One of the biggest problems in deciphering economic data is how inter-connected the data is.  A change here creates a change over there.  One example is the GDP report for the fourth quarter, which originally showed a 0.1% DECLINE.  We could see immediately that it was skewed by the highly-unusual decrease in both government spending and business investment ahead of the Fiscal Cliff at year-end.  There is a cost to uncertainty!

Yesterday, we learned the trade deficit in December decreased over 20%.  This assures us that the fourth quarter GDP growth was under-reported and will be revised upward next month.

But wait . . . exports increased and imports decreased . . . at the same time . . . ??  That doesn’t happen when the dollar is strengthening, as it has been recently.  That’s because exports were skewed higher due to unusually heavy sales of gold to foreigners, and imports were skewed lower due to unusually low amounts of imported oil.

Maybe, what is considered “usual” is not so usual after all?  Fortunately, all these unusual economic data points have a tendency to cancel out each other . . . but not always.

Still, it shows the problem of seeing the trees but not the forest.  There are 130 economic reports issued each month, and that’s a lot of trees.

However, if you look at the forest, you’ll know the under-lying economy is stronger than most people think, and you’ll see the fourth quarter GDP report is simply not believable.  Stay tuned for the revision!