Love Those Headlines

We know from a study we conducted that 80% of all business leaders get their information from the newspaper. This is an inherently dangerous practice. I offer the following as an example of why it is dangerous.

What is your visceral reaction to the following online headline from the NY Times: "Steep Drop in Orders for Durable Goods"?

My immediate reaction was that there must be bad news afoot and the economy must be weakening. A steep drop in orders for durable goods would mean that (a) business-to-business spending on capital good items was in trouble and (b) that the US economy was weakening about 15 months earlier than we had anticipated.

This certainly warranted investigation. The article went on to relate that orders for durable goods dropped 4.5% from December to January and this was indeed a serious event.

Here is the reality. A 4.5% December-to-January decline in orders for durable goods is perfectly normal. The median drop is 3.8%. January's 4.5% decline was well within the parameters of normal and substantially milder than last year's 7.0% drop.

Business-to-business spending on capital goods is not in danger of sinking the economy anytime soon.

Newspapers and other media outlets will not serve you well as sources of economic news that you can use to make sound, thoughtful business decision. They do not offer a consistency in thought or methodology, and we would be wrong to assume otherwise.