Breakout

Forget ISM, Krispy Kreme is the economic indicator you should watch

Jeff Macke
Breakout

Stocks closed at record highs yesterday but they got there the hard way. The S&P 500 (^GSPC) closed at just under 1,925, up a fraction. In early trading stocks had been down more than half a percent after the closely watched Institute of Supply Management or ISM survey for May came in at 53.2%, down from April and well below analysts expectations of 55.8%. An hour later the ISM revised the number to the 56%, explaining that it had made an incorrect seasonal adjustment.

Then, after stocks had rallied based on the demonstrably false idea that the ISM was an accurate measure of economic growth the ISM was adjusted one final time to 55.4% but by then no one was listening anyway.

Thankfully none of that data matter because yesterday afternoon we heard from Krispy Kreme doughnuts (KKD). The company reported earnings in line but cautioned for the year. Revenue came in lower than expected. Expenses are rising, both as a function of inflation and because the company is investing in operations. Same store sales for the Winston-Salem based Krispy Kreme fell 1.5%, just a little worse than Walmart (WMT).

ISM is hardly the only group of propeller-headed dismal scientists bungling economic growth measures. Last week Gross Domestic Product for the first quarter was revised to negative 1% a month after the initial read of up .1%. Economics is the only realm on earth where the good old days get worse with time.

Americans love doughnuts. When times are good we eat high-end, fancy doughnuts made by Krispy Kreme. When we're feeling a little light we scrimp and eat gas station doughnuts. Krispy Kreme signaled the economy was going down back in December when it missed earnings and the stock tanked. It took the government and the folks at ISM five months to figure out what Krispy Kreme told us before last Christmas: the economy is tight. Not horrible but not great.

You want to know how the economy is doing you have two choices. You can either trade futures like a hyper-active chimp based on the mumblings of economists or you can go down to the doughnut shop. The economic talk may make you sound smarter but the doughnut shop will make you more money.

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