Beware of Revisions

By Rick Pendergraft
Economic reports are under even more scrutiny than usual right now [originally written November 2007, but still applicable today]. That's because the Fed uses these reports to determine policy. With the Fed recently shifting its focus back to inflation after a few months of focusing on growth, the reports are growing in importance for the market.

Yes, you should keep your eyes on these reports. They drive the market in one direction or the other, and they give you a feel for the health of the economy. But there's something you should be aware of: revisions. When a report first comes out, the number is often better or worse than expected. Then, a month or so later, it gets revised lower or higher.

Let me give you an example. In the August [2007] Employment report, non-farm payrolls showed a decline of 4,000 jobs. But when the September [2007] report came out in early October [2007], the August [2007] number had been revised to reflect a gain of 93,000 jobs. So a report that had looked like a bad sign for the economy now looked like a good sign.

Unfortunately for investors, these revisions get far less attention than the original reports.

To get a true feel for where the economy is heading, watch the revised numbers as well as the initial numbers. This will give you a leg up on other investors.

[Ed. Note: Rick Pendergraft, a two-time winner of the "Top Trader" award at Schaeffer's Investment Research, was a contributor to ETR's free e-zine, Investor's Daily Edge [July 2006 – May 2009].]
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This article appears courtesy of Early to Rise [Issue #2212, 11-29-07], the Internet's most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com/.