The Media's New Spin on the Economy

Ideally, the press would relate the facts of what happened in the world today.

Because that task is beyond the ability of anyone, the press filters the news so that we are not overwhelmed by facts. Therefore, one of the functions of the press is to tell us what “news” is. This filtering is the first source of bias in delivery of facts to people. The other function they perform is to put facts in context. By doing so they tell us how to think about things.

As a consumer of financial information, I enjoy reading a newsletter by John Mauldin, an author, investor and commentator with an outstanding reputation. I was struck by this passage from his most recent e-Letter (March 28, 2009)

I opened the Wall Street Journal and read that new home sales were up in February. Bloomberg reported that sales were "unexpectedly" up by 4.7%. I was intrigued, so I went to the data. As it turns out, sales were down 41% year over year, but up slightly from January.

But if you look at the data series, there was nothing unexpected about it. For years on end, February sales are up over January. It seems we like to buy homes in the spring and summer and then sales fall off in the fall and winter. It is a very seasonal thing. If you use the seasonally adjusted numbers, you find sales were down 2.9% instead of up 4.7%. But the media reports the positive number. Interestingly, they report the seasonally adjusted numbers for initial claims, which have been a lot better than the actual numbers. Not that they are looking to just report positive news, you understand.

I think that Mauldin may be taking a not-so-sly dig at the MSM for putting the economic news in a positive context now that the economy has the potential of becoming a liability for Obama. The upcoming earnings for the 1st and 2nd quarters are apt to be very, very ugly. But as a result of all the “free” money thrown at the big banks, the MSM may have the opportunity to tell us that the financial crisis is behind us if Citi or B of A report a quarterly profit. Under those conditions, Team Obama and the hapless Geithner will become Superstars again rescuing America from the Perils of Pauline.

From Mauldin's letter:

Plus, as my friend Barry Ritholtz points out, the 4.7% rise was "plus or minus 18.3%". That means sales could have risen as much as 23% or dropped 13%. We won't know for awhile until we get real numbers and not estimates. Hanging your outlook for the economy or the housing market on one-month estimates is an exercise in futility, and could come back to embarrass you.

I would not start celebrating just yet.