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Thursday, May 28, 2009


data revisions still negative

another view to add to a couple recent postings on leading indicators is (via clusterstock) that of john mauldin, following on some commentary by michael panzner discussing revisions to data collected regarding employment insurance claims, durable goods and more.

While the methodology for each series of data is different, they all are more or less trend-following. They take past relationships in the data they can gather and use them to estimate current numbers. And -- this is important -- on average and over longer periods of time, they are pretty accurate.

They will revise the data many times over the coming years, getting closer and closer to the actual numbers. For instance, I can't remember exactly when, but it was several years later that we learned that we were already in a recession in the third quarter of 2000, at the very time most economists were calling for a robust economic future! (Except for your humble analyst, who was predicting a recession, and had been for some time because of the inverted yield curve, but that's another story.)

But in the short run, at economic transitions they are going to get it wrong, because the backward-looking data is mean-reverting. But how else would you do it? One of the keys to economic transitions is to look at the direction of the revisions. Recently, the revisions have all been negative. Things are actually getting worse than the initial data suggested. And during the last recovery the data kept getting revised upward, especially six months and one year later.

and right on cue -- new homes sales data contributes to mauldin's thesis.

As for new homes sales, April saw a modest .3% increased, but the March numbers were revised down from .6% to -3.0%, a huge change. As we noted yesterday, these revisions are significant because they indicate that the current data estimates are behind the curve on how bad things are. Watch for this month's .3% number to be downgraded soon as well.

yesterday saw march existing home sales downwardly revised.

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