Cyrillic Partners

James Surowiecki returns with a strong column on employment data in the January 21st edition of the New Yorker Magazine after a nearly month-long hiatus.

His always-insightful column takes on Wall Street’s obsession with economic data–despite the huge variance baked into the estimates. From his piece:

…the payroll report has a sampling error of as much as plus or minus a hundred thousand jobs (which means that, instead of gaining eighteen thousand jobs last month, we may have lost eighty-two thousand), while the household survey’s error margin is even bigger, at plus or minus four hundred thousand jobs. The payroll numbers are also subject to big revisions: in September, the government reported that the economy had lost four thousand jobs the previous month, but a later update said that eighty-nine thousand jobs had been created.

It seems insane that anybody would bet the farm based on these numbers. The paradox is that Wall Street investors do. They take a single number as gospel instead of appreciating its statistical variance.

Maybe a single investor doesn’t believe the numbers one way or the other. But if he or she believes that other investors will put their faith in the numbers, it might as well be real. Perception is reality when it comes to markets.

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