do with the sorry state of manufacturing at the time, but the PMI does speak to more than just the factory sector; the NAPM notes that "a PMI in excess of 43.5%, over a period of time, generally indicates an expansion of the overall economy.")
And the forecasters that the Philly Fed surveys?
That lot couldn't hit sand falling from a camel.
Nip It in the Bud
Well? What's your guess for the current quarter?
Those who subscribe to the hot-hand theory -- there's a freaky Maryland-based technician around here who I think falls into that camp -- might want to go with Hours. (Here we should point out that, assuming no revisions to numbers already reported for October and November, it would take at least a 0.4% increase in December hours to change the Q4 reading to Faster from Slower. Note that monthly hours increases have averaged 0.2% during the past year, and that they rose 0.4% twice during that time.)
On the other hand -- now there's a cliche you've not heard here -- wouldn't it make you kind of nervous to bet against three other indicators that all say the same thing?
Perhaps it shouldn't. The best reason to expect the fourth-quarter GDP number to print littler than the 5.5% we saw during the third might well be that the forecasters the Philly Fed surveys haven't once been right two times in a row.
Anyway -- and here's another one -- stay tuned.
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