If you’re as diligent as most dealers about making decisions based on facts, here’s an item from the Washington Post that will make you sit up and take notice. Washington Post’s reporter did something no one has apparently ever done: He read the footnotes to the Census Bureau’s monthly press release on the housing market.
“According to (the) report, housing starts rose 2.6% in April. Or maybe they fell 12.2%. Or maybe they rose by a much more dramatic 17.4%. It’s hard to say, because the reported number came with a margin of error of plus or minus 14.8%.”
To find out why Census would publish a number with a margin of error that big, he contacted the head of the residential construction division, Raemeka Mayo. Who offered the following explanation:
“We allow everybody to come up with their own interpretation.”
Now there’s a good idea. Chances are you think you’ve been in a recession these past five years. Prove it.
In point of fact, 2.6% is probably accurate. Starts correlate closely with permits, where the sample is large enough that the margin of error is only ±1%. YTD starts are up 24.0% while permits are up 26.7%.
Nonetheless, we have the Census Bureau’s blessing, so let’s take a stab at interpreting some numbers. The hot topic at the moment is the pitiful jobs report. The Bureau of Labor Statistics says the US added just 69,000 new jobs in April (gaining 82,000 in the private sector and losing13,000 in government). The market reacted accordingly—the Dow Jones dropped like a rock.
It’s possible the economy is going south, as more than a few pundits are saying. But according to a senior JP Morgan analyst, BLS’s seasonally adjusted official numbers don’t jive with its non-adjusted numbers. Before seasonal adjustment, the April survey showed the highest monthly job gains since 2000.
A similar survey by the Census Bureau came in at its highest level since 1999, while payroll giant ADP’s monthly survey (also seasonally adjusted) reported 133,000 new jobs in April. In other words, BLS’s seasonal adjustment may have been wrong.
That’s good news if it’s true, but it’s peanuts compared to another issue currently on the table. Unless Congress acts (yeah, that’s an oxymoron), a whole bunch of stuff will happen at 12:01 am on January 1st:The 2001-3 Bush tax cuts expire.
- Automatic across-the-board spending cuts triggered by the failure of last fall’s “supercommittee” take effect.
- The Alternative Minimum Tax (AMT) expands to include more taxpayers.
- Social Security payroll taxes on employee wages go back up to 6.2%.
- Unemployment benefits end for roughly 3.1 million people.
- Medicare payments to doctors fall 25%.
- Various corporate tax credits expire.
What kind of impact would that have? For one thing, the annual budget deficit would fall to nearly zero within three years.
That seems like a good thing, but forget the cure; what people really want to know is whether the medicine will taste bad. Businessweek sure thinks so: “The...double-whammy explosion of spending cuts and tax increases will likely send the economy careening off a $600 billion ‘fiscal cliff.’”
A new Congressional Budget Office report does in fact conclude that we’d see another recession in 2013; fortunately the media is here to help interpret it. Talking Points Memo (liberal) says CBO thinks the impact would “devastate the economy.” The National Review (conservative) says CBO believes it “would have disastrous effects.” Fox News (fair and balanced) calls CBO’s report a “warning about our dire fiscal future.”
It’s enough to make you wonder what CBO actually said.
Here you go: “Growth in real GDP in calendar year 2013 will be just 0.5%, CBO expects—with the economy projected to contract at an annual rate of 1.3% during the first half of the year and expand at an annual rate of 2.3% in the second half.”
By comparison, GDP fell at an annual rate of 8.9% in 4Q 2008 and 6.7% in 1Q 2009. In 1Q 2012, GDP grew at a 1.9% rate.
If that makes it hard to get worked up over a 1.3% dip followed by a 2.5% gain, you’re not alone. But that’s not the issue. The real issue is that everyone wants someone else to take the medicine.
However it plays out, there will be no shortage of news the rest of this year. Or interpretation.
Meanwhile, the housing market is moving along just like an Acme rocket sled: full throttle and no steering.
Some markets are up dramatically while others are still falling. Month-to-month numbers were mediocre in April, but the YoY numbers are still strong—not just starts and permits, but also home sales and prices (depending on whose prices you believe).
Naturally, that leaves room for interpretation. You could be happy about the “U.S. Housing Market Taking a Turn for the Better” (MarketWatch, May 24) or unhappy when the “US Housing Market Takes Turn for the Worse” (MainStreet.com, June 1).
Or you could just go with Reuters: “Recent conflicting housing data has confused consumers and economists alike.”
The headlines should have read, “Move On, Folks. Nothing to See Here.” Demand is still strong and credit is still tight, and there are no signs that will change soon.
One more item in the “Numbers Subject to Interpretation” department: The latest annual ProSales 100 rankings just came out. Top 100 lists are fun, but there are all kinds of ways to slice and dice the data.
Don’t think gross revenue is meaningful? You can try sales growth or decline, but that doesn’t do the trick, either. If sales rose 54% but your unit count rose from 42 to 64 (+52%), you’re flat. Your YoY change in sales per unit is better, but what if you’re up 20% and your market is up 40%?
Even change per unit vs. market growth/decline isn’t perfect. You’d be up 100% if you closed half your yards but retained all your customers. That’s a major accomplishment, but your market share didn’t double. Likewise, if production housing booms in your market but you don’t because you specialize in custom builders and remodelers, you’re not losing market share.
Just like sales, some market share numbers are meaningful and some aren’t. Throw in other variables—self-reported numbers that aren’t accurate, companies that don’t report, or trends in material prices—and every ranking is just a beauty contest.
And that’s okay. It’s an honor to be Miss Congeniality even if other contestants are congenial, too.
On the following pages, you’ll find the 2012 ProSales 100 ranked by 2010-11 gain/loss in sales per unit vs. growth/decline in residential permits in each company’s trading area. Take it with a grain of salt—and enjoy.
