Finance Column » Your Money This Week » Why the recovery is a tough sell

Why the recovery is a tough sell

By Chris Kahn ·
Monday, August 12, 2013
Posted 5 pm ET

According to a small army of bean counters in Washington, D.C., the economy thankfully appears to be on the mend. However, it's a frustratingly tepid improvement -- one that inspires about as much confidence as a punch-drunk prizefighter who's just found his feet.

Cynics abound in this environment, and it's understandable why. The recovery is being sold with financial statistics, and anyone who's spent any time with these things knows how easy they are to misinterpret.

For example, the Bureau of Labor Statistics is expected to announce in September that the unemployment rate continues to run well below its peak during the recession. But that rate -- currently at 7.4 percent -- is artificially low. It doesn't account for anyone who's stopped looking for a job after 52 weeks, and it inflates the "employed" count by including anyone with a part-time job. Even worse, those numbers are only estimates; the BLS will likely revise those numbers later.

Also, the Commerce Department said last month that gross domestic product grew by another $560 billion last year than previously reported. Where did that money come from? Well, the government changed the way it measures things like pensions and research and development spending. Presto! More money was dumped into the pot.

Juking the stats?

This is all politics, right? It's hard not to categorize this as a real-life version of HBO's "The Wire," where politicians regularly lean on bean counters to "juke" the stats in their favor.

"If the government doesn't like what people are saying, they don't bother just to change the conversation, they change the meaning of the words," Peter Schiff, an investment broker and radio host, said after the government announced the change in how it measures GDP.


Well, no. Some data may be flawed, but they aren't that way because of a bunch of crooked baby-kissers. Think about it. The reason we know about these flaws is because the government announces them. Agencies like the Bureau of Labor Statistics will bury you in reports detailing what exactly its statisticians are measuring, what they're not, and where the weaknesses are in the analysis.

If they're juking the stats, they're doing a lousy job of covering it up.

Government agencies aren't "coordinated enough to lie in sync with each other," joked Diane Swonk, a fellow at the National Association of Business Economics, which lobbies the government on the quality of its financial statistics.

Most of the criticism about unemployment or GDP numbers comes from people who haven't taken the time to understand where the data is coming from, Swonk said.

"They don't want to be confused with the facts because they have an ideology that's not consistent with the facts," she said.

Yes, there are flaws in the data. But is it disinformation?

In many corners of the U.S. economy, government data are the best you're going to find. Yes, there are flaws, and bureaucrats can make mistakes. And, there are frequent revisions. But all of that is acceptable if you consider a couple of things.

First, it's nearly impossible to get a precise reading on something that's as dynamic and complex as the world's largest economy. The government doesn't have the resources to track the spending and employment activities of every business, resident and agency in the country. Instead, it relies on less precise surveys to make estimates about the entire population.

Second, the government occasionally tweaks the way it measures some of the most prominent economic indicators. If you change the measurement, you change the data.

That's precisely what happened in July when the Bureau of Economic Analysis announced its artificial boost to the economy at the end of July. It developed a new measuring stick to reflect an economy that's evolving from a nation of farms and factories to one that's driven by high-tech industries and services.

By the way, this is the 14th time that the BEA has made this type of revision. It announced those changes in advance. It showed anyone who cared to look how its measurements were changing. It explained that this time the changes were made in cooperation with a United Nations directive to find common ways for countries to measure their economies. The changes will make it easier to compare the U.S. economy with its neighbors.

Transparency is key

Sure, today's numbers aren't the last word on the economy. They'll be revised and updated just like the numbers that came before them.

But there doesn't appear to be any political arm-twisting going on. These flaws, updates and revisions stem mostly from the government's attempt to keep up with a massive and complicated economy. Agencies like the BLS and BEA have been admirably transparent about how they collect information, and they give the public access to much of their data.

You can count on government data to bounce, dip, spike and plummet in surprising ways. But in many cases, you'll be hard-pressed to find better numbers on the economy.

What do you think of the way the government gauges the health of the economy?

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