Thursday, October 20, 2005

Leading indicators obscure good news 

The new Index of Leading Economic Indicators is out, and while the headline number will be a fall of 0.7% in September, the news isn't nearly as bad as it seems. The index is sharply influenced this month by two measurements: consumer confidence and weekly initial claims for unemployment insurance. We've already looked at the consumer confidence measurement, and there's not much evidence that these things matter for predicting a recession. As to unemployment insurance, there was a large jump in claims due to Katrina: for the week of Sept. 10, initial claims were up 49,665 in Louisiana, 5,177 in Mississippi, 3,506 in Texas and 2,719 in Alabama. The unemployment rate in Louisiana is now over 11%. Does this portend a recession? I think not. Nor is an expansion predicted by the one indicator offsetting about half of the decline in claims and confidence: Vendor performance (measured as slower deliveries received by shipping managers) was up a good bit, but that is too due to the strains on transportation from shipping relief supplies to the Gulf Coast. All told, the report is not much news.