Wednesday, February 06, 2008

Serge Already Knew What the ISM Just Figured Out

Once again, Wall Street’s economists have finally—thanks to an economics statistic painstakingly compiled and reported by an upright and earnest institution (in this case the Institute for Supply Management, or IMS)—learned something the rest of America pretty much already knew.

This time, it was the following startling fact: the U.S. economy is quite weak.

At least that’s what yesterday’s ISM number—a measure of non-manufacturing business activity—revealed to shocked number crunchers on Wall Street, hitting its lowest level since 2003.

And while the number dropped jaws on Wall Street, I doubt it surprised too many people on the main street where I live.

For on that main street is a small family restaurant—highly successful over many years and many business cycles. And in that restaurant is a busboy named Sergio—one of the hardest working guys I know. And just last week Serge was gesturing at a room full of empty tables and telling me he was worried about his job.

“If it stays like this…” he said, “I don’t know what I’m going to do.” Serge is not a complainer. In fact, I’ve never heard him talk about anything but his family, his grandson, and the New York Yankees.

I asked him if it wasn’t just a slow Tuesday night, and he shook his head: “It’s been like this every night.” And the owners are taking measures, cutting hours, cutting staff.

So, precisely why the ISM number was as startling as it appeared to be to so many professionals is not entirely clear.

After all, if they're not eating at family restaurants and noticing empty tables, a few recent earnings reports would have filled them in.

Just last week Starbuck’s reported a 3% decline in customer traffic. A couple days before that, McDonald’s reported no increase in comparable-store U.S. sales.

And if those data points from two of the largest bellwethers of the American service economy hadn’t registered with the Wall Street economist types, you might have thought the previous week’s commentary from the parent company of the ubiquitous Chili’s restaurant chain would have done the trick:

“Add to this [increasing competition] the uncertainty about the economy, a decline in consumer confidence and increased commodity costs, and we are operating in one of the toughest environments in our company history.”

That history, for the record, goes back almost 33 years.

But if Wall Streeters can be shocked by something so easily visible in their own backyards, imagine the chaos sweeping the Fed!

Maybe they should talk to Serge. I've got his cell phone number if Ben wants to call...

Jeff Matthews

I Am Not Making This Up

© 2008 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


whydibuy said...

Nooo, it can’t be.

Are you trying to tell me that the housing bust and all its ramifications like dramatically tightened credit standards, equity lines being cancelled and home price appreciation turned depreciation is actually having an effect on the broad economy??
Say it ain’t so, Joe.

How can a crash in the biggest asset class and the largest single item of value to most people actually have an economic effect?

The wall street talking heads have dismissed it as a non event and like the phoney referees in pro wrestling, if they did not see it, it did not or is not happening.

MattF said...

And when they DO see it, they can't catch much....because something else happens while they tend to it ;)

BelowTheCrowd said...

Herb has a similar story from the opposite coast in his "Hot and Sour Soup Indicator."

Put enough of that "unreliable anecdotal information" together and pretty soon you start seeing a pretty big picture that the economists won't see in "the numbers" for months or longer.


Anonymous said...

You know Jeff, even Wal-Mart is havnig a tough time with its sales, where they reported only a .5% increase in 01-2008 for their quarter. One would think that if a company like Wal-Mart is having tough times, I can't imagine what it's like for TGT (but then again, I could be wrong).

Annie and Lyon Jewett said...

As a guy on the retail level in the mortgage business (and an econ junky)
it is clear the economy is in a recession.
However, this is good for me as I will post about 100 deals in the next month.

This recession is going to be long and hard.

I'll always remember my brother's advice about 20 years ago after a girl broke up with me....metaphor-LJ, you can't push on a string."

The Fed is in this position now. No amount of easing of the Fed funds will solve the credit freeze in ABX, rmbs, cmbs...etc...

A trader once asked at the CME in 1994 when I worked in the eurodllar options pit, "LJ, how does money travel around the world?"

I had no clue....

However, the answer was obvious.

"Any way it wants."

NitinK said...

To continue further along the lines of what btc said above, what we need is a Prediction Market - where ordinary folk vote based on their confidence level in the economy, and the correct votes are rewarded with money, as an incentive to take it all seriously.

Oh, wait, we already have such things - they're called Stock Exchanges!

I've always found it funny that the trends for a lot of analyst target numbers actually follow the trend in the price itself. Sure that's easy to do - but how does it add value?