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Confusing Stastics

March 27, 2013 – 5:11 pm

691.StockMarketThere were two important economic numbers out yesterday and if you just looked at the headline numbers you would get a very distorted view of what they are telling us.

The new home sales report for February showed a drop of 4.6% marking the biggest decline in two years. Does this tell us that the housing industry is still struggling? That might be the case but not because of this number. Most of the drop was probably due to poor weather rather than a fall in demand. If demand was slowing prices would not have risen for the month by 3%. Also sales fell 13.3% in the Northeast, the place where weather would affect buyers the most.

The other number out this morning was sales for Durable Goods and it was up a surprising 5.7%. However, if you take out transportation it fell .5%. Most of the rise was for airplanes just as last month most of the weakness was caused by airplane sales. However, core capital goods orders also fell by 2.7% but last month it was up a striking 6.7% so maybe this fall was to be expected. So how do we know the health of the economy from this report? One way is to look at the primary metals and computers sales. Primary metals are used to make things and that was up 1.7%. And computer bookings, a major category of business investment was up 4.9%.

You need to look deeper into these reports, not just the headlines. The story being told is that the economy might be a little stronger than forecast, that GDP for the first quarter may be higher than 2.5%.

Good Trading
Steve Peasley

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