An Urban's Rural View

When USDA's number crunchers crunched some historical data and decided we'll have trend-line yields in corn this year they drew a cogent response from DTN's Editor-in-Chief, Greg Horstmeier: "We all know that Mother Nature, she can be blind when it comes to statistical charts."

As Greg pointed out in a convincing post over on the Editors' Notebook blog titled "Contentious Crop Numbers" (http://tiny.cc/…), it's one thing to report government statistics and forecasts, quite another to subject them to critical scrutiny. That's what makes DTN so valuable. It does both: Accurate, timely, on-the-scene reporting and appropriately skeptical analysis.

The old saw, "Lies, damned lies and statistics," accuses the numbers themselves of fibbing. But as often as not the numbers lie because they're cherry-picked to make a point, taken out of context or simply misinterpreted.

With computers programmed to trade on a "headline number" it's sometimes "all of the above"

It's easy for headlines to deceive. Even the cleverest, most honest headline writer must often omit critical context. When the Commerce Department on February 28 issued its latest estimate of the country's gross domestic product in last year's final quarter, the headline was the swing from shrinkage to growth.

"Economy Didn't Contract After All," was the prevailing tone. And it was true, sort of: Instead of the 0.1% decline in the January "advance estimate," the department's "second estimate" was that fourth-quarter GDP grew 0.1%. As The Wall Street Journal's online headline put it, "Consumers, Exports Nudge Up Economy."

What the headlines didn't say, but the stories they topped made clear, was the bottom line: The economy remains weak. There's no difference worth discussing between down 0.1% and up 0.1%. Indeed, according to the department's press release (http://tiny.cc/…), the 0.2 percentage point swing was well below the 0.5 percentage point average change from the advance estimate to the second estimate.

"While today's release has revised the direction of change in real GDP," the press release explained, "the general picture of the economy for the fourth quarter remains largely the same as what was presented last month."

In this case the market's reaction was appropriately tepid. Partly because the swing was anticipated, partly because the headline number was small, partly because it was overshadowed by more gripping news, traders largely ignored the report.

But we've all seen instances when the market moved on a misleading headline. Here's a statistic I'd like to see reported: What percentage of the quants who program trading algorithms have ever read a government statistical report?

Sometimes headlines don't so much deceive as take poetic liberties. "Data Crunchers Now the Cool Kids on Campus," blared a Wall Street Journal headline (http://tiny.cc/…) that caught my eye. Well, that's not exactly what the story said. The single stats major quoted in the story conceded she "still occasionally gets negative reactions when she tells classmates her major."

But there are, the story made clear, a lot more students majoring in statistics (about five times more than nine years ago at Harvard and Berkeley) and more job opportunities in statistics (28,305 postings on the website icrunchdata last month vs. 16,500 three years ago). A stats professor at Williams College is quoted as saying, "It's just a great time to be a statistician."

Way back in the apocryphal past, there was a sign in a bar that urged, "Don't Shoot the Piano Player, He's Doing the Best He Can." These days, the statistician often fills in for the piano player as the target of popular ire. But if there are more jobs for them in this jobless economy, the statisticians may not mind the crossfire.

My suggestion: Don't shoot the statistician, but don't take what he or she says at face value without first poking and prodding and looking under rocks.

As Greg Horstmeier so ably pointed out, that's what DTN's journalists and analysts do.

(ES)

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