Thanks for the CR post on Mauldin. I hadn’t seen it. While Mauldin’s data analysis may show flaws, his conclusion which I quoted regarding the need to parse the data is very much correct.

CR says one can – and should – use month-to-month data, albeit in the context of a larger picture and with caution. I would agree here as well.

What makes this downturn, especially data-tricky is its magnitude, and that makes data adjustments and data revision very significant.

John Mauldin says this well in his article from this week, “Why Bother With Bonds?“”

But that brings up my final point tonight, and that is how data gets revised by the various government agencies. Typically with these government statistics, you get a preliminary number, which is a guess based on past trends, and then as time goes along that data is revised. In recessions like we are in now the revisions are almost always negative.

There is no conspiracy here. The people who work in the government offices have to create a model to make estimates. Each data series, whether new home sales, employment, or durable goods sales, etc., has its own unique sets of characteristics. The estimates are based on past historical performance. There is really no other way to do it.

So, past performance in a recession suggests higher estimates than what really happens. Then, the numbers in the following months are revised downward as actual numbers are obtained. But the estimates in the current months are still too high. That makes the comparisons generally favorable, at least for one month. And the media and the bulls leap all over the “data,” and some silly economist goes on TV or in the press and says something like, “This is a sign that things are stabilizing.” It drives me nuts.

Ignore month-to-month estimated data. The key thing to look for is the direction of the revisions. If they are down, as they have been for over a year, then that is a bad sign. Further, one month’s estimates are just noise. Look at the year-over-year numbers. When the direction of the revisions is positive and the year-over-year numbers are starting to stabilize, then we will know things are starting to turn around.

I am certainly looking for bullish data points, but I hardly taking headline dat at face value when we are suffering the deepest recession in livin memory.

The only real value of SA numbers is to compare sales with other months within the last year—and not even the year ago number where the YOY NSA number provides a more realistic picture of economic activity.

I also find comparing the change in numbers from this period’s “preliminary” number with last period’s “revised” number is very much an apples and oranges comparison. Still, it is the inevitable “headline” comparison. Compare preliminary with preliminary OR revised with revised–they are measuring the same thing whether SA or NSA. (This takes on a whole new dimension with the persistent revisions of GDP numbers.) The statistically consistent result of these PvR comparisons is that it UNDERSTATES the change period to period. This is usually because the preliminary data and the adjustments to it are both incomplete. The revised data is usually nearly complete.

In short, it takes significant digging to find out the true state of the national economy. One rule: NEVER accept the headline number and comparison at face value!