Household wealth
On December 9th, Zillow.com reported that homeowners have lost about $5.9 trillion in value since the market’s peak in March, 2006. Most of a household’s wealth is tied up in its home.
On December 10th, the Federal Reserve’s Flow of Funds reported that household wealth in the U.S. increased by $2.67 trillion in the third quarter (of 2009 – ed.) as stock prices and home values climbed.
Retail sales
On December 4th, retail chains were reporting a lackluster holiday season. “Sales at stores that sell groceries were also hurt by lower food prices,” according to this New York Times article. The story went on to report, “Sales at Target, the most upscale of the discount chains, decreased 1.5 percent. (Wal-Mart, the behemoth discounter and the nation’s largest retail chain, no longer reports monthly same-store sales.)”
Yet, eight days later, a Times headline beaconed the news, “Retail Data Shows Strong Start to Holiday Season,” using a Commerce Department’s report. “Economists explained the discrepancy by noting the government’s report measures a wider slice of the economy,” the report went on to state, “including grocery stores and discounters like Wal-Mart.” Yet, as the above quote mentioned in the earlier article, Wal-Mart doesn’t report monthly results, and grocery stores has been hurt by lower food prices. So how did Wal-Mart’s results suddenly materialize and why did grocery store sales suddenly helped the figures?
Home sales
The S&P/Case-Shiller home-price index reported a 0.2 percent increase in November.
Yet, sales of existing homes slumped 17 percent in December (the biggest drop since records started in 1968), while new homes dropped 7.6 percent. And since the drop in sales outpaced the drop in the inventory of homes, the supply of new homes increased from 7.6 months to 8.1 months. For all of 2009, sales dropped 23 percent to 374,000, the lowest level since records began in 1963.
A record 3 million homes went into foreclosure in 2009. Rising foreclosures and unemployment figures are at a 26-year high.
Month-to-month seesaw
In November, housing starts were reported to have plunged 11 percent in October. In November, housing starts rose 8.9 percent.
Building permits dropped to an annual pace of 552,000 in October, down from an annual pace of 575,000 in September. Building permits increaed to a 584,000 pace in November.
Confused?
I know I am.
Certainly some of the pundits will wag their fingers at me, and lecture about how I am comparing apples-to-oranges in some instances. And I am.
In other cases, I’ll be accused of following the month-to-month results too closely, as figures are too volatile to follow in the short term. And I am.
I’ll also be accused of creating correlations where none exist. And I do.
Yet, all of these data are reported on a monthly basis, and emblazoned into headlines. Readers will respond positively or negatively to the daily headlines.
And for those who follow the trends over the long haul, none of this clarifies matters in terms of where the economy is heading for the long term, so turn off the predictions.
The data are only as good as the assumptions that go into them. This is the bane of probabilities and statistics. For instance, why does household wealth include the value of the home? Most households do not own their home… the banks own it until the day that mortgage is paid off, and precious few households ever reach that day.
And assumptions can be massaged to help or hinder numbers. Sometimes that massaging will take place at the government level, always ready to put a positive spin on the latest figures. Re-election fortunes depend on it. Other times that massaging will take place at the news media level, where headlines will pull one small slice of positive news out of a report, and bury the bad news in the middle of the story. Just look at the retail sales stories.
Although I do not know what assumptions go into the S&P/Case-Shiller home-price index, there is something terribly amiss in the index calculations when record lows are being reached in terms of new home sales, existing home sales, and foreclosures, yet home values are rising.
In terms of housing starts and building permits, the levels have been fluctuating greatly in recent months, so why not report on a quarterly basis? While some will complain investors need regular guidance from various industries or they will be flying blind, I contend they are already flying blind.
The almighty numbers
In a society enamored with numbers (far more so than our peers in Europe), bringing them into their rightful perspective will be difficult. But let’s face this fact for now: With the looming precipitous rise in foreclosures, this ride down isn’t over. And until I see how the banks are going to intelligently deal with this problem, all other numbers are meaningless.
Hold on to your numbers.
Addendum: The Commerce Department later released its Growth Domestic Product report, weighing in with a seemingly whopping 5.7% growth rate in the fourth quarter of 2009. Hidden in that number: The growth largely arrived on the back of replenishing depleted inventories, and much of the buying dependent on stimulus funding. The reporter for this Bloomberg News story offered no penetrating analysis along this line.
Addendum, 2010-02-05: The Federal government has made some very significant revisions to its unemployment numbers today, this from an article in The New York Times:
“In its report, the government revised its job loss numbers for November, saying the economy gained 64,000 in that month rather than 4,000. But the numbers in December were much worse than previously stated; the economy lost 150,000 jobs rather than the 85,000 originally reported.
“The overall toll of the recession, meanwhile, grew larger: 8.4 million jobs have been lost since December 2007, the government said, nearly one million more than previously recorded. Those numbers jumped significantly from December because the Labor Department on Friday said it had completed a benchmark revision of job losses since April 2008. Job losses in August, September and October of last year were 240,000 worse than original forecasts.
“Economists said the declining unemployment rate was probably a statistical quirk and did not indicate the start of a downward trend. The unemployment rate is determined based on interviews with a random sample of Americans, and its results can be erratic.” (emphasis added – ed.)
The paragraphs above were numbers 5, 6, and 7 in the story, buried in the middle. The Federal government can frequently revise numbers and squeak by with the shoddy results because subsequent media coverage always buries “stale” updates, thus the information flies below the radar.
