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2013－04－25 The Economy: Sometimes the More You Learn, the Less You Know
By Marek Fuchs
The more you find out about the economy this week, the less you may truly know. And with the first read on Q1 GDP and UPS's (UPS) earnings, we could see prime examples of how appearances can deceive.
The first draft of first-quarter 2013 GDP is due on Friday, but it should be clearly noted that Friday's number is only an estimate. If history is any guide – and it is – the initial reading could be revised by upwards of 50 percent (up or down, take your pick) in the coming weeks.
The curious case of 2012’s 4th quarter should serve as a cautionary tale. In late January, the Commerce Department reported its first estimate: down 0.1 percent. Some members of the media went into alarmist overdrive, conjuring up the prospect that the U.S. had stumbled into a recession. Meanwhile, the press largely failed to fulfill its mission of providing context: that initial number is essentially written in sand.
Sure enough, a month later, the Commerce Department scrubbed the declining number and told us the economy had grown by 0.1 percent. A revision of 0.2 percent may not seem like much but shifting from a decline to an increase is pretty major. This is to say nothing of the fact that, thanks to stronger than previously calculated business investment and export sales, GDP growth was ultimately pegged at an 0.4 increase. This kind of growth is little cause for celebration but it’s also a very different animal than a decrease.
Don't fall for it
So come Friday, remember: much of the media will chain itself to whatever figure is reported, drawing conclusions with ironclad certainty. But don’t fall for it. Recognize, instead, the chance for revision and a whole new meaning in the next two months.
And then there is UPS, which is due to report its first quarter before the stock market opens on Thursday. Analysts expect a profit of $1.01 per share on sales of $13.48 billion.
Although the company is often referred to as an "economic barometer," it has recently been anything but. For one, UPS is in an area – package delivery – that has secular advantages, thanks to the likes of Amazon (AMZN). As shopping moves online, packages move across the nation – indeed, the globe – with increased frequency. But that advantage can mask economic weakness.
Moreover, UPS is often credited for having an economic crystal ball. But, in recent years, the ball has hardly been translucent. A close look at the company's track record of playing economist leaves a bit to be desired. When it reported its first quarter of 2008, for example, UPS looked ahead into the abyss… and merely stretched the range of its estimates down a tad.
A faulty crystal ball
Then, in January 2009, UPS flailed out in several different directions, boosting fourth-quarter projections by more than 15% and claiming the economy was improving while also cutting 1,800 jobs and warning the recovery would be gradual, at best. With economic forecasts like that, you might as well listen to the Wall Street analysts, who plant both their feet firmly in the air in order to appear right no matter what ultimately transpires.
How faulty is UPS’s crystal ball? The purported “bellwether,” which inspires so much confidence, has missed analysts’ estimates three times in the past four quarters.
In short, the media will emerge from the latter portion of this week with a ready-made narrative about precisely where the economy stands. Unfortunately, that narrative could be built on the backs of GDP and UPS, which is a mistake in the waiting.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.
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