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Economic Data Snowballed by Major Storms

At this point in the cycle, government data is particularly susceptible to noise (including the weather).

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I apologize in advance if this week's column seems like a lot of excuses and whining, but some of the data problems that I've worried about for months have come home to roost. As expected, this week's set of economic data was seriously messed up with weather, seasonal adjustments, and data that just didn't seem to match up with what our analysts were hearing from their companies.

There are times in an economic cycle when it's just better to listen to the government's numbers, as companies seem too shell-shocked to see improvement under their own noses (as was the case last spring). Then there are times when it is better to listen to companies and analysts because the changes in government data become smaller later in a recovery, and the noise levels (weather, for example) become larger than the changes in the raw data. Now is one of those times.

There was positive news out of our transportation experts and retail team even as the economic news was generally mixed. That is why I am sticking with my moderately bullish forecast of 4% GDP growth for 2010. On the positive side, the GDP figure for the fourth quarter was raised to 5.9% from the first guess of 5.7%, surprising many analysts. Apparently we aren't going to have the "now you see it now you don't" GDP growth shown in the third quarter (the growth rate moved from the 3.5% initial report to just 2.2% in its second revision).

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Robert Johnson, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.