Guest Post: One Death is a Tragedy, One Million is a Statistic

Tyler Durden's picture

Submitted by Peter Tchir of TF Market Advisors

One Death is a Tragedy, One Million is a Statistic

Another day of statistics, where the headlines are widely published, some details are somewhat explored, and in-depth analysis is next to nil.

The initial jobless claims number has become a farce.  It is virtually statistically impossible for this many upward revisions unless the data is purposely under reported.  I can understand the desire to smooth data, or make it seem better, but at some point the line of credibility is crossed.  Not only do they screw with the main statistic, but they seem to use continuing claims as a secondary diversion.  Last week’s 3641k continuing claims seemed statistically implausible, yet it was cheered.  The doom and gloom crowd argued that it must be from people using up  eligibility, in the end, it was just wrong by over 100k, according to today’s release.  How is that possible?

Next we move to auto sales.  It is hard to avoid hearing about auto sales today, probably, because the headline numbers seem good.  I can almost ignore the fact that the first thing mentioned is the percentage change from a horrible period last year, but I am shocked the focus is still on total sales.  Since at least 2005, the problem with car companies has been selling cars at a profit, not just selling cars.  Nothing from the data indicates how profitable the sales are.  So we can cheer this headline, but to a large degree it is meaningless.  Then, making it more meaningless, is the fact that it includes fleet sales and is really based on sales to dealers.  It doesn’t give a clear picture of how many cars were driven off the lot by bona fide, actual, human owners.  If anything, the hype surrounding these figures rewards channel stuffing.  There seems to be a degree of confusion by those spouting the numbers about the lack of follow through in the stocks.  Maybe stocks have finally learned the lessons from these numbers, but it would be great if the masses were presented with details and useful statistics rather than just what the auto companies want to hype.

Then there was the ISM Manufacturing data.  The sighs of relief from trading floors shook the buildings almost as much as last week’s earthquake.  Where to begin with this data?  It is a “diffusion” index.  So it treats each respondent’s answer the same.  It doesn’t matter if a company has 5 employees, or 5,000, their answer counts the same in the survey.  If the often unreliable ADP report is correct that most of the hiring is occurring at small and medium companies, does that impact ISM? 

If 2 small companies report better conditions, and 1 large company reports worse conditions, then the diffusion index would be 66, but the real world impact might be a lot different.  Size does matter. Maybe that is part of the reason we see a discrepancy between regional surveys and the national survey?  Does ISM report diffusion indices based on size?  It would be interesting, at the very least, to see if there is a dramatic difference between big and small companies.

The next thing about the ISM methodology that I find interesting, is that the positive responses include positive responses and ½ of unchanged responses.  I guess that is necessary to make a diffusion index, but I would like to see if it is realistic.  Do “unchanged” responses have a tendency to follow the trend the following month?  I could easily see someone who reported improving conditions one month being inclined to report unchanged the next month, even if conditions were actually worse.  These are surveys done by people like you and me, well actually by people with “survey filler outer” included in their job description.

I’m not saying that having the data broken down more precisely would change the market reaction, but I don’t see why it isn’t available, and I don’t see why more analysts aren’t demanding that data.  We can all look at a headline, but the value comes from those who can figure out what is going on behind the scenes.  If there have been structural changes in the economy (and I believe there have been), then knowing more details would be helpful.  The old rules of thumb may be deceiving us.

Of the 5 components, I am most confused by inventories.  Inventory growth strikes me as highly suspect.  I can see times where it is indicative of future economic growth as companies prepare for increased demand, but equally, it strikes me that it could represent a sudden slow down in final demand resulting in an unexpected inventory build.  Had inventories remained unchanged, we would have seen a sub 50 print.  You can’t convince me easily that inventory build last month was a positive indicator, yet that is what the headline would have you believe. 

This is all in advance of tomorrow’s NFP report.  NFP holds a special place in the dubious statistic category.  First we have the fact that there are two separate surveys.  We have the establishment and the household.  The establishment survey is statistically significant for changes of 100,000; whereas the number is 400,000 for the household survey.  In this day and age where virtually everything is done on the internet, I bet Google or Facebook could probably produce a more accurate report within a few months if either one bothered.  Until that time, we are stuck with 2 sources of data, both of which have wide margins for error.  Then we have the fact that for many months, the birth/death model generates more jobs than the headline itself.  That wouldn’t be bad if it didn’t seem to require annual revisions lower.  Once again the consistency of the annual revisions indicates that the reports are designed to produce numbers more positive than the reality in the hopes that by the time it is adjusted down, the market has moved on.  Having said all of that, the market, or at least the analysts will try and distinguish between 40,000 and 80,000 when the difference is not actually significant or verifiable.  They will latch on to whatever survey provides the most positive spin.  Those who said the household survey matters more than the establishment survey, will find equally compelling reasons why it is now the establishment report that matters, or vice versa.  Obama will be talking about jobs next week, so no matter what number comes up, expect it to be cited often over the next week. 

I just realized, the president will be speaking about jobs and more handouts right before the start of the NFL season.  Even Stalin might blush at trying to use bread and circuses so obviously.

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MarketTruth's picture

Everyone agrees... Hussein Obama is an attention whore!

Hugh G Rection's picture

It is easier to kill a million people, than to control a million people.

 

Brzezinski

 

http://www.youtube.com/watch?v=wKzEpQc-yo8

AldousHuxley's picture

Nah, it is easier to control. Just ask the Nazis with the Jews. They couldn't kill fast enough.

 

100 in a gas chamber / 30 min * 60min * 10 work hours/day = 2000 a day

 

that's about 700,000 a year.

 

compare that to billions of corporate slaves who show up to work every day as a "human resource".

NuckingFuts's picture

He uses statistics as a drunken man uses lampposts - for support rather than for illumination.  ~Andrew Lang

NuckingFuts's picture

or:

Statistics are like women; mirrors of purest virtue and truth, or like whores to use as one pleases.  ~Theodor Billroth

economessed's picture

Statistics are like bikinis.  What the reveal is interesting, but what they hide is essential.

cfosnock's picture

Torture numbers, and they'll confess to anything. ~Gregg Easterbrook

oogs66's picture

Is that warren Buffett?

Iriestx's picture

How did the US become Soviet Russia?  Slowly, then all at once.

LawsofPhysics's picture

Indeed, buy rubles.  When I went to Russia in 1996 the exchange rate was 1 dollar for 6,500 rubles.  anyone know what that is now?

Iriestx's picture

I was in St. Petersburg in 2006.  I wish it was that favorable.

redcorona's picture

Happened at the same time really.  1913 Federal Reserve Act.  1917 Bolshevik 'revolution'.

 

Ungaro's picture

"Choose your enemies carefully, for that is who you will become like." -- Chinese adage

"It is not who votes that counts but who counts the votes." J. Stalin

Ancona's picture

We are in for one rough fourth quarter. I expect Christmas to be a complete wipeout. Here in Florida, the atmosphere is cataclysmic. The "official" jobless number belies the true number of unemployed people and the number of failed businesses.

The truth can only be obfuscated so long, until sudden awakening occurs and panic ensues. A lie covered up is still a lie.

Iriestx's picture

Yeah, but if Barry can cover this shit up and keep the stock market artifically high for just a little longer, he can do what is really important and guarantee four more years of visits for his wife on Oprah.

chaartist's picture

I m thrilled by the people who waste their energy on analysis of these BS from the people who are slaves of financial oligarchy. I dont see any purpose other than political to show these numbers. 

Smiley's picture

To question failure gets one branded a racist; I think that's tragic.

Caviar Emptor's picture

It's all conditioning. At this stage in a normal post-war business cycle things should be booming. But they're going in reverse since the 'recovery' was all stimulus-based. 

But as far as the market-o-stocks, the playbook is the same: it's being treated as a proxy for the binary life/death of the zombie Wall Street firms and large banks. All the rest is make-believe and casino tricks to stir up the passions of the betting crowd. Black jack players, craps shooters and pony-pickers all think their system is rational too. 

PicassoInActions's picture

what Gorbachev did to USSR, Obama is doing to US. Those 2 pwoerfull men can bring big contries down alone.

 

youngman's picture

Bread and circuses......beer and hot dogs are much better...cheerleaders too

Use of Weapons's picture

American beer is flavourless fizzy piss, hot dogs are made of lips & vaginas and cheerleaders - we're all impressed you've actually bred non-sentient humans: http://www.youtube.com/watch?v=UkBmhM0R2A01

 

So you're offering piss, lips and dumb vaginas? I'm guessing you're not in sales.

  • 1. Notable exception for a few there - snark not universal - Alyssa, Katie, Angela and so on... Buck those trends!
New_Meat's picture

{good use of footnote-feature ;-) }

Use of Weapons's picture

I fear that it is a given that if I mention feminism or modern patriarchy, this site would actually be DDOS'd by the shear number of down votes.

 

With respect to the management, we refrain from such high-jinks. Sadly, this removes some awesome comedy moments.

tip e. canoe's picture

there's actually some really stellar beer brewed in Americo, you just gotta be here to find it.   Abita is one from LA (that's Louisiana), brewed at the source of a supposed magical spring.  

http://abita.com/learn/ingredients.php

they got this one harvest brew out now with pecans...yummy.

Ag1761's picture

US flatlining just like gold and silver today

Oh regional Indian's picture

Hey America, stop buying new cars.

Get it? Stop buying new cars. Period. There are enough and more to go around.

By buying new shit you are only re-enforcing the broken window fallacy.

Look at th eimpact eh? A shock, a huge shudder and then, so much simpler.

V

http://aadivaahan.wordpress.com/2011/08/30/humor-me/

LFMayor's picture

Hey India, quit having kids.  There are enough and more to go around...

Oh regional Indian's picture

Indeed LF. Hear hear and second that.

V

johnQpublic's picture

how the hell are we supposed to stop buying cars when they are built like garbage?

you cant keep most cars ten years these days ,or they simply self destruct

ty lee iacocca

inventor of the disposable auto

this primarily applies to gm,ford,and chrysler but other manufacturers are getting on board with making garbage

nathandegraaf's picture

All the statistics are manipulated to make things look better than they are. 

All the statistics make things look like shit. 

Therefore, things are worse than shit. 

 

cfosnock's picture

Then there is the man who drowned crossing a stream with an average depth of six inches.  ~W.I.E. Gates

deez nutz's picture

Car sales? what a joke.  22% of car sales are to subprimers, someone you probably wouldn't lend 10 bucks to.   Interesting enough is that 90% of that 22% comes from GM.  Our favorite car maker/corporate mess maker.

alien-IQ's picture

While I agree with just about everything in this article...I must point out that it says nothing that hasn't been said on ZH...Ad nauseam...forever and a day.

In other words...yeah...we agree...but we already knew this.

mayhem_korner's picture

As a non-trader (I'm an accumulator), I'm always interested in reconciling the headline stats with anecdotal evidence and what I can see with my own two eyes.

The auto stats are clearly a whimsical fabrication to me.  I'm pre-planning a purchase next year, and stopped by three dealerships yesterday to check out the stock (I try to buy one-year-old models).  Let me just say that the sales people at all three dealerships were defeated.  Two of them did not even engage me with a "can I help you", and the third was as lifeless as I've ever seen.

Turn on the jolt-cola minions at CNBC and you'd think there's no place but up to go.  But the world isn't showing - or feeling that way - it's just plum ugly out there.

My two cents...

oogs66's picture

A great 2 cents! And if you play you cards right that could probably be the downpayment on a no interest loan from gm to buy one of their cars :D

Miss Expectations's picture

"I'm always interested in reconciling the headline stats with anecdotal evidence and what I can see with my own two eyes."

Me too...This post reminds me of a story about the death of a young man.  He was a high school friend of a friend.  He'd gotten involved in drugs, both using and selling.  He got caught after committing an armed robbery and spent about 5 years in prison.  When he got out of prison, he moved back home with his wife.  Their relationship was very very rocky.  During a fight, he shot and killed her.  He then turned the gun on himself and was found dead at the scene.  The obituary went something like this:

Joe Smith, a communicant of Our Mother of God church, passed to heaven on December 20, 2002.  He is survived by his loving parents and younger brother.  He was predeceased by his wife, Cynthia.  Services will be private.

adr's picture

When I tell people that the data represented does not pertain to actual "sales" they look at me like I'm from another planet. They say how can something be counted as sold if it isn't sold. I just don't want to assault their intelligence any further. I blew up enough times when people claimed Microsoft "sold" 25 million Xboxes in a month to people even though they took back more than half the inventory a month later.

Just like I said before corporations stuff retail channels with more product than can ever sell to end consumers to make numbers look good. As long as the retail outlet will take the product they will be more than happy to send it even if they have to take it back at the end of the year. This helps stock prices and nothing else. If you can make your stock price go up by 5% you will add more value to your corporation than a few years worth of sales, thanks to unbelievable market cap valuations.

For most retail managers the worst thing possible is an empty shelf. Stores must look full in order for consumers to be comfortable. You also wouldn't drive to a car dealer with two cars on his lot. A lot full of cars makes it look like they are doing good business.

There is a reason why GM has been posting such good numbers and why the Cobalt has been such a hot seller, THE US GOVERNMENT. They haven't sold off the US taxpayer held stock and they need to drive it up so they can get some return on the investment. An easy way to do that is stuff the retail channel with as many vehicle as possible and purchase as many for government fleets as you can.

I guess people also don't believe that large corporations like Nike force retailers to take product they don't want in order to carry the product they do want. Happens all the time when there is a small company Nike wants out of the way.

I love our system.

falun bong's picture

2-speed world economy. The S&P 500 companies employ exactly 8% of the population, so watching how they are doing is interesting but just a tiny slice of the employment and economic health picture. It's a crappy barometer of how things are really going.

Same story in places like India, everybody watches how Tata and Reliance and InfoSys are doing but their share of national employment is less than 1%

Bay Area Guy's picture

I've gotten used to the government lying about statistics.  It's been done for so long that it just kind of rolls off my back.  However, in recent years, it's become more and more apparent to me that the government believes its own lies and is developing economic policy based on these bogus numbers.  Don't worry, there's no inflation because we eliminated those pesky food numbers from the calculation, so we can afford to QE to the moon, thereby further increasing food and other commodity prices while not having to take responibility for higher inflation.  Cooking the jobless claims to make it look like the employment picture is slowly getting better is just another way that the government can ignore the problem.  If the general public truly understood the unemployment numbers (16% unemployed and 25% un- and under-employed), the revolution that you all talk of would definitely get started.

Kayman's picture

 If the general public truly understood the unemployment numbers (16% unemployed and 25% un- and under-employed), the revolution that you all talk of would definitely get started.

The unemployed and the underemployed know the truth, and as the economy rolls over it will get harder and harder to sweep the ugly truth under the carpet.

But I agree with the author, the government has been lying for so long, they believe their own bullshit.

 

Irish66's picture

Come on, they have been reporting these numbers this way since I was a baby

and you complain now.  Be serious!

Implicit simplicit's picture

So I guess fraud is ok if it has been going on for a long time? How old are you? grow-up

Irish66's picture

Fraud is 70 years old. you grow up ass wipe.  If everyone is making money its okay?

Kayman's picture

since I was a baby

you must still be pooping yellow. Statistics became bastardized over past 30 years.