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A Migraine for the Count

03/27/2013

One of my favorite fictional non-persons is Count von Count on Sesame Street.  He has obsessive-compulsive behavior and must count everything, e.g., the number of blades of grass in a yard or trees in a forest or clouds in the sky.  He should have been an economist, who try to measure everything and explain only some things.

The most nerdy economists are called econometricians.  They are half-economist and half-statistician.  Among other things, they measure the “correlation coefficient,” which shows how convincing the economic data should be.  (Unfortunately, it is useless as too few data points are included.)  My guess is that the current economic data is more confusing than convincing to most people.

During an economic recovery, one would expect that huge mass of economic data to be overwhelmingly positive.  While the slight majority of the current economic data does indeed indicatesa recovering U.S. economy, the weakness of that recovery is evidenced by the often contradictory data.

As an example, the stock market is rising right now, but why is it rising when consumer confidence is falling.  Again, isn’t that economic data more confusing than convincing?
One explanation is that the market is driven up by all the quantitative easing from the Fed.  Another is that trading volumes are already so low that the market is driven up by the small number of investors who do actually return to the market.  Also, there is evidence the hedge funds have returned en mass.
A better explanation is that consumer confidence data reflects last month, while the stock market reflects the market’s expectations for the economy six months from now.  This difference in time perspective is important.  We’re comparing backward-looking data with forward-looking data.
As an aside, consumer confidence dropped from 68.0 to 59.7 last month nationwide.  However, in our mid-Atlantic region, it dropped from even more, from 72.3 to only 51.7.  I’ll assume this reflects our greater vulnerability to the impact of sequestration, due to our heavy reliance on government spending.
I just hope Count von Count sticks to just counting the many economic data points and doesn’t try to make sense of them — a sure recipe for a migraine!  

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