Investors rely on data reported by any number of departments and bureaus as economic data is released on a regular monthly basis. Following economic trends can, or at least should, provide some guidance as to the current and future strengthGDP Error Rate 1.3%of the economy. Yet how reliable is that data?

Can it be trusted? And what about these month to month swings, what causes those? It could be nothing more than lousy math. In article today* on, reporters looked back nearly two decades at one of the more closely watched numbers-the GDP report. You’ll be surprised at what they found.

According to the data, the GDP number was off by an average 1.3 percentage points. That means that if Q1 GDP was reported at 2.0% it was just as likely to be an even more anemic 0.7%. And this error rate was consistent throughout this period back until 1990. And as you know, the GDP number is released in three stages, an initial count and two subsequent revisions. Even the revisions showed a similar error rate. The GDP is supposed to provide us with the biggest snapshot of quarterly activity but with an error rate of 1.3% it can give us pause.

Let’s now take a quick look at Durable Goods orders, another “reliable” data set. In January of this year, Durable Goods orders rose by a respectable 4.9% but for February the number fell by 2.8%. That’s a 7.7% swing. Investors who place their funds in equities need to have an iron stomach or at least a neck brace to follow such swings.

Real estate investors can rely on more solid, verifiable data- recent sales of similar properties in the area and a market rent survey. When real estate is sold it is sold at the highest price the buyer is willing to pay and the lowest the seller is willing to accept. It’s a pure, open market and one which investors can rely on. No wild monthly swings and no error rates. 

* March 24, 2016 "Don't Trust Those GDP Numbers"