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Commentary: Headlines and Bottom Lines

One of the most interesting results of poring through economic data reports--issued by the government or interest groups--is that the details often tell a different story than the headline, yet it is the headline on which most mainstream media reports and the stock market choose to concentrate.


The recent ""report on retail sales"":http://dsnews.comarticles/gasoline-sales-boost-february-retail-activity-2013-03-13 is a case in point. While the vast majority of commentators were impressed with a strong 1.1 percent month-over-month increase in overall sales, the strongest percent gain since last September, those who scratched the surface were rewarded for their efforts by learning more than half of the month-over-month increase came from an increase in gasoline station sales as prices.

In February, total retail sales ""increased"" $4.4 billion over January, with gasoline station sales accounting for $2.29 billion of that increase, not that we were suddenly driving more but based on the increase in price.

Even though the Census retail sales report clearly says on the very first page of the four-page release that the report is not adjusted for price changes, most commentators/analysts persist in referring to the movement in retail sales as if consumers suddenly became more profligate or penurious when all they were doing is moving with prices.

The report is not meant to provide insight into consumerism or consumer preferences except to the extent that as prices for one spending category increase, the money available to spend on something else, perhaps discretionary, is reduced. The spending phenomenon is no more complicated than that. For lenders, the report is significant because it means that if consumers spend more at retail stores--whatever category--they have less to spend elsewhere, perhaps debt service.

The report does have implications though for businesses that make hiring decisions based on revenue or profit per employee--a metric championed by Sageworks, Inc., a North Carolina based company which uses data from thousands of privately held companies augmenting ""traditional"" financial measures. The revenue- or profit-per employee yardstick actually makes practical sense. No profit-making company is going to add or keep an employee who does not generate sufficient revenue to cover the his/her salary plus benefits. If the company doesn't stick by that, it could quickly be out of business.

Metrics, such as revenue or profit per employee, can be found in all sorts of economic reports if you're willing to dig for them.

Coverage of the recent report on housing permits and starts, for example, was dominated by the increase in both permits and starts, suggesting a revival of the housing sector, a response some analysts suggested is due to tight inventories of existing-single family homes on the market.

Indeed, in January, according to the National Association of Realtors, the number of existing --or ""pre-owned""--homes for sale ""fell"":http://dsnews.comarticles/existign-home-sales-inch-up-prices-at-10-month-low-2013-02-21 to the lowest level since December 1999 and the months' supply of homes for sale dropped to the lowest level since April 2005. In February, according to numbers just report, both the homes on the market and months' supply ""improved"":http://dsnews.comarticles/existing-home-sales-prices-up-in-february-2013-03-21, but remained at the lowest level in years.

It was no surprise then that residential construction activity--at least as measured by the ""Census Bureau-HUD report"":http://dsnews.comarticles/housing-permits-starts-up-in-feb-at-41-2-yr-high-2013-03-19 on housing permits and starts--showed a sharp increase. To create a cause-and-effect relationship though implies a substitution of a new home for a used home, which is not always the case.

But beyond that conclusion, a closer look at the permit-starts data revealed a perhaps more important phenomenon: a shift from single-family to multifamily construction.


Indeed, a close look at the numbers showed in the last two years, single-family permits averaged about 65 percent of all permits. In the previous two years, single-family homes averaged 75 percent of all permits.

Similar, single-family homes represented 69.5 percent of all starts in the last 24 months compared, with 80.5 percent in the previous two years.

The Census-HUD report does not distinguish between multifamily rentals and condos, but to the extent there has been a lingering effect of the bursting of the housing bubble, the increase in multifamily activity is consistent with surveys showing younger individuals and families--having seen what the housing meltdown did to the previous generation--are reluctant to own.

The headline-deep dive distinction extends to labor data as well.

Thursday's report on ""initial claims"":http://dsnews.comarticles/1st-time-jobless-claims-edge-up-trend-stays-positive-2013-03-21 for unemployment insurance showed a slight increase in the weekly number of new claims--or did it? The weekly report on first-time claims for jobless benefits is an important number for labor economists because of its timeliness and it's closely followed by market watchers as an indicator of the unemployment rate.

But while the most recent report showed an increase of 2,000 unemployment insurance claims over the previous week, it came not as the result of a sudden surge of layoffs (if a 0.6 percent increase in claims can be considered a ""surge""), but because of the seasonal adjustment factors.

Indeed, the number of first-time claims _not_ seasonally adjusted _fell_ 18,000 to fewer than 300,000 for the first time since October 2007. To be sure, there is a reason the raw numbers are seasonally adjusted and comparing numbers. In this case, the not seasonally adjusted data show a clear downward trend.

Economic headlines are not always the bottom line.

Despite relatively upbeat housing news, forecasts for housing numbers due next week remain subdued.

On Tuesday, the Case-Shiller Home Price Index (20-city index) is expected to remain flat for January. The ""index rose in December"":http://dsnews.comarticles/case-shiller-indexes-show-fastest-gain-in-6-plus-years-2013-02-26 after falling for two straight months but the month-over-month gyrations still lead to year-over-year improvements. The yellow caution light in the December index report was that prices fell month-over-month in 11 of the 20 cities surveyed; one month earlier prices fell in nine of the 20 cities.

On Tuesday as well, the government will report on new home sales for February--actually new home sale contracts signed in February. Contracts for new homes have see-sawed for the last five months, up in September, November, and January, but down in October and December. By that pattern, sales are expected to drop in February, which is what economists forecast. A tick downward would be consistent not only with the recent pattern but with the Housing Market Index--the survey of builder confidence conducted by the National Association of Home Builders. Not only did the overall HMI ""edge down in February"":http://dsnews.comarticles/south-leads-builder-confidence-down-in-feb-2013-02-19, albeit by just one point, but the ""buyer traffic"" component slipped four points, the largest month-over-month drop since last May bringing the buyer traffic measure to its lowest level since October 2012.

The National Association of Realtors will weigh in on Wednesday with the Pending Home Sales Index which, like the new home sales report, tracks contract signings. It too is expected to show a decline, perhaps a temporary halt in housing market optimism.

The government Thursday will issue its final report on Q4 GDP. The initial GDP for the quarter was off-putting, especially to the faint of heart, suggesting the economy actually contracted in the fourth quarter. With more detail, the -0.1 percent GDP change turned into a +0.1 percent change, still nothing to boast about. More complete numbers Thursday are expected to reaffirm the gain, albeit a weak gain, but the good news could be temporary as more effects of the sequester kick in. Thursday too, the same government agency, the Bureau of Economic Analysis, will report its computation of corporate profits and their relationship to job gains.

_Hear Mark Lieberman on P.O.T.U.S. (Sirius 124) on Friday at 6:20 am EST and again at 9:20 am._

*_Want to write an opinion piece for publication on our site? Send your submission to_* ""[email protected]"":mailto:[email protected]

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.

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