The early returns from the end of 2006 and the start of 2007 have been making it easy to be an optimist. The housing market is enjoying a bit of a bounce, and though not everyone was impressed, last Friday's employment report elicited reactions more along the lines of "solid." The Capital Speculator sees "reasons to be cheerful", Tim Duy insists "the numbers are telling us that the year ended on a much more positive note than the permabears loudly insisted was happening", and Barry Ritholtz concludes that it all looks to be "reducing the odds of a rate cut [by the Fed] anytime soon."
There was plenty of discussion -- by Duy, by Ritholtz, by Calculated Risk, by Jim Hamilton (here and here), by Felix Salmon, for example -- on how to interpret the apparent mismatch between the job creation numbers implied by estimates from Automatic Data Processing (a private payroll processing firm that "contracted with Macroeconomic Advisers, LLC (MA) to create and maintain from this rich, timely data set a new measure of total nonfarm private employment") and the official government numbers from the Bureau of Labor Statistics. And Nouriel Roubini is usually a reliable curb on any enthusiasm that might be building.
If there are not enough cautionary tales out there for you, from today's Wall Street Journal (page C1 of the print edition) comes another reason to hold your breath:
This year's warm weather means economic activity that would normally be put off until spring is happening now instead, says Goldman Sachs economist Ed McKelvey. That is probably going to make economic indicators look artificially strong.
Consider housing. Builders don't break ground on many new homes in the winter. To avoid having their charts bounce around unintelligibly because of seasonal swings, government statisticians adjust winter housing starts figures upward so December is comparable with May. But if warm weather keeps more construction crews on the job, the adjusted figures could indicate a level of housing activity that isn't really there.
There are certainly offsetting factors...
On the other side of the ledger, the warm weather has made some retailers suffer. This hasn't been a good winter for selling sweaters and other cold-weather fare -- one reason why many apparel stores have posted tepid sales.
but:
... the money that shoppers don't spend on sweaters probably gets spent on other items, says Northern Trust economist Paul Kasriel...
Mr. Kasriel thinks the warm-weather boost to economic activity will prove illusory. If he's right, investors who trust the latest economic figures could discover they didn't know which way the wind was really blowing.
Shoot. Just when I was starting to feel all warm and fuzzy.