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Meaningful and Meaningless Statistics

January 26, 2011 – 6:00 pm

Yesterday morning the January Consumer Confidence report was released and it rose to the highest level since May. However, that means it was only up to 60 but that was higher than the expected number. In the past it has been much higher. I never liked this report as it tells you very little about what consumers are ‘doing’ just how they ‘feel’. You would think that that would be the same thing but it is not. Sometimes consumers are depressed or happy for something that is in the popular news but it does not affect their spending habits in the slightest. For instance the terrorist bombing in Russia or the recent shooting of a number of people here in the U.S. could easily affect consumers for a day or two or just as long as that news event is in the headlines. If the survey of consumer confidence is taken at that time they would feel less confident. As sad as it is, a few days later that event is no longer on everyone’s mind. For a short time spending could have been affected but it would very quickly revert to
previous levels. For investors it means nothing.

Therefore, do not put too much weight in the Consumer Confidence numbers. They are not very reliable and can not be used to gauge what consumers are going to do.

For investors you want to watch those statistics that tell you what might happen in the future and as I said last week the LEI (Leading Economic Indicator) is a much better gauge. Also, the LEI is made up of 10 different data points and you need to learn what they are and understand how they affect the economy.

It never gets easy but it’s fun.

Good Trading
Steve Peasley

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