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A Brilliant Idea!

Posted By Barry Ritholtz On August 24, 2005 @ 9:14 am In Economy | Comments Disabled

I have a fantastic idea, and I only hope that the Institute for Supply Management (ISM) [1] and The National Association of Realtors [2] recognize it as such and act right away.

What both of these organizations need to do — pronto! – is change their models for calculating data.

Yesterday’s existing home sales, and today’s Durable Goods numbers both were awful. But the problem isn’t with the economy — its the econometric models used to calculate these data points.

Both of these fine private outfits should follow the lead of the Conference Board [3], and back fit their models, in order to avoid generating any unpleasant news releases [4].

In case you forgot, the Conference Board decided they didn’t want the LEI’s to be negative [5] — which has been the case for 10 of the past 12 releases. So they "form-fitted" some of the indicators that make up the LEIs. By drawing the highly suspicious conclusion that even a flattening yield curve shows up as economically positive, they were able to stay upbneat about the future, despite the ominious readings of their own indicators.

Even people recently suffering from recent blunt head trauma (and concurrent brain damage) know a flattening yield curve is nit stimulative — indeed, its a big negative — but it was the only way to get a decaying economic situation to appear positive.

ISM and NAR may want to steal that approach. Otherwise, their data may remain useful to those reality-based people who still care about such things . . .   


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URL to article: http://www.ritholtz.com/blog/2005/08/a-brilliant-idea/

URLs in this post:

[1] Institute for Supply Management (ISM): http://www.napm.org/

[2] The National Association of Realtors: http://www.realtor.org/

[3] Conference Board: http://www.conference-board.org/

[4] unpleasant news releases: http://bigpicture.typepad.com/comments/2005/08/juiced_data_1.html

[5] LEI’s to be negative: http://bigpicture.typepad.com/comments/2005/08/revised_leading.html

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