Perplexed by contradictory reports about whether the US economy is skidding to a halt or revving up again? You are not alone. Confusion abounds, even among the most astute observers.
Last week, when the US Federal Reserve published its Beige Book summary of regional economic conditions, the Financial Times hailed it as "Good news amid economic gloom", saying it provided more evidence "that the US economy has turned a corner after a steep six-month slide". But the Wall Street Journal, under the headline "Fed Finds Slowdown Is Widespread In US", concluded that the Beige Book "offered little evidence that the slowdown is over". For some the bottle is half full, for others, half empty. These reports reflect a raging debate in the United States. Is there a recession going on or is there not? A positive economic report one day prompts the headline "What recession?". Then a negative indicator produces "Recession looms". It has been a very contradictory downturn. Anomalies abound. Consumer confidence fell eight points in April, but spending was up. House sales were strong and cars sold well, while unemployment jumped from 4.3 per cent to 4.5 per cent - and there was never such a leap without a recession according to Lakshman Achuthan of New York's Economic Cycle Research Institute. The bad news on unemployment was taken as good news by Wall Street because it meant Mr Alan Greenspan, the Federal Reserve chairman, was more likely to cut rates aggressively. So the Dow and the Nasdaq raced upwards.
The Government announced that the economy grew by 2 per cent in the first quarter, but then the Chicago Purchasing Managers Index, a key indicator of the health of the manufacturing sector, took a dive and the help-wanted advertisements index plunged to its lowest point since 1993. With such bewildering data, business people have their own favourite methods of judging where the economy is heading. Mr Bruce Chizen, head of Adobe Systems, told the Wall Street Journal he looks at taxi queues and restaurants for clues. If the queues are short and he can get a good table easily, the economy is hurting. Mr Michael Eisner, the Walt Disney boss, checks advance reservations for Disneyland in Florida, which he finds are "softer" this year. Mr Greenspan likes to study corrugated box sales. Perhaps he started lowering interest rates after reading a Fibre Box Association report that box shipments fell in the fourth quarter of 2000. The Fed chairman also studies economic history. There he can find that the last 16 Republican presidents had a recession in the first two years, so why should George W. Bush be any different? A favourite method is to check out the volume of shipping at the Port of Long Beach (www.polb.com). It picked up by 2.7 per cent in March over February. But port media manager, Mr Art Wong, suggests the February decline was due to the Chinese New Year. Better look elsewhere. I drove past New Jersey's Port Elizabeth recently and saw hundreds of empty containers stacked up, some marked "For sale", confirmation that things are bad. But I met a mortgage broker at the American Ireland Fund dinner last week in New York who told me business was never better, with more first-time buyers than ever.
The Fed's Beige Book, published eight times a year, also relies on anecdotal evidence. So just what did it say in its last survey which confused the newspapers? Judge for yourself. "Almost all districts report a slow pace of economic activity in March and early April," it reported. "Retail sales were weak in March, but strengthened in April. Still, retailers in most districts are expecting only small gains, at best, in upcoming months. Vehicle sales have been mixed, with demand for new SUVs, trucks and luxury cars generally down.
"Industrial activity has continued to weaken, with orders and production having fallen in many districts. Labor market tightness has eased in almost every district. Upward wage pressures have generally abated, only to be replaced with energy costs that have risen sharply.
"Home sales and new construction have remained steady or been picking up in almost all districts. Commercial construction has been more uneven across districts. Lower mortgage rates have spurred a resurgence of refinancing, which has helped bolster loan growth recently.
"Many districts note, however, that credit standards are tighter now than previously. The winter wheat crop is generally in good condition, while some delays in spring plantings and the development of other crops have been noted in the Midwest and Plains. The energy sector continues to strengthen." No wonder we are confused. As Ms Gail Fosler, chief economist of the Conference Board which calculates the index of leading indicators, remarked: "This has been a very peculiar time."
