Survey Says…

Sunday, April 19, 2009

Executive Summary

• Beware the gap between survey data and actual economic data.
• The stock market appears to be responding to survey data, not actual data.
• Surveys contain many potential pitfalls.
• Examples of influential survey data are given.
• Tax data is a relatively reliable indicator of the true state of the economy.
• Beware the "spin."
• The bottom is not in yet.
• Remain skeptical and bide your time wisely.

The past few weeks have seen the stock market shrug off bad news and seize upon whatever glimmer of good news it could find.  I am of the opinion that the stock market rally of the past six weeks is long in the tooth and built upon some highly questionable, if not patently misleading, reports.  I understand the importance of consumer and investor psychology to our economy, and can even sympathize in some small way with those who spin data in an attempt to be helpful, but I still find the practice of self-deception to be distasteful.

It is my opinion that this is not the time to be lulled back into spending more, nor is it a good time to get back into the stock market, unless you are a highly skilled trader who is willing to track your positions on a minute-by-minute basis.  This is a great time to lighten up on any stock or 401k positions that you might have regretted holding onto about a month ago…

One key oddity for me these past two weeks was the startling gap that appeared between so-called survey data (discussed below), which mainly surprised to the upside, and actual economic data, which mainly surprised to the downside.

This report explores that gap.  My theory is that survey data is being ‘massaged’ to paint a brighter picture than actually exists.   If these "glimmers of life" that Obama recently referred to, or "green shoots" as Bernanke said, have you thinking of spending more money or wading back into the stock market, you especially need to read this report carefully.

An abundance of surveys 

This week, the stock market was said to be taking its cues from various upbeat economic reports.  Many of these were "survey" reports, which I always take with a large grain of salt.  These reports are exactly what they say they are – surveys.  Their methodology always involves a series of questions posed to a sampling of potential respondents.  The possibility of accidentally (or intentionally) introducing sampling bias is always distinct.