Web Economics 101
So, what exactly did Alan Greenspan tell Congress about the economy during the first of his two appearances last month? Was he "upbeat," as The New York Times reported? Or was he only "mildly optimistic," as The Washington Post said? The front-page tease in The Wall Street Journal had Greenspan warning that "downside risks predominate." Clear? Like mud. No wonder they call economics the dismal science.
Dismal it may be, but we can't ignore this stuff. People need to understand economics to decide whether to buy stock, take a new job, or purchase that dream home. A job that looked golden yesterday might be leaden tomorrow if tech keeps tanking. Or that new SUV may seem superfluous if your job goes sayonara.
Unfortunately, it's hard to get clear guidance about the economy--and especially on what you should do about it. Government economic statistics are complicated, and there are too many of them. You'd need to master a half-dozen .gov Web sites to put together a comprehensive overview. Most leading business media are too scattershot: One source says one thing, and the next says the opposite. That's noise, not insight. Brokerage Web sites can be great, but most require accounts to get detailed research. As Goldilocks discovered, there's little that's just right.
A couple of lesser-known sites are worth exploring, however. The best place for regular people to learn enough economics to handle tough times is The Dismal Scientist, a.k.a. Dismal.com. For some purposes, I also recommend Dr. Ed Yardeni's Economics Network, an economics mini-portal named for Deutsche Bank Alex. Brown Inc.'s investment strategist.
First, Dismal. The site covers 65 different government economics reports from the perspective of real economists, rather than journalists. Dismal's parent, West Chester (Pa.)-based Economy.com Inc., is a consulting firm that sells research to corporations and state governments. Their depth of data and expertise pays off on this free site, where you can count on seeing smart takes on the government data announcement du jour and two or so fresh interpretations of hot issues daily. Comparing Dismal.com to the analysis pouring out of most crummy stock sites is like comparing Chateau Mouton Rothschild to Ripple.
The best things about Dismal.com are that it's quick on the uptake and easy to understand. Dismal's team tends to spot trends early and write them fast. Analysis of regular economics announcements hits the site the same day, often well before noon.
After Greenspan's mid-February testimony, Mark M. Zandi, Dismal's chief economist, wrote that the Fed chief had laid the groundwork for spring and summer rate cuts. Zandi argued that Greenspan's real message was that he'll do what it takes to keep confidence from eroding--the one thing that could really turn this slowdown into a recession. Zandi looked farther ahead than the newspapers and took a much bolder stance than the he-said, she-said of dueling economists, or, worse, politicians.
In fact, a trip through the Dismal Scientist archives shows that their economists are routinely ahead of journalists and pols. Were you impressed by The Wall Street Journal's Feb. 12 Page 1 piece on how the fate of cardboard companies is a clue to the way the economy is slowing? I was. But I would have liked it better if it had appeared before Dismal's version on Nov. 9. Ditto the Feb. 7 front-page article in The New York Times on how state tax receipts are being hit by the economy's stumbles. It was on Dismal.com on Nov. 8, with a Feb. 7 follow-up ranking each state by the size of its rainy-day fund to protect against budget shortfalls.
Dismal reads the crystal ball well, too. Its economists are confident enough to project trend lines for vital metrics going out months into the future--such as labor shortages in health care and what interest rates will be this summer. Dismal predicted in mid-February that the federal funds rate will be 5% in July, down another half-percent, with a 24% chance of falling to 4.75%, based on signals from the futures market.
What does this have to do with you? Plenty. Lower rates usually mean cheaper mortgages and more. It's a fair argument that people would be smart to wait until midyear to make big purchases--which could retard growth during the first half of the year. If you're working for a homebuilder or a car company, that may mean the bounce back is going to come gradually rather than suddenly.
Dismal has two big weaknesses, though. The first is that it covers the economy from the top down by watching national and regional statistics. Why does this hurt? Knowing companies and industries inside out let top business journalists figure out sooner than economists just what a big deal the Net would become--long before it showed up in economic stats. Dismal makes a stab at covering the technology industry as a primary New Economy growth engine, but it should do better.
The other weakness is that Dismal generally isn't explicit about giving advice. Its excellent-as-far-as-they-go analyses of business inventories or the Philadelphia Fed's manufacturing survey don't directly say which industries should back off investment for awhile (or which are prone to layoffs or profit shortfalls). And its analysis of which states have large rainy-day funds doesn't tell policymakers or voters much about policy options. Zandi told me Dismal doesn't want to give advice without knowing people's circumstances. But if the goal is to guide people through the economic wilderness, Dismal should understand people need help with decisions, not just sharp analysis.
Investors can make up for that weakness, in part, by using Dr. Ed Yardeni's Economics Network. Dr. Ed's covers a lot--though not all--of the ground that Dismal does. It's not written as well, and its staff is far smaller than Dismal's. Instead, it relies more than Dismal on links to other Web resources. Dr. Ed's gives clear guidance about investment decisions. Both Dismal and Dr. Ed's have analyzed OPEC machinations, but only Yardeni told me to overweight energy stocks. Most of Dr. Ed's is available to the public for free, and Yardeni is smart. Yes, he hurt his rep by predicting a recession caused by the Y2K bug. But he was also an early seer of the New Economy.
My respect for Economy.com is based on more than a quick review. In 1997, a partner and I tried to start a company to compete with it--but we failed. I've known for years how well they do what they do. My entrepreneurial career is, alas, a tale of fortune much bleaker than what's awaiting savvy users of either Dismal or Dr. Ed's.
By Timothy J. Mullaney, email@example.com