A Tuesday headline in the New York Times was striking — “Manufacturing at highest level in two decades.” But the implied message seemed at odds with other recent news about this sector.
What’s going on? Reading the body of the article solved the mystery. The actual subject of the article was that a numerical index, compiled from a survey of manufacturing managers’ opinions about their sector, was at its highest level in 20 years. Good news, but a statistical index of outlook for a particular sector should not be confused with conditions in the sector itself.
This particular incident is a useful case study in how the media report economic news. The reading and listening public has a strong preference for concise and unambiguous news. But economic news, particularly based on the release of statistical indicators, seldom is entirely straightforward. The nuances are important, but often boring. Journalists have to strike a delicate balance between misinforming consumers by leaving out key details and overwhelming them with minutiae that may seem important to economists but that have little practical import.
Let’s take this specific case. The Institute for Supply Management, formerly and more usefully called the National Association of Purchasing Managers, long has surveyed its members about conditions in their firms and their outlook.
The institute tabulates a set of numerical indexes from some 400 managers in key companies. History shows that these indexes provide useful, but not infallible, indications of short-run future trends in business. When the index numbers are up, as they were on Monday, it is good news for the U.S. economy.
Nevertheless, asserting that manufacturing is “at its highest level in two decades,” seemed inherently misleading for two reasons. First, it seems sharply at odds with other news about the sector. Manufacturing employment remains sharply down from levels achieved in 2000, before the most recent recession hit.
Moreover, myriad news stories have related how many manufacturers are struggling in an intensively competitive, low-profit environment. This seems dissonant with a headline implying that the sector has never had it so good, at least since 1983.
On the other hand, for many, the words “at highest level” will carry an implication of volume or output. In that case, “the highest level in two decades” seems strange. If our economy has grown steadily during the last 20 years, how can current output “levels” be no higher than those in 1983? Adjusted for inflation, the value of national output has grown by more than 80 percent since 1983. If manufacturing levels only now are returning to some benchmark set back then, something must be strangely out of whack.
These apparent contradictions disappear when you find that the “level” in question is the level of a numerical index. The institute’s key index stood at 62.8 in November, and indeed it was the highest level for that particular index in two decades.
As the institute explains, “A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.” Thus a 62.8 in November is a good indicator that business conditions are improving in manufacturing and probably will continue to improve well into 2004. Again, this is good news.
The institute compiles its overall index as a weighted average of survey responses in several sub-areas including new orders, inventories, employment, supplier deliveries and so forth. Much of the improvement in the November index came from increases in two such areas — new orders and production. The employment number reached 51 — the first time it surpassed the neutral point of 50 in 35 months.
Thus, the real story is that conditions are improving rapidly in manufacturing, but not that the sector is somehow better off than at any other time in the last two decades. The New York Times would have been less misleading if the headline writer had inserted the word “index” right after “manufacturing.”
The Pioneer Press story on the same news release had a better headline, “Manufacturing rise fastest in 2 decades.” It was clear that the news was about some indicator of change, not overall output or employment. The Wall Street Journal headline referred only to “strong economic statistics,” but its story’s first line was accurate and right to the point. “An index of U.S. manufacturing activity hit its highest level in 20 years.”
New York Times defenders may argue that the distinction between “manufacturing levels” and “manufacturing index levels” is unimportant and that any criticism is mere pedantry. It is not. The media have published many accurate stories in the last year about sharply lower levels of manufacturing employment and serious challenges faced by manufacturing firms.
To avoid confusion, any story describing rosy conditions required careful attention to explaining how the good news meshed with prior reports of any economically troubled sector. The headline failed at that.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.