Monday, January 3, 2011

Chart of the Week: The Year in Economic Data (2010)

One of the blog’s surprise hits in 2010 was a series of charts I began which started out with the unwieldy title of Trends in Economic Data Relative to Expectations.

I have utilized this chart format to track the performance of key economic data releases relative to consensus expectations.

The data are sorted into five groups and include economic reports such as the ones highlighted below:

  • Manufacturing/GeneralGDP, ISM, Industrial Production, Capacity Utilization, Durable Goods, Factory Orders, Regional Fed Indices, Productivity, etc.
  • Housing/Construction – Building Permits, Housing Starts, Existing Home Sales, New Home Sales, Pending Home Sales, S&P/Case-Shiller Home Prices, Construction Spending, etc.
  • Employment Employment Report, Jobless Claims, etc.
  • ConsumerRetail Sales, Consumer Confidence, Consumer Sentiment, Personal Income, Personal Spending, etc.
  • Prices/Inflation – Producer Price Index, Consumer Price Index, etc.
For each report, I evaluate whether the data exceeds or falls short of consensus expectations. I then aggregate the data over time to see the extent to which certain segments of the economy are trending higher or lower relative to expectations.

The chart tells a couple of interesting stories for 2010. First, it was the manufacturing sector which provided the bulk of the positive surprises during the first half of the year and the propelled stocks to their April highs.

Manufacturing began to turn down in May, following stocks down. This was just about the time that housing and construction started to provide some evidence of positive surprises, but that sector did nothing to stem the tide of falling stock prices.

When stocks started to turn around at the end of August and make their big bullish move for the year, this coincided with an improving employment picture, a rebound in manufacturing and an upturn in the consumer.
Over the course of the year, economic data came very close to meeting expectations for all sectors except housing and construction, which was the surprise winner in the data vs. expectations sweepstakes.

Finally, as the year came to a close, it was employment which was most highly correlated with changes in stock prices, followed closely by a virtual dead heat between housing/construction and the consumer.

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