No wonder markets and consumers are a panicky bunch. There's way too much information out there, most of it pure garbage, and it's rarely presented in a way that makes sense of the numbers. Today's retail statistics are only the latest woeful example.
In the past, I've explained how the much-ballyhooed monthly percentage changes in new housing sales numbers are usually complete bunk. They're reported by the media -- even august institutions like The New York Times or The Wall Street Journal -- as fact, even when the error inherent in the numbers means that there's no way to tell whether the true direction is up or down. It doesn't matter, of course. Shares of builders like D.R. Horton
That's exactly what happened today, with the Commerce Department's "Advance Monthly Sales for Retail Trade and Food Service," a press release that scatters stocks and sends business writers lunging toward their directories of talking heads. As you read this, other headlines on the Web, in newspapers, and on radio and TV are all blabbering about the so-called 0.3% rise in sales. Fools, this is nonsense of the highest order -- news you can not only afford to lose, but also should lose.
Let's start with the obvious. That "0.3% increase" is a month-to-month figure. Students of commerce and the economy know that seasonality is a real issue. Year-to-year comparisons are the ones that make sense. On that basis, August 2006 against August 2007, spending is estimated to have increased 3.7%.
More importantly, that already-meaningless "increase" may be nothing of the sort. It's simply not possible to say. Seriously. Check the press release. (Go ahead, do it. I doubt most business journalists did.)
See that asterisk by the 0.3% figure? That means that the confidence interval, in this case, +/- 0.7%, includes zero. In the words of the department itself, "The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different than zero." (If you're wondering about the error on the year-over-year figure, good for you. It's +/- 0.8%, meaning that, statistically speaking, the increase looks real.)
Here's investors' final reason to giggle at any news organization that tries to present this as important: The numbers are subject to major revision from month to month. Last month's initial June-to-July 2007 "increase" of 0.3% (+/- 0.7%) was revised to 0.5% (+/- 0.2%). That's a pretty big swing, and a similar revision to these latest figures would make up for the much-bemoaned "miss" on expectations that has the press wailing today.
Long story short: Anyone who jumps into GM
You might as well invest with a flipped quarter as your guide. Alternately, you could invest like a Fool, paying scant attention to the poorly reported macro trends, and looking for strong companies at good prices. Of course, that takes a bit of work.
At the time of publication, Seth Jayson, a top-10 CAPS player, had no shares of any company mentioned here. See his latest CAPS blog commentary here. View his stock holdings and Fool profile here. Gap is a Stock Advisor and Inside Value pick. Fool rules are here.