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» VISIT US ONLINE @ DSNEWS.COM COMMENTARY: HEADLINES AND BOTTOM LINES By Mark Lieberman, Chief Economist for the Five Star Institute One of the most interesting results of poring through economic data reports issued by the government or by interest groups is that the details often tell a different story than the headline, yet it is the headline on which most mainstream media reports and the stock markets choose to concentrate. The March report on retail sales is a case in point. While the vast majority of commentators were impressed with a strong 1.1 percent month-over-month increase in overall sales—the strongest percent gain since last September— those who scratched the surface were rewarded for their efforts by learning more than half of the month-over-month increase came from an increase in gasoline station sales. In February, total retail sales "increased" $4.4 billion over January, with gasoline sales accounting for $2.29 billion of that increase, not that we were suddenly driving more but based on the increase in price. Even though the Census Bureau's retail sales report clearly says on the very first page of the four-page release that the numbers are not adjusted for price changes, most commentators and analysts persist in referring to the movement in retail sales as if consumers suddenly became more profligate or penurious when all the numbers were doing was moving with prices. The report is not meant to provide insight into consumerism or consumer preferences except to the extent that as prices for one spending category increase, the money available to spend on something else, perhaps discretionary, is reduced. The spending phenomenon is no more complicated than that. For lenders, the report is significant because it means that if consumers spend more at retail stores, whatever category, they have less to spend elsewhere, perhaps debt service. The report does have implications though for businesses that make hiring decisions based on revenue or profit per employee—a metric championed by Sageworks, Inc., a North Carolina based company that uses data from thousands of privately held companies augmenting "traditional" financial measures. The revenue- or profit-per employee yardstick actually makes practical sense. No profit-making company is going to add or keep an employee who does not generate sufficient revenue to cover his or her salary plus benefits. If the company doesn't stick by that, it could quickly be out of business. Metrics, such as revenue or profit per employee, can be found in all sorts of economic reports, if you're willing to dig for them. Indeed, in January, according to the National Association of Realtors, the number of existing—or pre-owned—homes for sale fell to the lowest level since December 1999 and the months' supply of homes for sale dropped to the lowest level since April 2005. In February, according to NAR, both the homes on the market and months' supply improved, but remained at the lowest level in years. It was no surprise then that residential construction activity—at least as measured by the Census Bureau-HUD report on housing permits and starts—showed a sharp increase. To create a cause-and-effect relationship though implies a substitution of a new home for a used home, which is not always the case. But beyond that conclusion, a closer look at the permit-starts data revealed a perhaps more important phenomenon: a shift from singlefamily to multifamily construction. Indeed, a close look at the numbers showed in the last two years, single-family averaged about 65 percent of all permits. In the previous two years, singlefamily homes averaged 75 percent. Similarly, single-family homes represented 69.5 percent of all starts in the last 24 months compared, with 80.5 percent in the previous two years. The Census-HUD report does not distinguish between multifamily rentals and condos, but to the extent there has been a lingering effect of the bursting of the housing bubble, the increase in multifamily activity is consistent with surveys showing younger individuals and families—having seen what the housing meltdown did to the previous generation—are reluctant to own. Economic headlines are not always the bottom line. Hear Mark Lieberman on P.O.T.U.S. (Sirius 124) every Friday at 6:20 a.m. and again at 9:20 a.m. (EDT). 37

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