At the Associated Press, covering today's durable goods report from the Census Bureau, Martin Crutsinger wrote that "Orders for durable goods fell 4 percent last month."
No they didn't. They fell by a seasonally adjusted 4%. The raw data before seasonal adjustment says that they fell by over 15%:
No variation on the word "seasonal" is in Crutsinger's report. Anyone reading or hearing his crummy content has every reason to believe that the reported drop of 4% is what actually happened. Obviously, it isn't.
Seasonality is supposed to smooth out large variations in monthly numbers to give news consumers and number crunchers the ability to quickly evaluate the direction in which the data is headed, and then to attempt to discern reasons why things are looking better or worse. A 4%, one-month drop after seasonal adjustment demands intense scrutiny, especially when consensus expectations (which Crutsinger didn't note) were for a drop of 1%.
So what happened? If you believe Crutsinger, the decline occurred because of what he described as a December 2011-exiring "tax break" once and as a "tax credit" twice
Businesses slashed spending on machinery and equipment in January after a tax break expired, pushing orders for long-lasting manufacturing goods down by the largest amount in three years.... Economists attributed much of the decline in January to the end of the tax credit. They noted that demand for core capital goods hit an all-time high in December as most companies raced to qualify for the tax credit. Many said the underlying trend remained strong and predicted further business investment in the coming months.
"We see no evidence of underlying slowing in the industrial economy so we look for a rebound in February and the re-emergence of the upward trend over the next couple of months," said Ian Shepherdson, chief economist at High Frequency Economics.
Bloomberg's "economists" weren't as sure of themselves, as its Timothy R. Homan reported:
The expiration at the end of 2011 of a tax incentive allowing full depreciation on equipment purchases may have prompted a slowdown in investment at the start of this year. At the same time, a strengthening auto industry may help keep factories at the forefront of the expansion that began in June 2009.
... Last month’s decrease in capital goods orders extends a pattern of declines early in a quarter that are typically reversed later. Demand for non-military capital goods like computers, engines and communications gear have dropped in the first month of a quarter in all but three instances since the end of 2005.
Three things are annoying about what Bloomberg noted:
- There's a race to buy capital equipment to pick up a degree of depreciation or full write-off almost every year. Was December 2011 really so very different from the norm?
- What Bloomberg describes as a "tax incentive" is a deduction (reducing taxable income) and not, as Crutsinger reported, a credit (directly reducing income taxes owed). Does he understand the difference? If there's a unusual "credit" unique to 2011 which would have influenced year-end capital goods purchases beyond normal, I'm not aware of it, and I don't see it in this list of expiring tax breaks prepared by a CPA in late December. Yet according to Crutsinger, "most companies raced" to get this alleged "credit." Exactly how does he know this?
- Seasonal adjustments are designed to smooth out typical declines, meaning that the January 2012 drop, the worst in three years must have been far from typical. As noted, leaning on tax-driven behavior to explain the drop isn't at all satisfying.
Back to the post's titled topic: Business reporters, especially it would seem at the AP, focus on seasonally adjusted data and almost always ignore the underlying raw results. That's bad enough, and barely tolerable as long as they properly label what they deem to report. But when the "seasonally adjusted" label drops off completely and it "just so happens" to make a 15% decline look like it was really 4%, that's completely unacceptable -- but perhaps expected behavior between now and November from what yours truly has taken to calling the Administration's Press.
Cross-posted at BizzyBlog.com.
