The June New Homes Sales figures were released today and the Commerce Department claimed they were up almost 24%. Stocks rallied strongly on the supposedly good news. A revision of May's all-time low number to a much worse all-time low number is what gave the appearance of a strong rebound.
New home sales for May were originally reported at a 300,000 annual rate last month. This compares to a high of around 1.4 million in 2005. It was also the lowest number ever recorded in the history of the data. As bad as 300,000 was, and it was truly awful, there was a significant downward revision for May sales in the current report to only 267,000.
May sales were also not the only month with a downward revision. The figures for April were originally reported as 504,000 in the report released in May. Then in the report released in June, they were revised lower to 446,000. Then in today's July report they were revised downward again to 422,000. Do we see a trend here?
The home buyer tax credit was good until the end of April. With the revised numbers, new home sales actually fell 37% in May, not the merely disastrous 33% originally reported. The drop from the originally reported April number was 47% however. If you wish to claim there was a 24% rebound for the numbers in June, as the government did, you need to put it in the context of a 47% drop first taking place, otherwise you are comparing apples to oranges. No matter how you look at it though, new home sales were and still are at depression levels.
New home sales figures have been continually revised downward for several months now. It is highly likely that the 330,000 number just reported for June will be revised lower next month and quite possibly lower again the month after that. The Commerce Department reports the best number possible the month of the release. The mainstream media then gives that news big attention and uses it to reinforce an image that government programs are being effective. When the downward revisions take place in future months and indicate things aren't quite so rosy, that news gets buried in the article - if it is mentioned at all. This is not the only U.S. government data where this pattern exists, nor does this only take place in this country. Investors shouldn't let themselves be tricked by this game.
Disclosure: No positions.
Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21 |
