Tuesday, September 1, 2009

Crudele on Statistics Messing with Your Mind

John Crudele definitely woke up on the cranky side of the bed recently, but it provides for some interesting analysis of some soon to be released economic data:

WARNING: What you are about to read contains an inordinate number of statistics and economic chatter that could cause brain damage. Do not read this column if you are pregnant, have cataracts or had trouble sleeping last night.

Let's get started.

* Each Thursday morning, Wall Street waits to see how many new people have filed for unemployment insurance and how many are continuing to receive government money because they still haven't found work.

And each week the figure is a complete crock.

The unemployment-claims data that the experts rely on represent only the number of people going in or out of the first level of unemployment insurance -- called Tier 1.
The number of people receiving Tier 2 and state extended benefits aren't tracked by the government, and, therefore, can't be released each week.

The best assessment of the situation I've seen is from the National Employment Law Project, which says another 500,000 people will exhaust all their benefits by the end of September and 1.5 million will stop getting checks by the end of the year.

* New home "sales" increased nearly 10 percent last month, according to the Commerce Department. That's a very healthy gain even though sales figures were still well off levels of just a few years ago.

But here's what you need to know -- those really aren't sales.

The Commerce Department, in its small sampling, counts a new house as "sold" when someone signs a contract to buy it. But there are a lot of things that can go wrong between the time someone signs on the dotted line and moves in -- like actually coming up with the money.

The National Association of Realtors' existing-home sales, which were also up sharply, only counts a purchase when a buyer takes possession of the house. But that isn't true for the housing index the NAR will release this morning -- which is also based only on contracts.

And all the housing figures are being helped by favorable seasonal adjustments.
By definition seasonal adjustments have to reverse. So if economic data is getting a boost from favorable seasonal adjustments in the summer, that is likely to change.

And the stats could look worse than they really are by the end of the year. This could make the economy look like it's dipping again at a time when the markets are traditionally nervous. But it could just be the statistics messing with your mind.

Note: Housing figures may look bad because of a forced downtrend in the seasonal adjustment, but there will likely also be a real downturn give the fact that there is currently no Fed money printing to support the current housing structure.

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