The Economy Is Going Thataway

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A sluggish start to the shopping season

Wall Street tends to respond to economic numbers with its gut. There's no time to read the fine print, or indulge in any two-ways-of-looking-at-this pondering. The morning's headlining report — unemployment, retail sales, consumer confidence — comes out, fits somewhere into investors' expectations about whether it is a good or bad thing, and usually imparts that spin to the morning's trading before the session fades into the usual scrum over the day's corporate news.

Unless their gut gets confused, in which case investors behave like they did Friday — single digits up, single digits down — as if they were waiting for someone else to pipe up and tell them what, exactly, the latest batch of numbers means for the economy, the recession and the recovery. This was one of the lower-wattage economic Fridays — no University of Michigan report, no monthly unemployment. Just business inventories, industrial production and capacity utilization, and of course the CPI inflation gauge, which no one seems to worry much about anymore.

And that was the first strange thing. Overall prices were flat in November, which was more or less expected, but the "core" CPI — excluding those volatile food and energy prices — jumped 0.4 percent, the most since January 1996. Eek — does that mean the Fed is in trouble already? How could prices be going up when the whole world is fretting about weak demand? Probably best to forget about that one.

[an error occurred while processing this directive] Business inventories, meanwhile, duly presented their own paradox. They fell in October (for the ninth consecutive month) by 1.4 percent, an all-time record for the stat and twice as much as the consensus forecast expected. Now remember that this was October, a fairly long time ago — should we be pleased that inventories were continuing to be cleansed, to make way for new capital investments, new production and new profits? Or do we get disappointed that those businesses hadn't gotten out of the cleaning phase yet?

Industrial production for November — the egg to business inventories' chicken — suggested a bit of both. The cause for disappointment was that output at factories, mines and utilities fell 0.3 percent, the 13th decline in the past 14 months and another sad chapter in a trend; industrial production peaked in June of 2000 and has since fallen by 6.8 percent, the biggest decline since the 1981-82 recession.

Queasy stuff. But the carmakers, possibly looking to be rewarded with their own cabinet position (Secretary of Detroit?) when all this is over, are patriotically soldiering on from phase to phase like a good economic actor should. First, by personally delivering the Fed's cheap money to the people with take-my-car-please financing offers, Big Auto made October's retail sales numbers comforting enough to get to sleep at night.

Then, even as the deals — and with them the buyers — were retreating back into the shadows in November (the wane of the keep-America-rolling sales push was behind Thursday's retail-sales bummer that took October's 6.4 percent spike and turned it into a 3.4 percent drop) carmakers are doing just what we want everybody else to do. They're refilling their lots. Production of automobiles and parts jumped a whopping 6.4 percent in November, taking the edge off the rest of the manufacturing sector's stubborn statistical lethargy.

Ah, the peculiar pain of mixed signals. Somehow it's hard to feel good about U.S. carmakers forcing themselves through the binge-purge-binge motions of brisk and healthy capitalism, especially since none of them are making any actual money off these little stunts, and it strains credibility to imagine a spring consumer-spending boom fueled by healthily priced Chevys.

But the story of this recession does continue to sharpen. October was comeback month, and November seems to have been come-back-to-reality month, leaving us with a semi-discernible trend that puts the economy — you guessed it — somewhere near a bottom but not exactly turned around just yet. Oil and gas prices remain helpfully low for consumers, and consumers themselves don't seem to be too badly off. But it seems few businesses are willing to ramp up production just yet — until they see demand waiting for them around the corner, they're not going to do much. And they don't appear to see it.

So why should Wall Street? All they really want from an economic report is that it tell them when businesses are going to start making more things and selling them at better prices — and all they got this week was a "definitely maybe, one of these days." Producers are waiting. Consumers are waiting. And investors, after a long and inspiring three months of running up the Dow and NASDAQ almost solely on faith, may be hearing from their gut that maybe they'd better just stop and think about this before placing any more big bets.

Or maybe they're just a little hung over from the Christmas party.