Washington, DC -- (ReleaseWire) -- 03/05/2015 --Strap on your blood pressure monitor, because last week's economic news is likely to send it sky high. The markets once again ignored signal after signal that our economy is in trouble, and even Federal Reserve chair Jane Yellen's testimony to Congress on the state of the U.S. economy contained clues that the Fed isn't as positive as they would like investors to be.
The first bloodcurdling example is the University of Michigan's final February consumer sentiment numbers, released last week. This indicator dropped from January's 98.1 to 95.4 in February, as people's expectations of higher incomes and greater business opportunities declined.
The second symptom that should send your BP up is the drop in the Chicago Business Barometer. Last Friday the Chicago Purchasing Manager Index (Chicago PMI), also known as the Chicago Business Barometer, was released. The Chicago Business Barometer is an important regional survey of current business activity which is considered a leading indicator of the United States economy. In February, this indicator plunged 13.6 points to 45.8 from January's 59.4. This is the lowest level since July of 2009, and the first time the indicator has contracted since April of 2013. This precipitous drop confounded analysts, who predicted a much more modest fall to 58. Among the elements contributing to the decline were Production, New Orders, and Backlogs. Amidst all the dry specifics, what does this mean? The Chicago PMI is an indicator of the current health of the manufacturing sector, and any value below 50 is considered a sign of future economic contraction.
Adding some salt and fat to last week's unhealthy diet of economic indicators, the Bureau of Economic Analysis (BEA) issued its second estimate of fourth quarter 2014 GDP growth, which was not only down from the inexplicable and unrealistic 5% reported for the third quarter of 2014, but down even from the first estimate. The revised fourth quarter number was 2.18%, an over 43% drop from the third quarter. Downward revisions were telling, as well. The most significant revision was a substantial drop in growth contributions from private inventories. which, instead of adding 0.82% only added 0.12%. Other small but telling downward revisions occurred in Personal Consumption and Net Imports.
These are all Big Economic Numbers, and the average investor may not be interested in Big Economic Numbers, and it might be time to change that. Study the GDP, not just the surface numbers reported by the BEA, but the nominal or current-dollar GDP, which is not adjusted for inflation. Break down the numbers, dig into the reports. The individual investor's success comes from examining the numbers and not just the narrative that we are being fed by the White House and the Federal Reserve, who have an all-too-high stake in the public believing that everything is sailing along smoothly.
Big Economic Numbers are one thing. However, these numbers aren't the only signals of the coming storm. Look at the world around you. Think about the term "shrinkflation." That is when a product decreases in quality or quantity without decreasing in price. That means less cereal in your cereal box, less comfort on your airplane ride because United or American Airlines have squeezed more seats into the coach section of the plane, paying more for your child's education when it's increasingly less relevant and useful. If that doesn't get your blood up, what should?
Even Federal Reserve chair Jane Yellen, during her testimony to Congress on the state of the economy, could not avoid dropping hints that all is not as rosy as the Fed and the White House would like to paint it. Chiefest among those was her indication that there is no intention of raising interest rates for the next several Federal Open Market Committee (FOMC) meetings. If the economy is indeed strengthening, then it is time for the Fed to at least considering raising interest rates, and certainly not time to rule that action out for several months into the future. She also slipped in subtle indicators that wages and income are weak, and admitted that housing could still improve. This in the midst of testimony intended to give the impression that the economy is going just great, thank you. Yellen also strongly opposes any audit of the Fed.
Why would she want an audit? The entire so-called recovery, the continued success of the DOW and S&P, are based upon accounting tricks and artificial props. They depend on investors remaining content to put their money into index funds, ignoring the signals that the real economy is giving that a storm is coming. In this artificial, massaged and manipulated world, the thoughtful investor is at a disadvantage. Last week, Seth Klarman, founder of the hedge fund Baupost Group, said, "A value investor's task in 2014 was made much more difficult by these loose monetary policies and the resultant tide of bullishness. For six years and counting, optimists have been relentlessly rewarded, and skeptics punished."
The question is whether we, as a nation, and you as an individual, will continue to sail blithely into the ever-darkening storm, trusting the Captain to tell us that it's sunny and breezy, or we will finally take note of the signals, the growing clouds, the warning flags?
All data sourced through Bloomberg
Securities offered through Western International Securities, Inc., Member FINRA & SIPC. Bennett Group Financial & Western International Securities, Inc. are separate and unaffiliated companies.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or dbennett@bennettgroupfinancial.com
Rising Blood Pressure and Storm Warnings, by Dawn Bennett