Wednesday, September 18, 2013

What’s Your Number?

A recent TV commercial featured ads asking individuals the question above. The number referred to the amount of money the individual would need to fund their retirement. While that number was hypothetical, numbers can have significance. Witness the “talking heads” on the financial news channels as they await and report the periodic economic data news (Gross Domestic Product (GDP), unemployment, Consumer Prices (CPI), etc.). They will discuss the numbers, the trends, and the potential impact that data has on the financial markets. Ah, but now-as radio commentator Paul Harvey used to say- for “the rest of the story.”

Columnist Samuel Rines wrote an interesting article entitled “Monthly Economic Data Aren’t Reliable” in the June 28, 2013 Wall Street Journal. His basic premise is that all economic data is incorrect when initially issued; it is then corrected in subsequent time periods as more data are received. For example, the annualized change in GDP for the fourth quarter of 2008 was reported as -3.8%. Following subsequent revisions, the final GDP number for that quarter was -8.9%; an error of 134%. Revisions apply in much of the economic data reported. Those revisions matter. The Federal Reserve uses such economic data to analyze the economic growth and then make economic policy.

Employment data is another example. Initial employment data in February, 2013 was reported as a net new job growth of 236,000. It was revised in March to 268,000, and again in April to 332,000. The unemployment rate (currently 7.2%) is a frequently reported number. Its calculation counts anyone who works at least one hour as “employed,” and does not count anyone who stops looking for work as “unemployed” even though that person does not have a job. A much better number might be the actual employment percent of the eligible workforce—that number stands at all-time lows.

So what’s an investor supposed to do? Consider economic data figures as a “best guess” and view the data in terms of a broad indicator of the economy and its direction of growth. Monitor future adjustments and factor those into your assessment of actual economic growth. Certainly a macro view of the economy is important in your investment plan; but keep in mind your long term financial goals. Make investment decisions with those goals as a guide. We, at Paragon Advisors, will be happy to discuss your financial plans with you and assist you as you work to achieve your financial objectives.
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