[17 March 2009]
Barry Ritholtz provides an object lesson in breaking down a financial story that has been framed in an entirely misleading way. On the screen in my building’s elevator this morning—a pretty good distillation of what has been deemed considered newsworthy for regular office workers—I saw that home starts were up a surprising percent in February, which was being touted as a welcome piece of good news for the housing industry. The further implication was that the rumors of the demise of homebuilding have been greatly exaggerated. This was exactly the sort of thing we’d like to hear—that the economy is not as bad off as it seems and our “animal spirits” should be perking up right about now. Maybe Obama was right to be sending optimistic signals last week.
Ritholtz takes apart the data though and reveals nothing to be optimistic about:
If we look at the breakdown by unit types, the gains in starts were mainly in multi-family units; single family starts were little changed. And, February was still down nearly 50% from prior year. The past 4 months rank as the worst housing start figures since the data was collected. The past 2 quarters have 6 of the 10 worst seasonally adjusted figures.
This is reflecting the secular shift in trend to renting from buying. Home ownership rate is receding form the 68% level a few years ago — artificially inflated via ultra low rates / abdication of lending standards — back towards to a normalized 64% level.
Peter Boockvar suggests today’s data “is a reflection of where construction money is going.” And, the decline in permits though in this sector means that the building pace in February is unsustainable.
The question to consider here is whether the skewed reporting of economic data is a matter of incompetence or design. (Economist Dean Baker’s ongoing exposés of poor economic reporting on his blog are relevant to this question as well.) Often, numbers are framed in a congenially reportable way by trade organizations (think, the National Association of Realtors, whose onetime president wrote the already infamous Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them). Reporters and headline writers have little incentive to question this spin, since it comes ready-made and tends to conform to what editors assume readers want to read. And in general, they are trained to defer to expert opinion, in this case, the industry economists who have an interest in shading the statistics. The problem is that pertinent analysis tends to be buried in most reports of economic data, and if it exists at all, it tends to be presented as a battle between competing experts who say the opposite, leaving the slant of the headline as the final arbiter. So economic reporting in nonfinancial papers is ultimately about gauging the zeitgeist and trying to establish and exaggerate confidence or, more rarely, exploit fear. It’s a dubious place to go if you want to understand the data itself.