Posted by: twotrees | August 21, 2009

Lies, damn lies and statistics

blackboardRecently, a number of economists have said that the recession is over. In a technical sense, this may be true.  But maybe not.   The current definition of Recession is that GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters.  Under this measure, we’re there and have been for four consecutive quarters.

Beginning in Q3 of 2008, we have seen GDP growth of -2.7%, -5.4%,
-6.4% and -1% in Q2, 2009.  That last number represents a slowing in the decline of GNP but the real question is how will Q3 fair vs. the same period of 2008.   While I remain optimistic, I wonder what August/September results bring.

On the home mortgage front, delinquencies are at a record 9.24% of mortgages, according to the Mortgage Bankers Association. That represents more than 4 million of the 45 million borrowers covered by the report. Add to that the 4.3% of all the mortgages are in the foreclosure stage and you get over 13% during the quarter. That means 13% of all home loans are late or in foreclosure.   Locally, I know a few people who are seriously worried about losing their homes.

Consumer spending is down and so is consumer confidence. After three months of gains, consumer confidence fell further in July, following June’s downward tilt.  I believe that’s due to reality setting in after a flurry of positive signals brought on by the temporary effects of the stimulus investments. Consumer confidence is an important stat as consumer spending is reported to account for roughly 2/3 of the GDP.

On the jobs front, there’s little sign that more job opportunities are on the way.  And people feel it.  The percentage of consumers expecting more jobs in the months ahead decreased to 15.0 percent from 17.5 percent, according to The Conference Board. And the proportion of consumers expecting an increase in their incomes declined to 9.5 percent from 10.1 percent, they said.

All this adds up to nobody knowing what the future holds. I’m hearing that foreign markets are pulling out of their recessions. While we’d like to be in the same boat, we need to be careful not to fool ourselves.

The reason that statistics are worse than damned lies is because statistics can seem so authoritative. That’s why I don’t really trust economists because so many of them are not correct.  For if they were, they’d be rich, acting upon their forecasts before others in the business world.

But let’s not get into chaos theory…


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