Wednesday, March 25, 2009

Example of “Little White Lies…”

Please consider the following:
U.S. Durable Goods Orders Unexpectedly Jumped 3.4% (Update2)

By Courtney Schlisserman

March 25 (Bloomberg) -- Orders for U.S. durable goods unexpectedly rose in February on a rebound in demand for machinery, computers and defense equipment.

The 3.4 percent increase, the biggest gain in more than a year and the first in seven months, followed a 7.3 percent decrease in January that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders gained 3.9 percent, the most since August 2005.

Combined with reports showing improvements in retail sales, residential construction and home resales, the figures indicate the economy is stabilizing after shrinking last quarter at the fastest pace in a quarter century. Stepped-up efforts by the Obama administration and Federal Reserve to ease the credit crunch may help revive growth later this year.

“It’s not going to be downhill forever,” said Stephen Gallagher, chief U.S. economist at Societe Generale in New York, who had forecast no change in durable goods orders. “Once businesses achieve a reduction in their inventories they will pick up their new orders and production.”

‘Some Stability’
Gallagher expects the economy to resume growth in the third quarter. “I’m feeling better about that with this type of news. After some horrific data, we’re seeing some stability.”
Stock-index futures and Treasury yields were higher after the report. The benchmark 10-year note yielded 2.72 percent as of 8:51 a.m. in New York, up 2 basis points from yesterday.

Economists projected total durable goods orders would fall 2.5 percent, according to the median of 69 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 4.1 percent to a 0.7 percent gain.

Excluding transportation, orders were expected to decline 2 percent, according to the Bloomberg survey.

Demand for non-defense capital goods excluding aircraft, a proxy for future business investment, climbed 6.6 percent after falling 11.3 percent the prior month, a decline that was almost twice as large as previously estimated. Shipments of those items, used in calculating gross domestic product, increased 0.6 percent last month.

GDP Estimate
Business investment in new equipment fell last quarter at the fastest pace since 1958, according to figures from Commerce. The government will issue its advance estimate on first-quarter gross domestic product in April. Economists surveyed by Bloomberg News earlier this month forecast the economy will contract 5.2 percent in the first three months of this year and 2.5 percent for all of 2009.

So, this was terrific news, right? One that shows strength and shows how worthy buying stocks at this time is… right?

Note that this article is revision two and that I cut off over half the article which goes on sounding pretty bullish.

Now, did you catch the revisions in this article? They mention it only once when they said this:
Demand for non-defense capital goods excluding aircraft, a proxy for future business investment, climbed 6.6 percent after falling 11.3 percent the prior month, a decline that was almost twice as large as previously estimated.
That statement was NOT included in this morning’s release. Fortunately PointPark was smart enough to look at the raw data as reported by EconoDay:
The biggest negative in the report were downward revisions to January and December. January was revised to minus 7.3 percent from minus 5.2 percent while December was revised to minus 4.6 from minus 1.5.

This means that the fall in the month of December was THREE TIMES GREATER than we were told! THREE HUNDRED PERCENT GREATER!!! I listen (unfortunately) to CNBC all day long and did not hear this mentioned once. Nothing but good news. And admittedly, sooner or later these indexes get so low that going down further is going to be very difficult. But that does not mean that an abrupt turnaround is underway.

The recent releases of housing data is another case where reality is being distorted. Yes, the numbers for February are better than they were in January. But isn’t that expected for this time of year? Yes it is, and when you look at the year-over-year data, the trend is still very much down.

These types of distortions of the truth happen across almost all the economic data today. All of it has been manipulated to sound much better than it is. These not so little white lies add up to huge distortions over time. They cause capital to be misallocated. This makes forecasting the economy extremely difficult, if not impossible. That’s one of the reasons why weather forecasters seem a hundred times more accurate than most economic and market forecasters.

Inflation is misstated, GDP is grossly misstated, Unemployment is understated by half, on and on and on. John Williams at ShadowStats does a good job of presenting the data in a manner that is more consistent with the past.

Don’t be surprised when this month’s durable goods data is revised downwards next month, and you won’t be told when it happens unless you look for it. My belief is that a true and fundamentally sound economy and market cannot happen until we stop telling ourselves these “little” white lies.

Three Dog Night – Liar: