The Commerce Department recently reported that new home sales rose 0.2 percent in September from the prior month. That’s newsworthy, but the real news comes in the form of the margin of error. As reported in the Wall Street Journal, that 0.2 percent growth figure came with a margin of error of 15.7 percentage points. That means that new home sales may have actually risen by 15.9 percent in September, or perhaps they were down by 15.5 percent.
Your guess is as good as anyone else’s. In other words, we really don’t know what happened with respect to new home sales in September. That means that if you’re a home builder, you really don’t have much useful data by which to judge your next set of actions. If you’re a prospective new homebuyer, you also don’t have much information by which to determine your relative bargaining position.
Wait, there’s more. When the new home sales data were released for August, August seemed a pretty good month. The initial estimate of sales on a seasonally adjusted annualized basis was 504,000. But that estimate was revised down one month later to 466,000. Moreover, the margin of error for that month’s reading is 16.3%. Many economists agree that these data are pretty useless on a short-term basis because they’re not well measured.
