New York - There was the world before the war with Iraq, and there is the world after the war, which will reveal itself in bits and pieces in coming weeks and months. How will we know where the former ends and the latter begins?
Economists are dividing the latest economic statistics into BI and AI, for before and after the Iraq war. AI-only data carry weight with financial markets.
The distinction may be less clear than some would like.
Let's start with the workhorse of the economy, the American consumer. Consumer spending accounts for two-thirds of economic activity. By all rights, weekly chain store sales should provide an accurate, high-frequency sounding on post-war consumer sentiment and spending behaviour.
The weekly chain store sales index of the Bank of Tokyo-Mitsubishi rose 1.3 percent for the week to April 12 compared with the week before. The week encompassed the April 9 toppling of the statue of Saddam Hussein, along with the Iraqi regime.
Bank economist Mike Niemira, who compiled the survey, said sales got a lift from mild weather during the period. "The CNN/war effect wasn't a big deal, even though Wal-Mart said it was."
Wal-Mart Stores, the world's largest retailer, said sales last week were at the low end of expectations. Cooler weather was the culprit.
"Comparable store sales have been weak since August last year, predating any war effect," Niemira says. "These things don't reverse overnight.
"My sense is that chief executives are looking for more of a gradual improvement rather than a sharp burst of activity."
What about the weekly filings for unemployment insurance, one of 10 components in the index of leading economic indicators? Initial jobless claims rose 30 000 to 442 000 in the week to April 11, near the highest level of the past 12 months.
Claims may be timely and statistically they may lead, but businesses are not about to hire until stronger demand for goods and services forces them to.
So don't wait for weekly jobless claims for a heads-up on the state of the post-war economy.
Manufacturing may be the best gauge of whether the war effect is all it's cracked up to be. This cyclically sensitive sector of the economy holds three board seats, with 30 percent of the voting shares, on the index.
New orders for non-defence capital goods, new orders for consumer goods (both adjusted for inflation) and vendor deliveries from the Institute for Supply Management's monthly survey are all considered leading economic indicators.
Vendor deliveries, which enter the index inverted (slower deliveries mean faster economic growth), have been slowing for 15 months. Clearly they weren't a harbinger of manufacturing activity, which is softening again after modest improvement in the first half of 2002.
New orders for non-defence capital goods were down 3.8 percent in February from a year earlier. Last week's report on March durable goods orders is strictly BI. Going forward, this series will foretell capital spending. (And if it does pick up, how will we know if the war held it back or something fundamental that resolved itself?)
Some analysts think consumer confidence indices will be a harbinger of things to come. Niemira disagrees.
"You're getting the rallying effect, which can be misleading," he says. "Americans marshal behind their leaders and country at times of national crisis," which is known in the academic literature as the rallying effect.
How else can we explain the strongest reading in the year-old Gallup/UBS job security index in March even as the economy was shedding jobs?
Conflicting signs aren't about to give way to a definitive conclusion. "Debate about how much of the recent stall was temporary or fundamental may not be settled quickly," economists at Citigroup write in the latest issue of Comments on Credit.
"There are no signs of an imminent burst of activity."
Car manufacturers have cut production schedules for the current quarter, the economists say. And surveys of business confidence indicate only modest plans to invest and spend.
Instead of clarity, the lifting of the fog of war has produced a post-war haze. - Bloomberg