Elastic Numbers Make It Hard to Get a Handle on the Economy
A TORRENT of economic numbers rained down from Washington last week. They provided a sharper historical perspective on the economy back to 1929.
Yet the deluge of statistics did little to clarify an urgent question: How strong is the economy right now?
It's a basic issue — one that affects the life of every American, the policy decisions of the Federal Reserve, the strategies of businesses and the performance of the markets. Unfortunately, the answer is by no means clear.
There are plenty of fresh numbers, though. On Friday morning, the Labor Department said the unemployment rate dropped in July to 7.4 percent, from 7.6 percent the previous month, and a total of 162,000 new nonfarm payroll jobs were created.
This is good news, but perhaps not as good as it seems. Even at 7.4 percent, unemployment remains uncomfortably high, and the government on Friday also revised downward job creation numbers for the previous two months, from 195,000 per month, to 176,000 for May and 188,000 for June. The Fed, acknowledging things are not as good as they could be four years after a major recession, reaffirmed its loose monetary policy. That policy, based on the assumption that the economy still needs emergency support, has helped hold interest rates to relatively low levels, and helped propel the stock market to new highs last week.
Gross domestic product numbers released on Wednesday also suggested that the economy was still ailing. In the second quarter of 2013, the Bureau of Economic Analysis said, the growth rate of G.D.P. was 1.7 percent, on a seasonally adjusted, annualized basis. That's just a preliminary number, subject to extensive revision. For the first quarter, the bureau now says G.D.P. grew at a 1.1 percent rate — after a series of reductions from its initial estimate of 2.5 percent.
But how weak is the economy? The numbers don't appear to fit a coherent pattern. Even with the downward revisions in the labor figures, the current level of job creation is greater than would typically be expected from a weak economy. The lackluster G.D.P. picture is hard to reconcile with the decline in the unemployment rate we've been seeing, said Joseph G. Carson, director of global economic research at AllianceBernstein. "During similar tepid growth environments in the past, unemployment has sometimes even increased rather than declined," he said.
Something's wrong with the numbers. "Growth in the private sector, which has been running at 3.3 percent, probably helps to explain the drop in the jobless rate," he said. He believes the overall G.D.P. figures aren't yet really capturing reality and that it's likely that G.D.P. growth over the last two years has actually been stronger than reported. Mr. Carson is optimistic about the second half of this year. "I think the economy will be picking up, and the numbers will start to show that."
The numbers are remarkably malleable, as the Bureau of Economic Analysis demonstrated last week.
In addition to the normal range of monthly and weekly economic reports, the bureau issued an ambitious revision of its statistics, adjusting a vast range of figures going back more than 80 years. Its revision showed that the recent recession was a little less severe than earlier reported, and the recovery has been a bit stronger. The economy shrank at an average annual pace of 2.9 percent, not 3.2 percent, in the recession that started in December 2007 and ended in June 2009. And from the recession's end through 2012, the economy grew at an average annual rate of 2.2 percent, not 2.1 percent as previously published.
Those numbers would still classify the recession as the worst since World War II, and the recovery as the weakest. Further revisions will be made as needed, and, given the anomalies in the current data, it seemed likely that some future changes will be significant. Ben S. Bernanke, the Fed chairman, alluded to this possibility in Congressional testimony last month.
"We all should keep in mind that these are very rough estimates and they get revised," Mr. Bernanke said. "For example, you get somewhat different numbers when you look at gross domestic income instead of gross domestic product."
IN theory, G.D.I. and G.D.P. should be equal. One measures gross income, the other gross production, and as a matter of basic accounting they ought to match. But they don't, not in real time, because they are collected from different sources using different deadlines and definitions. G.D.P., for example, depends heavily on sales receipts, while G.D.I. relies on data from paychecks, which are often issued well after sales are made, said J. Steven Landefeld, director of the bureau. "G.D.I. and G.D.P. are both the bureau's children," he said. "We're proud of both, and we know they're different."
Early G.D.I. numbers have provided a better indicator of cyclical changes in the economy — of the onset and the end of the last recession, in particular — than have early readings of G.D.P., according to research by Jeremy J. Nalewaik, a Fed economist.
What are the G.D.I. numbers telling us now? It depends on how you look at them. The Economic Cycle Research Institute, an independent forecaster, said that the economy fell into another recession "sometime in the middle of 2012 and it is still in a recession now," according to Lakshman Achuthan, the institute's chief operations officer. He relied in part on G.D.I. data. But the vast majority of mainstream economists reject this interpretation, and Mr. Landefeld said G.D.I. numbers might sometimes exaggerate economic trends.
The G.D.P. and G.D.I. numbers available right now indicate that the economy is growing, but Mr. Achuthan said that the historical revisions made last week "are a reminder that these numbers are all a moving target, and that they will change."
Mr. Carson of AllianceBernstein is far more sanguine, saying the economy appears to be growing modestly. But he agrees that the data isn't allowing clear visibility. "We've gotten so many new numbers," he said. "They help a bit. Now the past has become a little less foggy, but as for the present, there's still plenty of fog to go around."
Goay Joe Lie
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