Tuesday, July 17, 2012

June Industrial Production Highlights



The Federal Reserve released its report today on Industrial Production in June, here are some highlights

1. Overall industrial output increased by 0.4%% in June on a monthly basis, and by 4.7% on an annual basis, marking the 29th consecutive month of annual growth.

2. Annual increases were especially strong in June for business equipment (12.8%), motor vehicles and parts (26.3%), oil and gas well drilling (8.7%), and overall manufacturing (5.6%), especially for durable manufactured goods (9.7%). 

3. The Federal Reserve reported motor vehicle assemblies of 10.55 million units in June (seasonally adjusted, annual rate), which was an increase of 31% over last year (see top chart above).  Coming in at just slightly below April's assemblies of 10.67 million units, it was the second highest monthly number of vehicles assembled since the pre-recession summer of 2007, almost five years ago.  Look for strong gains in vehicle sales to continue through the summer, and an ongoing rebound in Midwest manufacturing.  

4.  The 12.8% increase in June business equipment output brought production of that market group to an index level of 104.4, matching its previous pre-recession peak in February 2008 (see bottom chart above).  The transit component of the business equipment group registered the strongest annual gain at 23%.

MP: Overall, today's report suggests that America's industrial sector continues to grow, even though the pace of growth is slowing somewhat.  But nothing in today's report on industrial output would suggest that the U.S. economy has entered a new recession, especially when you consider the recovery and ongoing increases in auto assemblies and business equipment since 2009.  

86 Comments:

At 7/17/2012 10:11 AM, Blogger Jon Murphy said...

Another bright spot: This June was the strongest since 2002.

 
At 7/17/2012 10:20 AM, Blogger Mark J. Perry said...

Jon: Are you sure, it looks like June 2008 was higher than June 2012 for overall IP?

 
At 7/17/2012 10:21 AM, Blogger morganovich said...

interesting that retail sales are showing such a different picture. (down 0.5% in june, the 3rd consecutive monthly drop).

it's a very muddy picture out there.

"The last time the U.S. experienced three straight monthly drops in retail spending was in the second half of 2008, midway through the Great Recession"

 
At 7/17/2012 10:22 AM, Blogger Jon Murphy said...

Jon: Are you sure, it looks like June 2008 was higher than June 2012 for overall IP?

Sorry. I mean in terms of May-to-June growth. I should have specified that.

 
At 7/17/2012 10:24 AM, Blogger Jon Murphy said...

interesting that retail sales are showing such a different picture.

Retail Sales was interesting. However, the past two monthly drops were normal for that time of year. June's was more severe than normal. However, I am not willing to push the panic button yet: the annual numbers for retail sales (excl autos) still rose, as did the quarterly number. June was also 3.0% above June 2011. We'd need to see more of a trend before I start getting worried.

 
At 7/17/2012 10:25 AM, Blogger Jon Murphy said...

This comment has been removed by the author.

 
At 7/17/2012 10:30 AM, Blogger Jon Murphy said...

Going back to your "muddy picture" comment, Morganovich, I have to agree. I really don't know quite what to make of the retail sales report.

 
At 7/17/2012 10:30 AM, Blogger morganovich said...

jon-

isn't that getting a little overly specific with the stats?

it feels a bit like "best outing versus a left handed lead off hitter who had not played the day before in a closed dome since..."

there have been lots of bigger moves in indpro month to month than this last one including dec 11, and jan 12. feb 12 was a tie.

july 11 was more than twice the growth.

is there some reason to focus on a may-jun figure like that that i am missing?

 
At 7/17/2012 10:34 AM, Blogger morganovich said...

"Going back to your "muddy picture" comment, Morganovich, I have to agree. I really don't know quite what to make of the retail sales report."

there's a lot of dissonant data out there right now.

it's unusual to see gasoline prices drop, home prices rise, and consumer confidence dip.

i have a suspicion that fear of DC is the trump card right now.

absent action, there are some big tax hikes coming.

 
At 7/17/2012 10:35 AM, Blogger Jon Murphy said...

is there some reason to focus on a may-jun figure like that that i am missing?

Just seasonality.

To keep with the baseball metaphor, let's say a player goes 0-4 in a game against a left-handed pitcher. Based on that one statistic, could we say he's entering a cold streak? Well, it turns out lifetime he has a .188 batting average (very bad, for those of you who don't talk baseball) against left-handed pitchers, so a poor performance is to be expected.

It's just a matter of putting number in context.

An economic example: If I told you one month, we lost a non seasonally adjusted 1.7 million jobs this year, what would you think? Well, what if I went on to tell you that month was January and the majority of those jobs were seasonal hires. It puts the number in an entirely different context.

 
At 7/17/2012 10:39 AM, Blogger Jon Murphy said...

i have a suspicion that fear of DC is the trump card right now.

absent action, there are some big tax hikes coming.


I agree with you fully. That's why I am less optimistic about 2013 than I am 2012. To be honest, I think we have maybe four more quarters of this kind of growth before we are looking at another recession. I doubt it will be as severe as 2008-2009, but a recession nonetheless.

 
At 7/17/2012 10:42 AM, Blogger morganovich said...

jon-

sure, but the best way to take out the seasonality is a yoy comparison, no? you just compare june to june and may to may etc.

doing so with indpro show us that we had better yoy growth in February and april than in june.

"best may to june growth since 2002" just seems a bit like the color guy stat hunting.

 
At 7/17/2012 10:42 AM, Blogger Jon Murphy said...

And by "this kind of growth", I mean this jerky, sometimes up, sometimes down, but overall kinda up, growth we've had.

 
At 7/17/2012 10:44 AM, Blogger Jon Murphy said...

sure, but the best way to take out the seasonality is a yoy comparison, no?

That is another way of doing it, sure. The only problem with that method is it tends to be very volatile. Not so much with Indpro, but other series it can be very difficult to find a trend.

 
At 7/17/2012 10:46 AM, Blogger Buddy R Pacifico said...

"it's a very muddy picture out there."

"there's a lot of dissonant data out there right now."

Possible explanation this muddy dissonance:

Folks seem to be buying used homes and new cars instead of used cars and new clothes.

 
At 7/17/2012 10:46 AM, Blogger morganovich said...

jon-

yeah, i hear you on 2013. it's not easy to handicap because so many traditional indicators (bond spreads etc) are so badly manipulated by twist and zirp and my enormous money supply growth.

the economy seems really hitched to some governmental binaries. i can tell you it's giving wall st a migraine.

it just sort of makes everyhting a black box and instead of looking at the economy, you are forced to look at DC.

i really miss being able to ignore the interior of the beltway.

over the last couple years i have really come to the conclusion the between laws and sausage, i'd rather watch even haggis being made any day of the week.

 
At 7/17/2012 10:48 AM, Blogger morganovich said...

"The only problem with that method is it tends to be very volatile"

more volatile than the sequential numbers?

i have not run a comparison, but that would surprise me.

 
At 7/17/2012 10:49 AM, Blogger Jon Murphy said...

Oh I hear ya Morganovich. Bonds and Money Supply are historically great indicators of economic activity, but they've been so heavily messed with, they've lost all their usefulness!

 
At 7/17/2012 10:52 AM, Blogger Jon Murphy said...

more volatile than the sequential numbers?

Not really. Both are pretty useless when trying to see a large trend.

Let me rephrase my explanation: in the news, so much is done over a monthly drop here or a monthly rise there. The mere fact that a number rises or falls in a month is useless outside of historical context. If a number typically rises in June, but the rise was weaker than normal, then it is a warning signal. If a number typically falls in June, but the decline was weaker than normal, it is a good signal.

In and of itself, these monthly fluctuations are largely useless. But they can provide the early warning signals of a coming recession or growth.

 
At 7/17/2012 10:59 AM, Blogger VangelV said...

These type of postings remind me of the positive housing stories just after the housing bubble began to deflate. Everyone who was paying attention knew that the party was over but the optimists could not get past their bias and were beating the dead horse hoping it would carry them towards some finish line somewhere. Anyone who is very positive on industrial production right now is not paying much attention.

 
At 7/17/2012 11:13 AM, Blogger Bill said...

Is it possible the Commerce Dept. stats on retail sales are just not accurate? We saw pretty strong auto sales from the manufacturers in June and although some were a little off, chain store sales were up as well.

 
At 7/17/2012 11:18 AM, Blogger Jon Murphy said...

Is it possible the Commerce Dept. stats on retail sales are just not accurate?

Well, I wonder how much of it is to do with prices. When we adjust using the CPI All Items (i know there is disagreement regarding this method), then June's number is a little more ordinary.

 
At 7/17/2012 11:29 AM, Blogger morganovich said...

bill-

it's always possible, but we could also ask the same questions about indpro etc.

i must confess that i find much of thr data coming out of the federal agencies to be highly suspect with the BEA really leading the pack in terms of fishy deflators.

of the federal groups, the one i tend to trust most is the census bureau.

their figures on imports and exports largely line up with the retail sales figure in terms of showing a soft last 3 months.

to be sure, some of the imports drop has to do with oil prices, but exports have fallen as well.

 
At 7/17/2012 1:09 PM, Blogger Junkyard_hawg1985 said...

Are we really celebrating a 0.4% rise in industrial production when the previous two months were revised DOWN by 0.5%?

 
At 7/17/2012 1:15 PM, Blogger Jon Murphy said...

Morganovich-

I just looked at the Retail Sales numbers report again. We have not seen three consecutive months of decline. May's number was revised upward. Sales climbed April to May, then fell May to June.

 
At 7/17/2012 1:21 PM, Blogger morganovich said...

jon-

not sure what series you are using, but this is the commerce dept data:

http://www.census.gov/retail/marts/www/marts_current.pdf

it shows down sequential numbers for april, may, and june.

based on that, the down 3 months claim looks correct to me.

 
At 7/17/2012 1:27 PM, Blogger Jon Murphy said...

Oops...I'm looking at the Non Seasonally Adjusted numbers, you're looking at Seasonally Adjusted. That's why the difference. We do that a lot, you and I

 
At 7/17/2012 1:27 PM, Blogger bart said...

morganovich :
interesting that retail sales are showing such a different picture. (down 0.5% in june, the 3rd consecutive monthly drop).


Indeed, and that's with either a CPI or full inflation adjustment.


Junkyard_hawg1985 :
Are we really celebrating a 0.4% rise in industrial production when the previous two months were revised DOWN by 0.5%?


Hot damn! Someone saw the "special" moment... much like retail sales a year ago was adjusted downward, like it is about 3/4 of the time.

 
At 7/17/2012 1:29 PM, Blogger bart said...

VangelV:
These type of postings remind me of the positive housing stories just after the housing bubble began to deflate.


Yep, I noticed that one of the charts is above the level of the last recession... and total money supply continues to drop too.

 
At 7/17/2012 1:39 PM, Blogger Jon Murphy said...

Morganovich-

One of these days, you and I will speak the same language lol

 
At 7/17/2012 1:43 PM, Blogger Jon Murphy said...

Are we really celebrating a 0.4% rise in industrial production when the previous two months were revised DOWN by 0.5%?

I'm celebrating the fact June 2012 is 4.7% above June 2011, and the annual data is up 4.1% and accelerating.

 
At 7/17/2012 1:48 PM, Blogger bart said...

I'm celebrating the fact June 2012 is 4.7% above June 2011, and the annual data is up 4.1% and accelerating.

Without all the revisions, it was down.

 
At 7/17/2012 1:56 PM, Blogger morganovich said...

jon-

aren't the indpro numbers seasonally adjusted?

(from the fed site: "individual series are seasonally adjusted using Census X-12 ARIMA)

it does not seem like comparing an SA figure to a non SA figure is that reliable an idea, hence, my use of SA retail sales.

 
At 7/17/2012 2:04 PM, Blogger Jon Murphy said...

Yes, which is why I don't usually talk snout monthly ups and downs and focus on those lovely moving averages

 
At 7/17/2012 2:15 PM, Blogger morganovich said...

given how poorly i type, i generally do not make fun of others, but i have to say "talk snout monthly" was pretty funny.

but how does an MA of indpro help you

it's still seasonally adjusted.

i don't think they even provide a non SA version (or did i miss it somewhere?)

 
At 7/17/2012 2:15 PM, Blogger Jon Murphy said...

Without all the revisions, it was down.

I'm sorry, I don't understand what you mean. When I look at June 2012 number, and compare it to the June 2011, it is up 4.7%.

 
At 7/17/2012 2:18 PM, Blogger Jon Murphy said...

given how poorly i type, i generally do not make fun of others, but i have to say "talk snout monthly" was pretty funny.

Stupid autocorrect on my phone. I finally joined the 21st century and got a smart phone. Still getting used to it.

but how does an MA of indpro help you

The moving average of indpro matches up with GDP. the 12MMA of Indpro moves coincidentally with GDP. Historically, when the MA is rising, GDP is rising (the only exception to this was one year in the 1980's when indpro was falling and GDP was rising).

But I don't think they publish a NSA Indpro. It would be awesome if they did.

 
At 7/17/2012 2:27 PM, Blogger Ben Eng said...

Consider this article from Mike Shedlock titled "Global Collapse In Auto Sales Coming Up" dated July 9, 2012. The global outlook on automobile sales looks remarkably different than the US numbers are suggesting.

 
At 7/17/2012 2:34 PM, Blogger marmico said...

Q2 2012 IP increased 2.2% annualized down from 5.8% in Q1 and 5.1% in Q4 2011.

Q2 2012 Manufacturing increased 1.4% annualized down from 9.8% in Q1 and 5.6% in Q4 2011.

A major slowdown.

 
At 7/17/2012 2:38 PM, Blogger bart said...

I'm sorry, I don't understand what you mean. When I look at June 2012 number, and compare it to the June 2011, it is up 4.7%.

What you said is true, but they revised the last 6 months of numbers substantially upward. Given the many other stats that are trending down (especially when CPI or full inflation corrected), I'm both suspicious and skeptical.

Do you have a chart of that correlation with GDP?


And by the way, there is an NSA sorta INDPRO index, but it's a diffusion index:
http://research.stlouisfed.org/fred2/series/DIFFTHREE

It doesn't look positive from here.

 
At 7/17/2012 2:39 PM, Blogger Jon Murphy said...

Do you have a chart of that correlation with GDP?

I do, but not on me. I'll try to remember to post it tonight when I get home (feel free to remind me if you see me posting elsewhere).

 
At 7/17/2012 2:39 PM, Blogger bart said...

Re: Auto sales.

I have some skepticism here too. Total consumer credit is not reflecting lots of new car loans. The NSA version isn't even up 1% YoY.

 
At 7/17/2012 2:44 PM, Blogger Jon Murphy said...

Total consumer credit is not reflecting lots of new car loans.

Could that not mean more people are paying in cash?

 
At 7/17/2012 3:02 PM, Blogger Jon Murphy said...

By the way, thanks for the diffusion index, Bart. I have never heard of it before. I wonder how good of an indicator it is...

 
At 7/17/2012 3:36 PM, Blogger bart said...

Could that not mean more people are paying in cash?

Of course. It could also mean "off-the-beaten-path" loan sources with quite high rates, aka "sub-prime".

Cool on the GDP & INDPRO index, looking forward to it.

And you're most welcome on that diffusion index... does that mean I'm not just a pretty face? -g-

And more seriously, it looks like it does have some usefulness, both in validating the actual INDPRO (somewhat like annualized rates) but also as one of many recession or recovery probability stats.

 
At 7/17/2012 4:35 PM, Blogger morganovich said...

"Could that not mean more people are paying in cash?"

it could, but given real incomes, do you think that big a surge in cash buyers of new cars seems likely?

one other issue that might be affecting this is that the government has been buying loads of cars from gm.

"As it turns out, there’s a big reason GM experienced an increase in sales last month: “government purchases of GM vehicles rose a whopping 79% in June,” according to the National Legal and Policy Center’s Mark Modica."

 
At 7/17/2012 8:20 PM, Blogger Jon Murphy said...

Ok. I thought I had the chart on my home computer. I guess it's on my work computer. Sorry, i'll show it you to tomorrow :( I hope you don;t think I'm being a welcher.

 
At 7/17/2012 8:31 PM, Blogger bart said...

Ok. I thought I had the chart on my home computer. I guess it's on my work computer. Sorry, i'll show it you to tomorrow :( I hope you don't think I'm being a welcher.


Good grief, no!

We've had enough back & forth for me to be pretty sure you're straight forward and telling it like it is - per your own views. And I don't recall you ever going ad hominem or similar.

Just because I disagree with you sometimes just means that we have different views and are looking at different items. It doesn't mean that you're "wrong", and very much doesn't mean that I think you're anything like an ID ten Tee.

We almost *have to* have different views sometimes, literally by definition. You're not a trader or short term oriented like traders need to be. But we do share an interest in the intermediate and longer views, and you do seem like you at least sometimes enjoy having a foil.

 
At 7/17/2012 9:02 PM, Blogger Jon Murphy said...

Oh Hell yeah. You and Morganovich are always a good fun.

But you are right. I am not a trader. Short term does not interest me. I want to know the overall picture.

Besides, I got an army of forecasters behind me :-P

 
At 7/17/2012 9:07 PM, Blogger Jon Murphy said...

Also, my long-term views come from the nature of the business. When we are advising businesses and clients, we can't be giving them advice based on monthly fluctuations. They're investing millions of dollars for the long term. They need to know what's going to happen in two years, not two months.

 
At 7/18/2012 10:28 AM, Blogger morganovich said...

jon-

so, i was thinking about this retail sales issue a bit more and had a question for you:

what are you using as a deflator?

using a pre boskin CPI (or bart's series which is very similar) you would get down yoy real retail sales for every month this year.

are you using cpi when you discuss figures? i have known you to use cpi + 400bp and some other similar deflators in the past.

if you are not doing so here, why?

 
At 7/18/2012 11:00 AM, Blogger bart said...

... using a pre boskin CPI (or bart's series which is very similar)...

They're actually *very* different in detail.


CPPI vs. SGS, detail



CPPI vs. SGS, general

 
At 7/18/2012 12:29 PM, Blogger Jon Murphy said...

The CPI we use is the CPI as reported by the FRB. I did the +400 bps one as a curiosity. It is by no means canon.

 
At 7/18/2012 12:44 PM, Blogger bart said...

Besides, I got an army of forecasters behind me :-P


But did they get the huge gold bull, the housing bubble, the financial crisis, etc. right?

*insert rimshots to taste*

 
At 7/18/2012 12:44 PM, Blogger bart said...

The CPI we use is the CPI as reported by the FRB.

If you're ok with answering in public, is your personal opinion on CPI different from your "corporate" opinion?

 
At 7/18/2012 12:50 PM, Blogger bart said...

Also, my long-term views come from the nature of the business. When we are advising businesses and clients, we can't be giving them advice based on monthly fluctuations. They're investing millions of dollars for the long term. They need to know what's going to happen in two years, not two months.


Very much understand. It's a very different and more conservative world... and also much more subject to black swan events, precisely due to that conservatism and "faith" in the "system".

They also, if I recall the type, mostly don't care about the real tinfoil hat contingent - and also likely never bought hard assets like precious metals as hedges back in the 2001-2004 period. :-P

 
At 7/18/2012 2:54 PM, Blogger morganovich said...

bart-

i stand corrected.

i had thought your index tracked sgs more tightly.

 
At 7/18/2012 2:58 PM, Blogger Jon Murphy said...

But did they get the huge gold bull, the housing bubble, the financial crisis, etc. right?

Yes. We were calling for the 2008-2009 recession in 2004.

 
At 7/18/2012 3:07 PM, Blogger Jon Murphy said...

f you're ok with answering in public, is your personal opinion on CPI different from your "corporate" opinion?

Speaking for myself, I despise the CPI. It's used for things it shouldn't be used for. I don't like it as a deflator. In my other (read as "unpaid") role as an academic, I don't even pay attention to it. Nor the stock market, for that matter, but that's a different story.

In my humble opinion, everything should be taken with a grain of salt. These are surveys of data we are dealing with. They are imperfect. That's also part of the reason I don't get too worked up about monthly numbers. They get revised all the time, and that's just due to the nature of the data.

Personally, as a deflator, I like the ACCRA Cost of Living Index. It is something I am intimately fimilular with (having helped collect the data in my college years), plus it is a measure of cost of living (as accurate a term as that is) as opposed to just prices. But, it is only quarterly and has its own flaws.

The TL;DR version: Do I like the CPI? Not really, no. I'd like to come up with my own index.

BTW, I have the graph for you. Will post it tonight. I give you my word as an officer (of my church) and (presumably) a gentleman.

 
At 7/18/2012 3:29 PM, Blogger bart said...

i stand corrected.

i had thought your index tracked sgs more tightly.


No worries.

I built the CPPI since my work showed that the SGS has been substantially too high since 2005-6, and also seems to use a fixed adjustment rather than one that varies with the component's factual changes.

Yes, housing was hugely under accounted for in the CPI during the run-up, hugely over accounted for during the housing crash - but is much closer to the OER etc. now.
Lots of other issues too.

 
At 7/18/2012 3:43 PM, Blogger bart said...

Yes. We were calling for the 2008-2009 recession in 2004.

Gesundheit...






Speaking for myself, I despise the CPI. It's used for things it shouldn't be used for. I don't like it as a deflator. In my other (read as "unpaid") role as an academic, I don't even pay attention to it. Nor the stock market, for that matter, but that's a different story.

In my humble opinion, everything should be taken with a grain of salt. These are surveys of data we are dealing with. They are imperfect. That's also part of the reason I don't get too worked up about monthly numbers. They get revised all the time, and that's just due to the nature of the data.


We seem to be fairly well in agreement, except with the differing time period focus. Regardless of the accuracy or volatility of the monthly or weekly numbers, the market does respond to them.
I used to use a *lot* more leverage than I use now, and I would have produced less than basically stellar results if I ignored them.

Just out of curiosity, how do you cover the inflation area in teaching? It's by far the biggest effect on the long term per my work.

I've visited and lectured a few econ courses at various universities in the area, and I get both a lot of relief on faces, and also a lot of deer-in-the-headlights looks when I cover the spin, lies, etc. - especially from the excessively liberal professors.


Personally, as a deflator, I like the ACCRA Cost of Living Index. It is something I am intimately fimilular with (having helped collect the data in my college years), plus it is a measure of cost of living (as accurate a term as that is) as opposed to just prices. But, it is only quarterly and has its own flaws.

The TL;DR version: Do I like the CPI? Not really, no. I'd like to come up with my own index.


Join the club on a better index, CPPI is at best actually just beta.

I'm of course aware of ACCRA and some of it's faults. Have you ever charted it side by side with any of the CPIs?... just curious.

BTW, I have the graph for you. Will post it tonight. I give you my word as an officer (of my church) and (presumably) a gentleman.

I offer congratulations and sympathy, in whatever balance you like.
Looking forward to the chart.

 
At 7/18/2012 3:55 PM, Blogger Jon Murphy said...

Just out of curiosity, how do you cover the inflation area in teaching? It's by far the biggest effect on the long term per my work.

Well, to be clear, I am not "teaching." I don't have the degrees for that yet (Just starting my Masters in the Winter). I have guest lectured at the high school from time to time, but most of my academic stuff is on my own time. I do run a very small tutoring business on the side, though. So, when I cover inflation, I usually talk about the CPI, say what it is (just one of many measures of prices) and spend some time talking about what it's not (a cost of living indicator, an absolute measure of prices, a reliable economic indicator, an indicator of the dollar's value). Then they stare at me and I am forced to sigh and show them the basic calculation.

I'm of course aware of ACCRA and some of it's faults. Have you ever charted it side by side with any of the CPIs?... just curious.

No. I don't have the data history for it. It costs money and I am unwilling to spend it. Also lobbying unsuccessfully for the company to pay for it. Maybe I can get university funding...



Regarding the graph: I will do my best to highlight where and when the two data series deviate. And warning in advance: it may be less precise then you two like. My company, the smallest unit of measure we go to is quarters. For example, if we call for a cyclical low in March and it occurs in January, that is considered a success.

 
At 7/18/2012 3:56 PM, Blogger Jon Murphy said...

So, when I am talking about coincident movement, it's mostly within the same quarter (although, between these two indicators, it is often the same month, mostly given the quarterly nature of GDP).

 
At 7/18/2012 4:36 PM, Blogger bart said...

So, when I am talking about coincident movement, it's mostly within the same quarter (although, between these two indicators, it is often the same month, mostly given the quarterly nature of GDP).


Correlation & causation


Market correlation


-g-

 
At 7/18/2012 4:52 PM, Blogger bart said...

Well, to be clear, I am not "teaching." I don't have the degrees for that yet (Just starting my Masters in the Winter). I have guest lectured at the high school from time to time, but most of my academic stuff is on my own time. I do run a very small tutoring business on the side, though. So, when I cover inflation, I usually talk about the CPI, say what it is (just one of many measures of prices) and spend some time talking about what it's not (a cost of living indicator, an absolute measure of prices, a reliable economic indicator, an indicator of the dollar's value). Then they stare at me and I am forced to sigh and show them the basic calculation.


ROFL!... I see we share an affinity for affecting impressionable minds with stuff not in the books or lectures.

I'm not credentialed either, but thankfully the various professors mostly understand the value that 50+ years of real world investing and business experience (and being a data and chart slut -g-) can bring to their students.

And I occasionally get some great questions... and there is always at least one who has read too much on the 'net and knows it all, or who want to impress their friends with arcane data. With those, I usually start tossing around some TLAs (three letter acronyms) like ESF or PDCF which usually shuts them up.

My daughter is credentialed though (Masters at LSE) and a few months or weeks from getting her PhD, and hopefully some of the straight stuff I've passed along will help her students from buying into some of the BS.

 
At 7/18/2012 4:53 PM, Blogger VangelV said...

Yes. We were calling for the 2008-2009 recession in 2004.

Are you calling for a bond and USD crash right now?

How about the busting of the shale bubble?

Are you calling for much higher gold and oil prices?

When did you notice the opportunities in the agriculture sector and advise people that they take positions?

 
At 7/18/2012 4:56 PM, Blogger bart said...

ooops, bad link

Correlation vs causation

 
At 7/18/2012 7:34 PM, Blogger Jon Murphy said...

Here we are.

If you guys want to see the Excel file so you can see the data in its raw form (plus the dates), shoot me an email at jmurphy8289@gmail.com and I'll send it along to you.

 
At 7/18/2012 7:42 PM, Blogger Jon Murphy said...

Are you calling for a bond and USD crash right now?

We've stopped forecasting bonds considering they are heavily manipulated and completely devoid of any fundamentals. We also don;t forecast currencies. Much too volatile. That being said, we have advised clients correctly thus far.

How about the busting of the shale bubble?

Go into more detail. Are you talking natural gas prices? production? We do not forecast business bankruptcies.

Are you calling for much higher gold and oil prices?

We don't forecast gold prices. We are expecting higher oil prices based on the expectation of increase in Chinese activity during the second half of 2012, a strike in the North Seas, and decreased Iran exports.

When did you notice the opportunities in the agriculture sector and advise people that they take positions?

Our clients don't deal in agriculture. We don't forecast ag anyway: much too volatile.


Our clients are businessmen, not investors. We don't forecast the stock market or anything like that. We don't advise on stocks, financial positions, etc. Our clients don't care about that.

 
At 7/18/2012 7:57 PM, Blogger bart said...

Here we are.

Thanks Jon. A bit tighter connection and correlation than I thought, and of course lagging due to the 12MMA.

 
At 7/18/2012 9:46 PM, Blogger VangelV said...

Our clients are businessmen, not investors. We don't forecast the stock market or anything like that. We don't advise on stocks, financial positions, etc. Our clients don't care about that.

But the same forces that drive the markets are very important to those that invest in businesses. When the central bank is manipulating rates and keeping them artificially low it is easy for businessmen to invest when they should be very cautious. You might be interested in reading Chapter 20 in Human Action.

The essential features of a credit expansion are not affected by such a particular constellation of the market data. What induces an entrepreneur to embark upon definite projects is neither high prices nor low prices as such, but a discrepancy between the costs of production, inclusive of interest on the capital required, and the anticipated prices of the products.

A lowering of the gross market rate of interest as brought about by credit expansion always has the effect of making some projects appear profitable which did not appear so before.… It necessarily brings about a structure of investment and production activities which is at variance with the real supply of capital goods and must finally collapse. That sometimes the price changes involved are laid against a background of a general tendency toward a rise in purchasing power and do not convert this tendency into its manifest opposite but only into something which may by and large be called price stability, modifies merely some accessories of the process.

However conditions may be, it is certain that no manipulations of the banks can provide the economic system with capital goods. What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The boom is built on the sands of banknotes and deposits. It must collapse.

The breakdown appears as soon as the banks become frightened by the accelerated pace of the boom and begin to abstain from further expansion of credit. The boom could continue only as long as the banks were ready to grant freely all those credits which business needed for the execution of its excessive projects, utterly disagreeing with the real state of the supply of factors of production and the valuations of the consumers.

These illusory plans, suggested by the falsification of business calculation as brought about by the cheap money policy, can be pushed forward only if new credits can be obtained at gross market rates which are artificially lowered below the height they would reach at an unhampered loan market. It is this margin that gives them the deceptive appearance of profitability. The change in the banks' conduct does not create the crisis. It merely makes visible the havoc spread by the faults which business has committed in the boom period.

 
At 7/19/2012 7:40 AM, Blogger Jon Murphy said...

But the same forces that drive the markets are very important to those that invest in businesses.

Right. Which is why we report on bonds and stock prices. But our clients aren't asking "should i buy long or sell short?" They are asking "Should I purchase capital now?" Our response would be "Given our expectations for your industry, and our expectations for the overall economy, then the actions your should take are X,Y,Z."

 
At 7/19/2012 8:40 AM, Blogger VangelV said...

Right. Which is why we report on bonds and stock prices. But our clients aren't asking "should i buy long or sell short?" They are asking "Should I purchase capital now?" Our response would be "Given our expectations for your industry, and our expectations for the overall economy, then the actions your should take are X,Y,Z."

I understand what you are doing. My point is that given many of your postings I do not think that you are paying attention to reality as well as you should.

Let me clarify my point. If you look inside your firm which economists and which school of economics would your company consider to be credible? Do you use models that make simplifying assumptions and require accurate data to be plugged in? All this matters greatly and depending on which theory you agree with can come up with totally different conclusions. If the same set of data can lead to very different conclusions many of the analysts are just empty suits who think that they know far more than they do and are too arrogant to figure out where they are ignorant.

 
At 7/19/2012 10:30 AM, Blogger Jon Murphy said...

Thanks Jon.

No problem, man. Like I said, if you want to see the Excel file for yourself so you can play with numbers, let me know

 
At 7/19/2012 10:57 AM, Blogger Jon Murphy said...

Vangel-

Our economic data, forecasts, and advice is based upon data, not economic schools of thought. We have economists that cover the spectrum (with me being the extreme outlier).

Let me explain it using a hypothetical (please do not construe this to be commentary on the current economic climate; it is not).

A client comes to us and says "Should I buy machinery now?" We would come back with an answer "Well, bond rates are at record lows and unlikely to fall further. However, We do not expect robust growth in your industry going forward."


But, these conditions are built into our forecasts. If we see record low mortgages (or historically high homeowner rates), then we know something will be corrected. Everything goes into forecasts. That's why we have a 96.4% accuracy rate.

 
At 7/19/2012 11:16 AM, Blogger bart said...

Like I said, if you want to see the Excel file for yourself so you can play with numbers, let me know

In self back patting mode, I do already have the data, perhaps even rivaling yours in depth if not in breadth. I have GNP going back to 1790 for example, and gold & silver going (with gaps) back to 211BC. My main Excel workbook, not including charts, is over 800MB. *grunt/grin*

But I'd never thought of or craeted a chart showing both production and GDP on the same chart. That's what was quite interesting and why I asked - and thank you again for your trouble in posting it.

 
At 7/19/2012 11:18 AM, Blogger VangelV said...

Our economic data, forecasts, and advice is based upon data, not economic schools of thought. We have economists that cover the spectrum (with me being the extreme outlier).

Data is not useful without the proper theory to apply it. That is my point. When you have different economists coming up with different conclusions you know that they are just guessing. And when they agree but belong to a school of thought that has been unable to see crises coming and identify bubbles until late in the game the herd mentality and uniformity of conclusion is worse than useless.

A client comes to us and says "Should I buy machinery now?" We would come back with an answer "Well, bond rates are at record lows and unlikely to fall further. However, We do not expect robust growth in your industry going forward.

But there is the problem. When bond rates are low because of manipulation you don't have a market signal that tells you what should happen and which actions are prudent.

But, these conditions are built into our forecasts. If we see record low mortgages (or historically high homeowner rates), then we know something will be corrected. Everything goes into forecasts. That's why we have a 96.4% accuracy rate.

You claim to have a high accuracy rate yet you fail to see the problem in the energy sector and refuse to see that the Boskin changes need to be applied to the pre-Boskin world if a proper comparison is to be made. Using the pre-Boskin methodology you would find that the US is still in recession and that the unemployment rate is over 20%. I would think that anyone who wised to understand reality would be very concerned about those factors.

 
At 7/19/2012 11:24 AM, Blogger Jon Murphy said...

That's what was quite interesting and why I asked - and thank you again for your trouble in posting it.

Hey, no problem. Sorry it took me so long!

Where did you get GDP data back to the 1700's? How accurate is it?

 
At 7/19/2012 11:27 AM, Blogger bart said...

Where did you get GDP data back to the 1700's? How accurate is it?

Who knows on the accuracy, sort of the same issue with GDP data today.

I think that data source was eh.net for data prior to 1928 or so. Holler if you want a copy. I even "punted" in corrections for chained 2005 dollars.

 
At 7/19/2012 11:32 AM, Blogger bart said...

By the way, I already maintain another set of data which includes M3 back to 1867, CPI back to 1800, etc.

It's been available for years at:
http://www.nowandfutures.com/download/m3b.xls
zipped at:
http://www.nowandfutures.com/download/m3b.zip

 
At 7/19/2012 12:36 PM, Blogger Jon Murphy said...

Thanks, Bart. I will need to check this out.

Is the CPI your corrected CPI, or is it the raw data?

Same with the M3. Is it deflated or raw?

 
At 7/19/2012 2:12 PM, Blogger bart said...

Is the CPI your corrected CPI, or is it the raw data?

Same with the M3. Is it deflated or raw?


It has both the CPI-U and my CPPI since 1/1983.

M3 is raw uncorrected dollars. 1867 through 2006 data is direct from the Fed, although sometimes interpolated from yearly numbers.
It's weekly from 1959 on.

Also in the file is Federal debt back to 1900 (although I have it back to 1791), monthly US gold prices back to 1786, monetary base from 1918-1984 (very tough to locate), and various Z1 credit data back to 1947.

 
At 7/19/2012 2:29 PM, Blogger Jon Murphy said...

Thanks a lot, man. I'm probably going to fool around with these numbers tonight. Wait a minute...that sounded creepy.

 
At 7/19/2012 3:30 PM, Blogger bart said...

Thanks a lot, man. I'm probably going to fool around with these numbers tonight. Wait a minute...that sounded creepy.

My pleasure.

And I guess you just answered my old question about me not just being a geezer and pretty face. -g-

(for the noise freaks - yes, that's 100% a joke)

 
At 7/19/2012 3:54 PM, Blogger Jon Murphy said...

And I guess you just answered my old question about me not just being a geezer and pretty face. -g-

I wouldn't call you a geezer. Cantankerous old coot would be a better description. :-P Just kidding

 
At 7/19/2012 4:20 PM, Blogger bart said...

Rodney Dangerfield said it best:

http://www.nowandfutures.com/grins/call_me_have_no_class.wav

-g-

 

Post a Comment

Links to this post:

Create a Link

<< Home