Single Family Housing Still Deep in the Dumpster

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The Wall Street Journal claimed in its PR release on housing starts last week that single family starts rose 8.1% in September to 783,000. This is what I call the headline or top line number. It the seasonally adjusted (SA), annualized, impressionistic representation that economists and statisticians have cooked up to depict the trend. For some reason economists seem unable to analyze and understand the actual data before massaging it.

The Wall Street Journal claimed in its PR release on housing starts last week that single family starts rose 8.1% in September to 783,000. This is what I call the headline or top line number. It the seasonally adjusted (SA), annualized, impressionistic representation that economists and statisticians have cooked up to depict the trend. For some reason economists seem unable to analyze and understand the actual data before massaging it.

The initial number is revised in subsequent months and years as more data comes in, so that the line is fit to the center of the trend channel over time. The SA number is essentially the difference between the actual number and type of moving average that includes guesses about 5 years of future data along with past and present data.

After thereby swagging where they think the past and expected future moving average should be, they derive the monthly number based on the difference of the actual number from the idealized expected central tendency line. Then the next month, when they get their first clue how far off they were, the revise the last month. They do that again the following month. Then they do it every year for the next 5 years. When you look at a chart of long term seasonally adjusted data, any data that’s 5 years old or more is a perfect fit for the actual trend. Current data isn’t. Sometimes it isn’t even close. Economists and the mainstream media like to pretend that it is.

The media only reports the initial guess, which really is little more than a wild guess. However, it is possible to evaluate the actual data before the statisticians massage it and the mainstream dutifully issue the masseur’s report.

Actual data is a mysterious and wonderful thing. It’s mysterious because the government publishes it but no one in the mainstream financial PR mills like the Wall Street Journal and CNBC report it. It’s wonderful because, well… it’s actual. It is what really is, subject only to sampling error when the data is based on a small initial sample. In addition, it’s easy to depict and interpret. Any trader or investor with a rudimentary knowledge of charting techniques and a tool with which to draw straight lines can do it. Experienced technical analysts can take that a few step further by applying simple moving averages or growth rate indicators or simple ratios to draw clear pictures of what’s actually happening in the marketplace, day to day, week to week, and month to month.

Using those techniques, we can see an accurate picture of the trend, and most importantly get a jump on the market when trends are in the process of reversing. Reversals take time, and there is almost always some warning before the markets and the economy start sinking into the mire.

Seasonally adjusted annualized economic data invariably lags the trend change by a few months, and it takes even longer for the next trend to become clear. By then it’s usually too late for investors to do anything about it. Charting the actual data allows investors to be proactive rather than reactive.

So let’s look at the actual data and find out what it’s telling us about the past and present, and what that means for the future.

Read the rest of this post and all of Lee Adler’s Daily Data Dives at David Stockman’s Contra Corner. Register here to get full access to Contra Corner, including not only my Daily Data Dives, but also David Stockman’s daily insights on the US economy, geopolitics, and the financial markets. These reports are only available there, so please sign up and get a copy of David Stockman’s latest book, Trumped – A Nation on the Brink of Ruin and How To Bring It Back.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

  2 comments for “Single Family Housing Still Deep in the Dumpster

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