Marketwatch recently reported that Morgan Stanley’s Business Conditions Index had deteriorated to levels last seen during the 2007-08 financial crisis. Wow! Is this an alarming signal, or contrarian?
In reality, it was a lesson for data analysts in quantitative analysis.
Looking for confirmation
When I see a surprising result, I look for confirmation. To be sure, CEO confidence has fallen off a cliff.
On the other hand, NFIB small business optimism has been on fire.
What’s the real story here? Is there a severe bifurcation between big business (CEO) and small business (NFIB) confidence? Wouldn’t the Morgan Stanley index be more reflective of the big business rather than the small business outlook?
I was able to obtain some of the details behind the Morgan Stanley Business Conditions Index. A detailed analysis of its components reveals some of the reasons behind the index crash. Capex plans had dropped dramatically from 21 in May to 7 in June, which is consistent with what we see in CEO confidence. On the other hand, the Manufacturing Subindex cratered from 67 to 0 in a single month, while the Services Subindex fell from 35 to 18. The other components, such as the Price and Prices Paid Indices, were relatively stable.
67 to 0? Really? Did someone forget to fill in the spreadsheet? That looks like a possible data error that someone should be looking into. In the meantime, investors should view such dubious data with some skepticism without confirmation.
The moral of the story is, “Don’t believe everything you read on the internet.”