When it comes to the reporting of economic statistics, the business media calls the tune and investors often dance. That's why The Business Press Maven raises a glass when business journalists do an insightful job of reporting on economic data, but will splash the contents of that glass onto any biz journalist who writes in low-mentality mode. Speaking of the sort of dimness in economic data reporting that can lose you money, The Business Press Maven holds a dirty martini at the ready so he can talk about Gross Domestic Products numbers and, as we've seen yet again this past week, their subsequent revisions. In fact, dance too readily to the media's initial tune on the key benchmark of GDP and, before you can say "revision," you'll be doing your dancing on a subway platform with a beggar's cup. Here's why: On Tuesday, like clockwork, the Commerce Department revised its estimate of 2005 fourth-quarter growth from a really, really, really lame 1.1% to a just-one-really lame 1.6%. In all seriousness, this is nearly a 50% differential. Not chicken feed. Though The Business Press Maven will give a merit badge to the first reader who adequately explains how wild guessing does not play a role in these numbers, the Commerce Department said that the revisions were required on this go round because of federal spending, inventories and money blown on equipment and software. Everything, I guess, but a run on gumball machines, funnel cakes and whoopee cushions. The Business Press Maven is less concerned with the competence of Commerce Department number crunchers, however, than the way the media reports their first slap at numbers as an article of faith. True, some reporters will dutifully bury a caveat way down low in the article. It goes something like this: "Initial government estimates of economic growth are frequently revised higher." Like, duh.
Even that meager verbal bone is thrown only sometimes, and it's often buried way past a whole storyline woven around the first-draft numbers. And that's not the end of the sort of lawlessness that gives The Business Press Maven a nervous condition. Take the headline... please. The story based on numbers that won't stand the test of time is often boiled down into an emphatic headline: "GDP Numbers: Economy Turns Really, Really, Really Lame" When, by all rights, it should read: "GDP Numbers: Economy Turns Really Lame" That is why, if you use economic data to inform your investment decisions, you need to mentally place the word "initial" into those initial headlines. And if the headline is too alarmist, force yourself to ignore it. After all, a difference by a factor of almost 50% is significant for those who are trying to make bankable assumptions on where the economy is headed. One "really" in a lame economy and you can bounce back. Three? Not so easy. You may have to batten down the hatches into recession-proof investments. And if the reporter doesn't put that caveat about initial numbers being imprecise way up high, along with the legitimizing fill-out of several quick examples, think of these 2005 fourth-quarter numbers yourself. Or go back in your mind to the fourth-quarter of 2004, for that matter. The economy seemed to have slowed (on only a comparative basis) from a cooking-along 4% to a still robust but less impressive 3.1%. Many headlines and storylines made hay with this apparent downtrend line without making prominent mention that future revisions might render quick conclusions worthless. Sure enough: in late February of last year, like clockwork, the Commerce Department, in their infinite wisdom, recalculated the numbers. GDP was up 3.8%, all but a rounding error from that red hot 4%.
In the end, there is no Surgeon General's warning about how allocating money based on first-draft reporting of these statistics can be dangerous to your pocketbook. But, as you are reading, stick a Business Press Maven's warning on it yourself.