Business Insight Zone

Today I was joking with my boss that I could give this blog over entirely to:

1. Updates about doings at Hoover’s, e.g. new product offerings or celebrating successes of Hooverites;
2. Talking about Twitter; and
3. Ranting about the state of financial journalism in this country.

I’m kidding. Mostly.

Here’s my teeth-grinder du jour, from Bloomberg:

U.S. Durable Goods Orders Rise Excluding Cars, Planes

Orders for U.S. durable goods, excluding automobiles and aircraft, unexpectedly rose in June, signaling manufacturing may expand in the second half of the year.

Excluding transportation equipment, demand for goods meant to last several years climbed 1.1 percent, the most in four months, the Commerce Department said today in Washington. Total orders fell 2.5 percent, the first decrease in three months. . . .

Emphasis on that last sentence because it’s the actual headline. Durable-goods orders fell 2.5% in June, as was pointed out in the very first sentence of the Census Bureau’s summary release that accompanied the data. So the Bloomberg headline might be something akin to one spouse saying to another: “I’ve been over our fixed expenses, honey, and we’re doing fine . . . excluding food.”

Now, the people at Bloomberg are smart, which makes me think two things:

1. “We know that automobiles and aircraft have been getting hammered, but is that obscuring trends in the rest of the manufacturing economy? Look, this story tells us! . . . Interesting angle from Bloomberg. My mind is growing!”
2. “This story, from the headline on down, overplays recovery and underplays trouble, directly contradicting the tenor of the Census Bureau’s release.”

Now, my question to you: which one of these reactions is more reasonable?

Please bear with a placeholder entry: This morning when I was standing in line for coffee, I saw a great news graphic — one that correctly contextualized U.S. housing numbers — on the front page of the paper version of the New York Times.

The Times site has a much fancier interactive graphic — appropriate, given the medium — but I’ll see if I can find a digital image of the graphic in the physical paper, because it did three things in a small space:

1. Conveyed that there’s been a tiny improvement in the nationwide average of housing numbers over the past two months reported.
2. Showed the improvement in context by putting the uptick at the end of a years-long bubble-&-bust cycle of housing prices.
3. Completely blew my mind by taking the extra step of dis-aggregating (or de-averaging) the information a little bit by showing how some of the local markets covered in the survey are doing better than the average — while some are still declining brutally.

For some context on why I value de-averaging, read this post.

For a quick tour of my frustration with the misreporting of economic data in the business press, you might scan this, this, and this.

More anon.

Sorry to keep harping on this, but the issue has gotten under my skin:

New homes sales soar unexpectedly

Sales of newly constructed single-family houses spiked 11% in June to an annualized rate of 384,000 homes.

The gain over May was much greater than expected. A consensus of housing industry analysts had forecast seasonally adjusted sales of 352,000 . . .

Yes, I acknowledge that 384,000 is bigger than 352,000. But year-over-year sales — which is what we should be looking at to account for seasonality — are down 28% from June 2008 to June 2009. So while the raw number did beat experts’ projections . . . it’s still really, really bad.

New homes sales down 28% year over year

That’s the real headline.

We can do better than this. Right?

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More in the same vein:

• Innumeracy in financial reporting?
• From the Department of Actually Informative Headlines . . .
• “I want you to have expected it.”
• Beware “unexpected”!

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The economy, while better than it was . . . isn’t very good.¹ And while I’m sympathetic to the efforts of Ben Bernanke and others to highlight potential “green shoots,” you’ll note that I’ve also sounded various notes of caution about overestimating the economy’s health.

My simple take:

Be ready for more of the bad,
even while looking and hoping for the good.

Despite all the evidence I see that the economy has a long way to go to get better, every day I encounter opinions — on television, on the radio, on Twitter, in the print media — from people who seem to need the news to be better right-now-this-instant.²

Well, today I read a long post from my friend Dave Livingston that tends to convince me that I’m right about the lack of robustness in the U.S. economy.³ And he pointed to a telling post from Barry Ritholtz,⁴ in which Ritholtz picks apart some of the sunny headlines around last week’s report on housing starts:

Housing Starts Fall 46%

Incidentally, much of the [positive] media reportage on this was simply innumerate — the numerical equivalent of illiteracy. Not just a little wrong, but totally, embarrassingly incorrect.

Ritholtz’s central point is that the numbers were given a positive gloss that was grossly inaccurate because it ignored the margin of error in the statistical report cited. He quotes the guilty parties, and his post is short, so give it a read.

What do you think? Are media outlets misreporting economic numbers? Are they putting an overly positive (or negative) spin on the state of the economy? And if so, why?

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Image by O. Taillon Photography live from MyrtleBeach, used under a CC-No Derivative Works license.

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NOTES:

. . . I offer you this:

GM Global Sales Down 15% In 2Q But Rise From 1Q

It shouldn’t be stunning to see such an informative headline, but we see so many bad ones covering earnings reports that I thought I’d single out a good one.

Headline writers have a thankless and sometimes grueling job . . . but they can still do that job well. More headlines like this one (setting aside the economic tidings it brings) would be welcome.

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Related posts:

• What’s in a headline?
• “I want you to have expected it.”
• Beware “unexpected”!

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Debated with myself whether to write about this, but then my friend Gini Dietrich said it better than I could have — and from the perspective of a P.R. pro:

Should Apple Have Disclosed Jobs’s Liver Transplant?

. . . I disagree that Apple and its board think Jobs’s health is a private matter. He has made himself a public figure synonymous with the brand; he is the face of the company. Many believe his health is instrumental in the stock performance of the company. While the U.S. has strict medical privacy laws, Jobs’s role as the company’s visionary trumps his right to privacy.

What she said — Apple could have done this much better.

Related story on this topic:

• USA Today: Jobs’ liver transplant shows money can make a difference

And three more posts from the archives:

• Steve Jobs’s health: a brief note. (28 July 2008)
• Banking on the founder’s mojo.
• Steve Jobs, rock star.

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We’re living through an economy that’s evolving, uh, rapidly, not to say vertiginously.

Lots of comfortable notions we held about markets and industries have been broken down over the past year.

Housing, consumer goods, energy, automobiles, employment, credit markets . . . all of them are up in the air in important ways.

Sure, try to get the best insights you can from experts. Find economic news that’s relevant to you and make the best use of it you can.

But in these tumultuous days, be wary about headlines that report “unexpected” results in Economic Indicator X. Two examples from this morning:

• U.S. Economy: Goods Orders Unexpectedly Jump as Recession Eases
• Purchase of new homes in the U.S. unexpectedly fell in May

Each of these stories has something interesting to convey, but the most interesting part may not be that the indicator in question did something that the experts weren’t expecting.

The most interesting part may be that the entire fabric of our expectations will continue to be rumpled and pleated by the complexities of the economic relationships that prevail in today’s world.

Here’s the best “unexpected” headline I’ve found this week:

• Trichet Says Unexpected Turmoil Could Hamper Recovery

You’d better believe it.

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Monty Python image (”No one expects the Spanish Inquisition!) via Wikipedia.

Last week I posted some thoughts from my colleague Chris Barton about the upcoming shift at eMusic, which will incorporate Sony’s back catalog into its downloading service.

Since then I’ve learned a lot about how a company can tick off its once-rabid fans. At the same time eMusic is introducing the hits of Springsteen, Dylan, and many others, it’s rejiggering fees so that subscribers can download less music for the same monthly rates they’ve been paying. The backlash has been pronounced, as you can see by looking at the “#emusicfail” hashtag on Twitter — or by reading the comments on the original post.

Thing is, eMusic may not even suffer for enraging its longstanding customers. Colin Alsheimer laid out the logic well in the earlier comment thread:

Larger audience, more mass market appeal . . . it makes sense from a business perspective. Plus those new sign-ups will never be the wiser. That said, they risk severely ruining their brand positioning.

Used to be eMusic stood for Indie/Underground music and value. Now it’s . . . mass market appeal and middle-of-the-pack pricing?

Where’s the differentiation now?

Differentiation or no, eMusic CEO Danny Stein holds that higher prices (a) were inevitable, with or without the Sony deal, and (b) will benefit the indie labels, who have wanted eMusic to raise its rates for some time. You can get a heavy dose of his thoughts in this (sadly poorly proofread) post at the Wired Epicenter blog:

Q and A: eMusic CEO Explains Controversial Price Increase, Sony Deal

So, innovation on behalf of customers and indie labels, or a sellout to capitalize on the big Sony deal? Or maybe some of both? I guess we’ll know more when the big changes at eMusic have had a chance to percolate through the company’s subscriber base.

They do it to drive me crazy.

I love FORTUNE magazine and have been reading it for ages, but this item makes me grind my teeth:

The 10 largest U.S. bankruptcies

To save you from paging through the whole thing, here’s their list, with asset values in billions of dollars:

1. Lehman Brothers — $691  — 2008
2. Washington Mutual — $327.9 — 2008
3. WorldCom — $103.9 — 2002
4. General Motors — $91 — today
5. Enron — $65.5 — 2001
6. Conseco — $61 — 2002
7. Chrysler — $39 — 2009
8. Thornburg Mortgage — $36.5 — 2009
9. PG&E — $36 — 2001
10. Texaco — $34.9 — 1987

(Note that the links for WorldCom and Texaco are to historical records, which are available to Hoover’s subscribers.)

There are two major problems here:

I. Nominal figures. Freshman economics students have it drilled into them that when you compare nominal figures across a range of years, you’re not comparing apples to apples. Yet this list ranks all of these bankruptcies by nominal dollars without a caveat (or, if FORTUNE is using real figures, the article doesn’t say so).

Here’s the same list with everything converted into billions of 1987 dollars:

1. Lehman Brothers — $413.2
2. Washington Mutual — $196.1
3. WorldCom — $73
4. GM — $54.4
5. Enron — $46.8
6. Conseco — $42.9
7. Texaco — $34.9
8. PG&E — $25.7
9. Chrysler — $23.3
10. Thornburg Mortgage — $21.8

(Note that the calculator I used only went through 2008, so I used that year for 2009 bankruptcies.)

Granted, this doesn’t change the order of the top six companies on the list, but (a) innumeracy about real and nominal values is common enough that it ought to be opposed at every turn; and (b) this listing at least compares apples to apples in terms of scale.

II. Financial assets. Banks, mortgage companies, and other financial services companies are in the business of holding assets. I ran a search on our Build a List tool for companies with more than $100 billion in assets, and what do you know? — it was dominated by banks, insurers, and the like for page after page.

In other words, it doesn’t work to suggest that the Lehman Brothers bankruptcy is seven times as big as the General Motors because Lehman held seven times as much in assets. We could compare revenue ($19 billion to $181 billion for fiscal 2007) or employees (28,600 to 266,000) or something else, but grading on assets alone gives us a false picture.

Or am I just missing something? Bankruptcy experts, economists, et al. feel free to weigh in — the floor is open for comments.

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Photo by Ed Yourdon, used under a CC-Share Alike license.

Regular readers of Scalzi’s blog will know he’s a good one for a choice phrase on most any subject, but in this post his success as a blogger and science-fiction author and his background as a print journalist merge to inform his opinion particularly well:

The problem I have with print people blaming the Internet for their troubles is that blaming the Internet allows them to ignore — and indeed, actively avoid — taking responsibility for their own acts that have contributed and are contributing to their current bad times. This happens with all print media, but SF is really hot on it. And it’s bunk. Long before the Internet could have been an active threat, subscriber numbers at the science fiction magazines were dropping. If the Internet is a dire threat to them now, it’s in no small part because they made themselves sick enough to be picked off by one major threat or another, and it just happens it will be the Internet that will deliver the coup de grace (in fact it’s rather more likely it’ll be problems with magazine distributors, but hey, why not blame the Internets anyway?).

(Read the whole post at this link.)

The bit about publishers’ making themselves sick enough to be picked off reminds me of a favorite quotation:

If a particular cause, such as the accidental outcome of a battle, has destroyed a State, a general cause existed that created a situation in which the loss of a single battle could result in the collapse of the State.
–Montesquieu

Which also reminds me of Hemingway’s line that bankruptcy happens “Gradually, and then suddenly.”

That’s what’s been happening to too many members of the print-media old guard for many years now. Since I cut my eye teeth in print journalism, that makes me a little sad — but the wailing from the print-media dinosaurs Scalzi talks about just makes me annoyed.

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