Summary
When the DJIA has a +142-point day, it's worthy of mention. And since a "stronger-than-expected" report from the Institute for Supply Management got a lot of credit for strong stocks, we'll have a look at it, too. Meanwhile, Wall Street bulls remain awfully sanguine about the impact Hurricane Katrina will have on the economy going forward. This is a view with which we simply do not concur.
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"John Williams' Shadow Government Statistics"
Earlier today, John Williams published the September edition of his exceptional newsletter, "Shadow Government Statistics." For those not familiar with the outspoken, highly proprietary work John does in analyzing the economy independent of the government's increasingly suspect data, a visit to his website is very much in order -- www.shadowstats.com/.
(NOTE: Anyone having a possible interest in subscribing to John's invaluable research should contact Doug Gillespie at gsrdr@aol.com for details.)
The introduction to today's September edition of SGS reads as follows:
"The impact of Hurricane Katrina now becomes the convenient excuse for an inflationary recession, the ingredients and manifestations of which were falling neatly into place long before this catastrophic event came along. Make no mistake about it, however -- Katrina's influence, if it is 'permitted' to find its way into government economic releases, will be very harsh.
"A sampling of some of the likely storm-enhanced data swings: An addition of 1% to the September CPI, third-quarter GDP that shows now growth in real terms, and a decline in September payrolls of 300,000 accompanied by a 0.4% increase in the unemployment rate. These outcomes would have serious shock value, but from a purely political perspective, it might be advisable to report them anyway, while Katrina remains fresh in everyone's mind to assume the blame."
The September edition of SGS goes into considerable detail regarding Katrina's likely impact on the economy, and the assessments are not terribly cheerful ones. While the content is available to subscribers only, we can produce a very fast turnaround time for people who might want to subscribe. Moreover, significant discounts are available to Gillespie Research clients.
The Stock Market
Wall Street continues not to share our economic concerns, either the new, serious ones generated by Katrina, or those predating this catastrophic event.
(NOTE: There is an excellent, well-written article on the economy in the Christian Science Monitor, authored by Mark Trumbull. It is entitled, "US Economy Takes Big Hit," and it can be accessed in the "Topical Links" section of the GRA website.)
Part of the justification for yesterday's liftoff in stocks was "relief" that hurricane damage was not as bad as expected. But we continue to be baffled by just what expectations Street bulls are talking about.
My seven-measure market tracking group rose an average 1.4% yesterday, with gains running in a range of 1.7% for the Russell 2000, to 1.2% for the NYSE Composite, Value Line Index, and Wilshire 5000. The DJIA was up almost 142 points or 1.4%. The table below updates DJIA data appearing in the past.
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DOW JONES INDUSTRIAL AVERAGE
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DJIA Largest + Day During Week
Change -------------------------
Week for Day/
Ended Week Date Points Change
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09/09 NA Tu 09/06 +141.07 +1.4%
09/02 +0.5% Mo 08/29 +68.78 +0.7%
08/26 -1.5% Th 08/25 +15.76 +0.2%
08/19 -0.4% We 08/17 +37.26 +0.4%
08/12 +0.4% Th 08/11 +91.48 +0.9%
08/05 -0.8% Tu 08/02 +60.59 +0.6%
07/29 -0.1% Th 07/28 +68.46 +0.6%
07/22 +1.0% Tu 07/19 +71.57 +0.7%
07/15 +1.8% Mo 07/11 +70.58 +0.7%
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Another justification for yesterday's spike in stock prices was the ISM's report on the economy's service-sector activity during August, to wit:
ISM August Service-Sector Data
Yesterday morning, the Institute for Supply Management released results of its service-sector index covering August. The index came in at a reading of 65.0, versus 60.5 in July. (The consensus estimate was looking for something a bit over 63.) In August of 2005, this index stood at 59.3.
The index's prices-paid component fell to 67.1, which was down, but not significantly down, from July's very high reading of 70.3.
(NOTE: Overall index and sub-index readings above 50.0 indicate expansion; readings below 50.0 indicate contraction.)
Although the ISM results showed strength, they now assume the status of all other recently reported economic data, strong or otherwise. To what degree and for what duration will they be adversely impacted going forward by Hurricane Katrina?
For the 12 months ended August, ISM's service-sector index's high was August's 65.0. Its low was 58.5, occurring in May of this year. The 12-month average came in at 61.3, 3.7 points below the August result.
This series' most recent high was 66.9, occurring in April of 2004. This was 1.9 points or 2.9% above August's result.
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INSTITUTE FOR SUPPLY MANAGEMENT
NON-MANUFACTURING INDEX -- TOTAL
INDEX AND PRICE COMPONENT
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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08/05 65.0 67.1 36% 6% 58%
07/05 60.5 70.3 39% 3% 58%
06/05 62.2 59.8 27% 5% 68%
05/05 58.5 57.9 27% 5% 68%
04/05 61.7 61.9 41% 2% 57%
03/05 63.1 65.6 43% 1% 56%
02/05 59.8 66.4 43% 3% 54%
01/05 59.2 66.6 37% 4% 59%
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12/04 63.1 73.6 38% 5% 57%
11/04 61.3 73.2 38% 4% 58%
10/04 61.5 74.0 44% 3% 53%
09/04 58.7 68.8 35% 3% 62%
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08/04 59.3 70.1 40% 4% 56%
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In the "What Respondents Are Saying" section of yesterday's ISM report, following are some comments relating to prices:
* "Concern about fuel prices affecting coming season (winter) volume and per diem...Overall energy costs trickling down to operating commodities and cost of goods expenses are concerns." (Entertainment).
* "How high will fuel costs go?" (Insurance).
* "General lack of optimism stemming from recent
increases in fuel and energy costs." (Other Services).
* "Pricing increases are now being passed along on many
goods and services as a direct result of higher gas
and oil prices. This will have a negative effect in
the near future on spending plans." (Public Admin.).
* "Increasing railroad freight and fuel surcharges
pose problems." (Wholesale Trade).
Commodities Reported in Short Supply During August:
(NOTE: The number of consecutive months the commodity is listed is indicated after each item.)
Concrete; and Steel.
Commodities Reported Up in Price During August:
Adhesives; Airfares (5); Asphalt Construction/Products (6); Construction/Construction Services and Contractors (4); Conveyor Belts; Copper/Copper Products (24); #1 Diesel Fuel (6); #2 Diesel Fuel (8); Electrical Products (3); Energy (2); Food/Food & Beverage Products (2); Freight Charges/Shipping (2); Fuel (21); Fuel-Related Surcharges (2); Gasoline (21); Hotel Prices/Costs (9); Medical/Surgical Supplies; Natural Gas (3); Office Machine/Copier Services; Oil-Based Products; Paper/Paper Products (19); Petrochemical Products; Petroleum/Petroleum Products (2); Pipe/Pipe Fittings (3); Plastics/Plastic Products (2); Soy Oil; Tape/Tape Media; Transportation; Trash Can Liners; Travel (2); and Unleaded Gasoline (2).
Commodities Reported Down in Price During August:
Beef (3); Computers and Peripherals (3); Corrugated; Lumber -- Pine, Spruce and Treated (2); Pork/Pork Ribs; Printing Services; Steel (2); and Technology-Related Equipment.
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