Analysts agree: Trends more telling than data

Your Money

September 25, 2005|By Janet Kidd Stewart

Getting a bunch of economists to agree on anything is tough. Getting them to agree on which economic indicators are most important for investors is another matter entirely.

Nonetheless, a group of the nation's top economic analysts offered their views to try to sort out which economic indicators are the most valuable for everyday investors to watch. And then they indicated which ones they found overrated, unhelpful or for some reason irrelevant in today's markets.

As expected, it wasn't always pretty. Of the 15 economists who participated, no two had the same lists of picks and pans. Some indicators made both lists. Most economists picked at least one indicator no one else mentioned.

But some patterns, if not absolute consensus, did emerge. And while experts cautioned against making investment decisions based on the latest data du jour, they did stress that following the broader economic trends is important for investors.

After everyone had his say, the most consistently noted report turned out to be one that gets less attention from Wall Street and the media than the monthly jobs report or daily oil prices.

The Institute for Supply Management, the trade association commonly known as the purchasing managers, issues two index reports each month (one for the manufacturing sector and one for the nonmanufacturing sector) that many economists wait for with bated breath.

"I like it because it's forward-looking," said Chris Burdick, director of economic analysis at the Schwab Center for Investment Research, a unit of San Francisco-based Charles Schwab & Co. "We're able to hear purchasing executives at over 400 companies. It's a show of hands on three questions - is growth up, down or flat? It doesn't depict magnitude, but it does describe direction."

Direction was the mantra economists kept repeating when asked how investors can best use the flood of economic data that spills out seemingly by the minute.

"Wall Street doesn't care about economic theory, and neither should [smaller] investors. What matters is the trend," said Barry Ritholtz, chief market strategist with Maxim Group in New York. "You have to take a 40,000-foot view to understand the value of economic indicators. The month-to-month data points don't matter; it's, `Are we creating jobs or not?' "

Similarly, Goldman Sachs' Abby Joseph Cohen looks for momentum swings in her three favorite statistics: the Federal Reserve's monthly report on industrial production, the quarterly employment cost index and annual corporate balance sheets.

Late in the spring, the industrial production data showed the information technology sector was gaining ground, and computer-related stocks began to improve at the end of June, she said.

This is not to say investors should start reading key economic indicators and making quick buy-or-sell decisions, experts said.

"If you see the indicators showing weakness in the economy - high oil prices, high interest rates, a weak dollar - that's a signal to perhaps underweight equities. If profit forecasts are increasing, interest rates are coming down and oil is stable, it's time to overweight equities," said David Darst, Morgan Stanley's chief investment strategist.

Leading the list of pans was the leading economic indicators, a monthly index published by the Conference Board that compiles 10 other economic reports, including jobless claims, interest-rate spreads, stock prices and building permits.

Janet Kidd Stewart is a Your Money columnist.

THE ONES THEY SAY TO WATCH

ISM INDEX

Institute for SupplyManagement's monthly gauge of manufacturing sector.

"Correlated with turns in the business cycle." -- Hummer

Who also swears by it: Bangalore, Burdick, DeKaser, Wesbury

OIL FUTURES

Price of barrel of oil on New York Mercantile Exchange (intraday)

"A direct tax on consumers."-- Zandi

Who also swears by it: Darst

JOBLESS CLAIMS

Labor Department's weekly tally of initial unemployment filings.

"It's a real count, not a sample. -- Zandi

Who also swears by it: Bangalore, Hughes-Cromwick

INDUSTRIAL PRODUCTION

Federal Reserve's monthly tally of how much manufacturers actually produce.

"A survey of theentire economy. -- Cohen

Who also swears by it: Rosenberg

EMPLOYMENT SITUATION

Labor Department's report on jobs, wages(first Friday of month)

"Useful in gettinga fix on wage andsalary incomes,which affects consumer spending. -- DeKaser

Who also swears by it:Bangalore,Hughes-Cromwick

FOREIGN CURRENCIES

How value of the dollar compares to foreign currencies (intraday)

Indicates whether the Fed has to raise rates. -- Darst

Who also swears by it: Zandi

10-YEAR TREASURIES Interest rate on 10-year note (intraday)

Excellent benchmark for mortgage and commercial borrowing costs. -- Bethune

Who also swears by it:Darst

OUR TEAM

Asha Bangalore Northern Trust

Brian Bethune Global Insight

Chris Burdick Charles Schwab & Co.

Abby Joseph Cohen Goldman Sachs

David Darst Morgan Stanley

Richard DeKaser National City

Ellen Hughes-Cromwick Ford Motor Co.

William Hummer Wayne Hummer Investments

William Polley Western Illinois University

Maria Ramirez Maria Fiorini Ramirez Inc.

Barry Ritholtz Maxim Group

David Rosenberg Merrill Lynch

Brian Wesbury Claymore Securities

Mark Zandi, Scott Hoyt Economy.com

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