Misleading WSJ Chart

Tuesday, August 09, 2005 | 05:52 AM

Readers of the Big Picture know what a huge fan I am of both the WSJ and their awesome graphics department. So it was with great disappointment that I reviewed this graphic sent in by an emailer:

00_wsj_jobs08072005194152_1

I cannot recall when any WSJ chart previously made a move of just 3% -- a move from 132.5m down to 130m up to 134m -- look so good . . .

Let's explore how else this data can be presented. Its important to investors to understand what they are looking ast, and what it truly means for the economy and the markets. 

Here's a few other ways to depict this data -- same numbers, but the entire data series shown -- not just the changes:

Quarterly, with a zero basis
Quarterly_with_a_zero_basis

Looks less impressive, no?

But that chart is a worthless to the investor as the WSJ chart above is. Why? It provides no particular insight into what is happening with the economy. All I did was plug the data into Excel, and set the base to nothing; Without the zero 1st month, the charts look about identical -- and equally worthless.

So you can either exaggerate change by eliminating all but recent delta, or diminish the change by including all of the data. Both are worthless depictions. 

If you really want the data to give you insight, you need to compare it to prior post recession periods. Fortunately, the Cleveland Fed does the heavy lifting for that for us:

Nonfarm Payrolls, Post Recession:  2001-05 vs. Average Recovery

Nonfarm_payrolls_cleveland_fed

Source:  Federal Reserve Bank of Cleveland, (Caveat Forecaster, February 2005)

That chart dates from February; As of recently, the two lines are moving in parallel -- much better than the chart depicts, but still far far below prior comparable periods . . . (If anyone comes across an updated version of this, please let me know and I'll post it here also.

>

UPDATE: AUGUST 9 2005 6:40am

Of course that chart is misleading -- its from the Op-Ed page. DUH! Just goes to show you that a picture may be worth a thousand words, but if most of them are crap, so's the picture . . . 

Nevermind.

>

Source:
REVIEW & OUTLOOK 
The Great American Jobs Machine
August 8, 2005; Page A10
http://online.wsj.com/article/0,,SB112345310644607010,00.html

Tuesday, August 09, 2005 | 05:52 AM | Permalink | Comments (10) | TrackBack (1)
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» http://newmarksdoor.typepad.com/mainblog/2005/08/in_one_of_my_co.html from Newmark's Door
In one of my courses I try to teach the students how to avoid constructing misleading graphs. Barry Ritholtz properly criticizes a poor Wall Street Journal graph and provides me with a nice example for my course. [Read More]

Tracked on Aug 16, 2005 5:50:20 AM

Comments

I don’t think the chart is so misleading, and apparently neither does the FOMC. The decline in employment, though not dramatic by historical standards, was enough to convince them to bring the federal funds rate down to its lowest level in four decades. The increase in employment, though meager relative to past recoveries, was enough to convince them to raise the rate by a factor of 3. (Okay, I’m misleading a little by citing the proportional increase, but 225 basis points is still a lot.)

Normally I have strongly opposed tax cuts during times of deficit spending, and I am certainly no fan of President Bush, but in 2003, with the Fed running out of ammunition, a tax cut was a sensible thing to do (maybe not the best available option, but that’s another argument). While I would always be cautious about attributing economic results to a single cause, I would say the data support the conclusion that the tax cut worked.

Posted by: knzn | Aug 9, 2005 9:52:45 AM

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