“We don’t have the data collection structure to capture what is happening in a real time way, or what is being traded and how it is affecting workers. We have no idea how to measure the occupations being offshored or what is being inshored.”

-Susan Houseman, senior economist at the W.E. Upjohn Institute for Employment Research

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I am on the West Coast for a few more days, but my body clock remains on East Coast time. This means I am three hours behind and somewhat harried.

Even from this sunny California vantage point, I cannot help but point you to a specific NYT column that is dead center in the sweet spot of what I love to do: Dissecting the official economic releases to tease out the flaws inherent in the data modeling, and identifying what they misrepresent.

Or in more colloquial English, sniffing out and fixing bad dope from government geeks (i.e., statisticians, economists, etc.).

Long time regular readers are familiar with some of our favorite topics in this area. The hall of fame of misleading official data is quite long:  The Birth Death adjustment, the U3/U6 unemployment measures, Owners Equivalent Rent, anything Boskin Commission related, the construction of GDP, and of course, “Core” Inflation. Many of these have been outed; they are more in the public eye thane ever before, and perhaps a little better understood by investors. However, they remain highly misleading data points.

The good news is that the pros are starting to notice, and they are taking some small steps to fix at least some of the problems:

“A widening gap between data and reality is distorting the government’s picture of the country’s economic health, overstating growth and productivity in ways that could affect the political debate on issues like trade, wages and job creation.

The shortcomings of the data-gathering system came through loud and clear here Friday and Saturday at a first-of-its-kind gathering of economists from academia and government determined to come up with a more accurate statistical picture.

The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country . . .

That may help to explain why the recovery from the 2001 recession was a jobless one for many months and why the recovery from this recession is likely to generate few jobs for many months.”

One small step for data junkies, one giant step for econometricians

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Sources:
Measurement Issues Arising from the Growth of Globalization*
November 6-7, 2009
W.E. Upjohn Institute for Employment Research
and
National Academy of Public Administration

http://www.upjohninst.org/measurement/final-program.html

Economists Seek to Fix a Defect in Data That Overstates the Nation’s Vigor
LOUIS UCHITELLE
NYT, November 8, 2009

http://www.nytimes.com/2009/11/09/business/economy/09econ.html

Category: Data Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

21 Responses to “Fixing Misleading Official Data”

  1. call me ahab says:

    “That may help to explain why the recovery from the 2001 recession was a jobless one for many months and why the recovery from this recession is likely to generate few jobs for many months.”

    let’s amend that to “years” before even a few jobs are generated

  2. Marcus Aurelius says:

    Propaganda must be plausible if it’s going to work. Th latest stats from our Dept. of Propaganda are just stupid.

    You don’t need a weatherman to know which way the wind blows.

  3. alfred e says:

    Meritocracy is dead. Only plutarchy.

    Think someone wants to jeopardize their gov career or contract by raising the specter of truth, honesty and openness.

  4. Transor Z says:

    One concern I have is that the U.S. TBTF institutions are considered vital for national security and lack of financial transparency is rationalized by leaders on this basis. The actual financial health of the giant U.S. banks (or lack thereof) and the Fed are state secrets. Let’s see how this Bloomberg FOIA claim against the Fed plays out. Indeed, the Fed’s read on the long-term health of the economy gets publicly expressed only as whether target rates change. I guess that’s a secret too.

    Another thing we haven’t mentioned here for some months is that the unemployment level has exceeded the “worst case” TARP stress test levels for some time now. Remember that one? Oh yeah, it became moot for certain institutions after the AIG money laundering episode.

  5. bsneath says:

    Very good stuff BR. For years it seems as though our productivity rates have been running too high. If imported components show up as domestic production, then productivity would be overstated along with GDP. (I think)

  6. CTB says:

    We’re still putting carburetors in our cars? This is exactly what’s wrong with America!

  7. franklin411 says:

    @CTB–Great point! =P

    While I appreciate the desire for accuracy, now is not the time to be fixing broken data. Why? Because once you touch the methodology, one side or the other will take advantage of it for political purposes. If the revisions end up lowering estimates of economic growth, then the opposition will compare it with inflated data from the pre-revision era and say “look what a horrible job they’re doing!”

    And if the revisions end up raising estimates, then the ruling party will trumpet it as a tremendous leap in economic performance.

    And regardless of what happens, the GOP will claim that it’s all an ACORN conspiracy!

  8. franklin420d says:

    Huh?………” Why? Because once you touch the methodology, one side or the other will take advantage of it for political purposes.”

    So are you saying the data has not been politicized, yet?

  9. GetALife says:

    Fine – fix it but the article said:

    “At worst, the gross domestic product would have risen at only a 3.3 percent annual rate in the third quarter instead of the 3.5 percent…”

    Hardly worth losing sleep over this…these are ANNUALIZED #s so the net effect is 0.05 percent in the quarter…yawnnnnnnnnn!

    ~~~

    BR: Why are you so against accuracy in data? Is it because it disagrees with your ideology?

    Let see, 0.2% times 14 trillion dollar economy is $28 billion THIS YEAR. (Send me a check for this yawner) Now make that cumulative for 20 years

    Could you cover a check for 1/1000 of 1 year ? ($28 million).

    Would you like your medical doctors to be as accurate in their diagnosis and treatment as government economic data is?

  10. spencer says:

    But the carburetor is excluded from the GDP data because imports are subtracted from the data.

    However, the important point is what is the correct price for the imported carburetor because the bulk of imports are intra -company transactions, not arms length transactions. This mean the official data carries the carburetor at what ever price the auto firm importing it declare it to be worth. The price they declare is the price that minimize stheir taxes and often has little or no relationship to what a free market price for carburetors really is.

    The biggest example of how this distorts the data is to look at US-Canadian trade data. This should be about the best data set in the world. It is collected by two of the most advanced statistical collection agencies in the world and is based on a 100% sample. But both the Canadian and US data records that both countries are running large trade deficits with each other. This can not be right and the major data distortion that creates it is intra-company shadow pricing.

  11. bsneath says:

    Maybe what they are saying is the $50 carburetor, while deducted as $50 in imports, shows up in the GDP as a $99 domestic. Therefore the GDP went up an extra $49.

  12. MRegan says:

    The Problem extends beyond what we count. What* we count with is even more problematic.

    *USD- what deal was reached in St. Andrews at the G-20?

    My recommendation (DMM.to and others of its ilk), is to find protection against the devaluation of the USD and maintain capacity to engage in transactions- try buying daily necessities with a $1200+ coin, if you think you already buy too much at Sam’s Club now, fuh-geh-da-boweh-tit!

    http://www.google.com/finance?q=TSE:DMM

  13. The Curmudgeon says:

    The thing about virtually all economic data is their tautological nature. 9.5% increase in productivity? Pretty easy to understand, if you know that more money is being made with fewer worker-hours, which are the inputs used to derive productivity figures.

    Same’s true of GDP, etc, except this: The metric by which we measure all these things is generally US dollars, and when there’s been this much monkeying around with the dollar, ascertaining it’s true worth is not something that is amenable to governmental statistical manipulations like the PPI and CPI. I’d say a dollar about now is worth about 1/1,100 of an ounce of gold, or about 1/80th of a barrel of oil. Or, as the guy in the McDonald’s commercial finds out, it’s worth about one double cheeseburger or a small fry.

  14. MRegan says:

    I assert the following: The Global Macro Future is predictable. (2-3 year timeframe)

    You’re welcome.

  15. MRegan says:

    http://online.wsj.com/article/BT-CO-20091106-704867.html

    Gafisa @ 33+ Will it head into the forties? 25% move up? ……DYODD.

  16. bsneath says:

    I wish our elected officials and the rest of the well-off crowd would spend some time to ponder this quote. (taken off of CR)

    A quote from a conference this weekend, from the NY Times:

    “There are families not eating at the end of the month,” said Stephen Quinn, executive vice president and chief marketing officer at Wal-Mart Stores, and “literally lining up at midnight” at Wal-Mart stores waiting to buy food when paychecks or government checks land in their accounts.

  17. willid3 says:

    i seem to recall several years ago that some were pushing the idea that that carburetor was really a gain for the US economy and added to the GDP.

  18. willid3 says:

    Curmudgeon, I often wondered how we could measure things in dollars only because it like measuring the speed of some thing, but using different yardsticks to determine that speed.
    best ex.
    a car hits 55. now is it 55 MPH or 55 KPH
    and if you happen to change how a mile (or kilometer) is measured between runs, how then do you compare the results?
    and considering how much commodities have been subject to speculation, its getting really tough to determine their values too

  19. sbailey says:

    Barry, thanks for the link.

    I had a BLS and a BEA rep presenting at the conference I chaired last spring, talking about the CPI vs. the PCE deflator, and when it was pointed out that there was a sizable difference between the weight given to housing in each deflator, neither could explain it.

    While many of your readers may think that data is manipulated by those who produce it, I think it’s closer to the truth to say that measuring this stuff is extremely challenging, and we continue to cut data collection programs instead of investing in improving the system. There doesn’t seem to be much of a lobby for better data.

    And we could have the best data in the world, and politicos and commentators would still try to put the spin on it.

  20. GetALife says:

    BR Sez: Why are you so against accuracy in data? Is it because it disagrees with your ideology?

    That’s a queer question. I have nothing against accuracy by getting all riled up about a 0.05% data error on GOV’T DATA ain’t worth losin sleep over. There are already folks working at addressing this. To focus on this suggests that you believe markets are overestimating economic strength and thus overpriced which surely you don’t agree with given your current holdings, no?

  21. Transor Z says:

    @sbailey:

    Nice comment. I made a number of inquiries to state Secretary of State offices a few months back to collect data on business incorporations and dissolutions.

    A few state offices said they have no way of quantifying those numbers on an annual basis. I was floored. How can a government office issue incorporation/dissolution documents and not at least keep a gross count of transactions? What would that be — counting total entries in a database or Excel spreadsheet? Unreal.