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Revisions and Benchmarks

Traders and money managers are always hungry for the very latest piece of economic news. The more timely the information, the more influential it is; and the faster investors can get their hands on it, the quicker they can act.

Therein lies the problem. Government agencies and private groups that supply economic data to the public are under tremendous pressure to get it out quickly, and that's not easy. Every week or month, depending on the economic indicator, statisticians follow a rigid schedule to query sources in the field, collect the raw responses, organize the data, readjust for seasonal factors, perhaps recalculate the numbers to adjust for inflation, and then write some introductory comments about the results before finally releasing it to the public. It's a hurried process where accuracy and completeness take a backseat at times to getting the information out on deadline. For this reason the first release of many economic indicators contains pieces of data that are far from reliable and thus considered preliminary.

Of course, to many investors, it makes little difference whether the initial data is reliable. They'll trade on these numbers anyway because the figures represent the very latest information they can get on the economy. Later, though, as more information is received and after statisticians have had a chance to review their computations, the preliminary figures undergo one or more revisions. Though revisions to earlier data are also read by investors, they generally do not spark much trading because by then the information refers to a time period that has long since passed. Investors usually focus on the future, not the past. Economists, however, take revisions more seriously because the new figures can affect their forecasts of economic activity.

Benchmark changes are different from monthly revisions. The latter is an ongoing effort to make the statistical results more accurate, especially if there was insufficient time to gather all the data. However, benchmark changes come about once a year or so when the government introduces new seasonal adjustment factors or decides to undertake a formal change in the methodology itself. Benchmark revisions can affect economic data going back five, 10, or even more years to allow for historical comparisons.

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