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How The Worst New Orders Number In 6 Months Became The Highest Of 2014
The Institute of Supply Management is no stranger when it comes to seasonal adjustment fiascos: recall that in June it took Stone McCarthy to tell a humiliated Bradly Holcombe that they had released the wrong data not once, but twice. Ever since then we have been particularly focused on the seasonal adjustment factor that ISM uses when fudging its unadjusted data - data which as a reminder is a survey which reflects a continuum and thus does not need to be seasonally adjusted, yet it is. This is precisely what we found that last month, when the ISM reported a 55.3 print driven by a 58.9 surge in New Orders we called bullshit on the data and found that the actual, unadjusted data was the weakest since January.
Today, we find more of the same, when we learn that while the headline ISM of 57.1, seemingly the highest since April 2011 and driven by the all important New Orders print of 63.4 which was the highest since December 2013, was really a figment of seasonal adjustment.
The table below shows how the ISM takes its unadjusted, actual data, based on respondents saying whether the data is "better", "same" or "worse", and applies a seasonal adjustment factor, getting the adjusted number.
The more observant will notice that the % of respondents saying New Orders are "Better" just dropped to the lowest number since January, or 29%. And since the actual NSA number is calculated by add half the "Same" respondents to the "Better", what one gets is a New Orders number in July which was the same as June, and the lowest in 6 months.
To show what is really happening here is a chart of New Orders actual and adjusted. One is the lowest print since January. The other is the highest of 2014. Which one do you believe?
The bottom line is that the only reason why the New Orders and thus the ISM soared to the highest level in over three years, is due to that 0.907 seasonal adjustment factor.
So what does recent unadjusted data reveal if one looks at just the actual surveys for the top three key categories without the seasonal adjustment?
This:
Welcome to the seasonally-adjusted recovery, summer of 2014 edition.
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...calling moar BS on this seasonal adjustment methodology.
Seasonal adjusted means adjusted to the Kali Yuga season. Perhaps google "Kali Yuga".
I disagree. "Seasonal Adjustment" refers to the application of spices and condiments to make unpalatable food taste better. With enough seasonal adjustment even horse manure can be made acceptable.
OK, but what was the read the same time LAST year?
Those line graphs are going to look like the Ebola virus before they are done.
pods
Why not go full USSR?
Why not announce the 'total success' of the Party's latest 5 year plan before it's even implemented.
Mission accomplished - George W Bush
Economy accomplished - Barack H Obama
Moar broken windows please - Paul R Krugman
Ah-mazing. There was one guy on CNBC today saying things weren't so hot. Everyone else was ready to party.
Yes, I saw that too, but the poor schlepper only got to string about two bear sentences together till they shut him up and movd on to one of the perma bulls that continually pollute the CNBS set.
Braiiiinz-Adjustments.
Economic numbers brought to you by the People Republic of the United States
Hey, when it gets serious you gotta lie!
Hey the Bureau of Comedy is not going to approve of that comment.
So in laymans terms, they're rigging the data.
More like friggin the data.
You can't say riggin. That is their word.
"seasoning" and tenderizing, pounding the data with mallet. grade D, not fit for human consumption "meat.". there are many similarities between data and meat.
Meat is pounded as a mechanical means of tenderizing by damaging the connective tissues. It also makes the meat thinner and flatter, which helps the meat cook faster and more evenly.
Pound tougher meats (cheaper steaks), and meats of uneven thickness (chicken breasts). Avoid pounding the bones in the meat. You don't want little pieces of bone chipping off into meal. Don't pound already tender pieces (premium cuts, dry aged steaks).
Think tenderize, not pulverize. You should not be making any holes in it.
Things are so bright I think I need shades.
Soooooooooo.......... BTFD then?
I tend to be happier in the summer, so I have noticed that I will answer more positively on surveys. Likewise, during the winter months I am more despondent, and will answer survey questions more negatively.
On another note, last month my sister made $3,000 at home treating Ebola patients! You can too!!
www.youtube.com/watch?v=5 jghXNF98A
your sister gonna take in some illegal alien kids also, each at $7,000 tax free per month.
Might be a good combination, don't know.
Unfortunately, the Federal government is just run just like a huge corporation....which means "adjusting" the numbers and "managing the message" before each reporting cycle. This approach filters out to even the "so called Independent" research groups. The United States has become totally fixated on this approach. No wonder we get crap.
They also had the adjustment last year. Last year the unadjusted number was 53.5. This year we are at 57.5 unadjusted, a full four points better. Granted the numbers are starting to fall off from earlier this year so its not all sunshine.
A case could also be made for the adjustments as betetr inventory management makes production much more seasonal.
It just is as it is. This survey should never be a reason to buy or sell on its own.
Oh, what do you know? You're only slightly skeptical. Me? I'm full-retard skeptical. Buying and selling removed themselves from my vocabulary long ago.
...then quit making the unadjusted figures available. we sheeple only need what our govt wants us to have - anything else just causes confusion, bickering, disenchantment, growth of unpatriotic anti-tax behaviors and the like.
I' so excited by this economy I'm gonna clean all my guns.
well isn't that just peachy
For god's sakes, if something has a demonstrable seasonality, as do factory orders, it makes perfect sense to seasonally adjust the raw data. Where was ZH earlier in the year when the seasonally adjusted data were much weaker than the unadjusted data? Silent! This type of crappy analysis severely undermines whatever you have to say that actually has merit.
It NEVER makes sense to seasonally adjust the data. It ALWAYS makes sense to seasonally interpret the data. Big difference. If you are up YOY but down MOM it is obious that the monthly decline is nothing to shit the bed over. When the data itself is adjusted the only thing that can be rightly concluded is that someone is boning you without permission.
Lies...
Damn Lies...
Bogus Statistics... and Outright Fabrications.