Saturday, May 5, 2012

It's cloudy today (why data points are not trends)

Yesterday, we had the kind of weather you expect at the end of an academic year. The high temperature was in the upper 70s and the sun was shining. It felt like we were ready for summer.

Today is a different story. While I was looking forward to sitting on the deck and grading papers (well, that might be a little exaggerated), the fact that it's cloudy with a light breeze and temperatures in the upper 50s means that all bets are off. How disappointing. I guess summer isn't here after all.

Of course, we had some summer back in February. It was way warmer than usual. Then things got sort of back to normal. Then they got below normal. A month ago today, the high temperature here was 42 degrees. You'd think I'd be happy with 56.

With all this change in weather patterns every day, you can almost feel sorry for folks who have questions about Global Warming. How could such a shift align with what we see as such volatility on a regular basis? Maybe we're just in February but it wil cool off.

This isn't really about weather, much to my son Matt's regret. It's about our annoying tendency, made worse by media hype, to see data points in isolation. What might today's sudden drop in temperature mean for our long-term planning? Why doesn't it match what the five day forecast said just 3 days ago? (Why do the NOAA people get to keep their jobs with records like this? And why isn't the House Oversight committee holding hearings?)

Yesterday, the April jobs report came out. It was below expectations, while still being in positive territory. It's below the amount necessary to handle labor market expansion due to population (although there's other data that explains we've been seeing increased rates of retirement for since the turn of the century). It may be true that the warm weather in February (see above) artificially shifted hiring patterns earlier, but it's too soon to tell.

Related to the jobs report and election uncertainty in Europe, the Dow fell yesterday ending what all media sources called "the worst week of the year". It dropped 1.6% compared to April 27th. Oh, and in the second week of March, the Dow had it's "best week of the year" gaining 2.1%. Tuesday, the Dow hit its highest point in four years! And then the market corrected downward.

Here's another crazy example: Gas prices. Two months ago, there was great panic about how gasoline prices had risen dramatically. If you project that trend line out, we could be looking at gas prices approaching $5 per gallon by the end of the year. Last month, gas prices started to fall, dropping about 25 cents a gallon from the previous $4 mark. I was waiting for the media stories about how this could usher in the potential for $3 gas, if the trend continues. But they didn't write that story because you can't evaluate gas prices in short term patterns. There are seasonal impacts, supply issues, and the growth of the Chinese middle class that all play a role. But gas prices are back up a bit. What might that mean for Obama's reelection prospects?

One more example: We've begun paying attention to the national polling about President Obama and Governor Romney. As I posted on Facebook recently, the number of firms doing polling and the frequency of the polling means that we have new data all the time. What do these pieces of information tell us? First, as somebody finally pointed out on NPR this morning, we don't vote nationally but have 50 state elections. At that level these polls tell us nothing. Second, individual polls are skewed by the pollster, impacted by blips in the media, are subject to the specifics of the sample frame, and the nature of the question wording. But if you look at the trends, particularly at the state level, you see something much more substantial.

I've complained about 24 hour news incessantly on this blog and I will continue to do so. If you have to fill that much airtime, reflecting on how the trend lines have shifted on a seasonal basis (which happens in the stock market, at the gas pump, with hiring, and with the weather) isn't a hot story. It doesn't give pundits much to speculate about.

My point is that we have to take the long view. Minute fluctuations are meaningless unless we hype them out of proportion and then the hype impacts trends more than the fluctuations did.

I'd write more, but with a 20 degree drop in temperature since yesterday I'd better go get my parka out. If this pattern holds, the temperature could be in the TEENS by Monday!