s the economy pulling itself out of a slump, or is it
sinking deeper?
The answer could be either, based on the data from government
agencies these days. Because they measure the same things —
employment, incomes and prices — in different ways, it can be hard
to tell what is really happening.
Yet among all the alternative gauges, some of the most widely
cited data is collected in a patchwork fashion, or checked against
benchmarks only once a decade. What is more, frequent changes in the
agencies' methods can make comparisons with earlier trends
impossible. And a few economists complain that those revisions may
be motivated by politics rather than science.
"This is not a customer-driven enterprise," said Daniel J. B.
Mitchell, a professor of management and public policy at the
University of California at Los Angeles. "It's not always clear to
me that we're getting the services that we'd hope for."
Many Americans have been watching data from the job market, but
those figures can sometimes be misleading. The Bureau of Labor
Statistics reported last week that payrolls outside farming had
dropped by 30,000 in June, on a seasonally adjusted basis. In the
same report, it said that the total number of employed people had
grown by 251,000.
Was the labor market stagnating, or booming?
Neither number represented an absolute truth. The figure for
payrolls comes from reports by businesses and government that are
checked once a year against unemployment insurance records, which
are fairly comprehensive. But the figure for employed people comes
from a sampling of households that is thoroughly benchmarked only
once a decade, with the census.
"Particularly if you are interested in employment as a measure of
economic trends, you probably want to use the payroll survey more
than the household survey," Professor Mitchell said. "Things that
are proportions, percentages, ratios — that's what I would say you
want to use the household survey for."
Thomas J. Nardone, who supervises the survey of households as
chief of the bureau's division of labor force statistics, said
Professor Mitchell's approach was basically correct for short
periods. "You have to be careful about interpreting things,
especially if you're dealing with just one additional bit of
information."
Even a single data point can change, sometimes more than once,
over time. The Bureau of Economic Analysis, a Commerce Department
agency, releases three figures for economic growth for a quarter: an
advance number, a preliminary number and a final number.
For the first quarter of this year, the bureau announced
annualized growth rates of 1.6 percent in April, 1.9 percent in May
and 1.4 percent in June. Given that the economy averages growth
around 3 percent, a swing of half a percentage point is not
negligible. Yet it is not uncommon, either.
"That's not an unusual or atypical swing," said Brent R. Moulton,
the bureau's associate director for national economic accounts.
"When you're working with a small base, it seems more
noticeable."
Much of the quarterly data is collected in dribs and drabs, Mr.
Moulton said. For service industries, which represent two-thirds of
economic activity, comprehensive data is only collected annually.
For more frequent figures, some statistical guesswork is
involved.
"We have data on volume of stock market activity, which we can
use to infer something about the amounts paid in commissions for
financial transactions," Mr. Moulton said. "We have data on
temperature — heating and cooling degree-days — that we can use to
infer something about electricity and natural gas consumption."
In some sectors, the economy has grown beyond the scope of
statistics, leaving the government scrambling to fill the holes.
"We've got an economy that has changed rapidly over the past 15 or
20 years that our statistical infrastructure hasn't really kept up
with," said Richard B. Berner, chief United States economist at Morgan
Stanley and a member of the Bureau of Economic Analysis's
advisory committee. Because reporting is often voluntary, he added,
it can be hard to persuade new companies to contribute.
They may also drop in and out. The semiconductor industry, for
instance, recently agreed to share information on its shipments and
inventories for the first time in about a year. But how should
officials measure, say, the output of an Internet search engine?
"In a knowledge-based, information-based economy, one could argue
that we don't have good metrics for measuring output," Mr. Berner
said.
Measures of income, which the Bureau of Economic Analysis
releases alongside measures of production, can also be incomplete.
Mr. Moulton said the agency received fairly reliable data on wages
and profit, but "for most of the other pieces of income, we don't
have very timely information coming in."
Among the most controversial of government gauges are the indexes
of prices. These determine the growth of Social Security checks, the
interest paid on inflation-adjusted bonds and the positioning of tax
brackets. They also feed into data on worker productivity and real
interest rates.
A true change in price, said Neal Soss, chief economist of Credit
Suisse First Boston, should not reflect changes in the quality of a
product — essentially, the evolution of a new product. And in the
services sector, discerning those distinctions can be difficult.
"I don't know how you'd measure the quality of haircuts, or
whether today's rock music is better than the golden oldies of the
past," Mr. Soss said. "But in some parts of the service sector,
there are objective measures of quality that could be applied, and I
don't think that the Bureau of Labor Statistics has applied nearly
enough effort to this."
Adjusting prices of services for changes in quality can be
especially challenging, said John S. Greenlees, acting associate
commissioner for prices and living conditions at the Bureau of Labor
Statistics, because services are less likely than goods to have
observable characteristics. Comparing the features on television
sets with different prices is easy, he said, but not so for movie
tickets.
"You don't have different movies with different admissions prices
based on their acting," he said.
The scope of a statistical agency's work can also be limited by
its budget. For instance, the federal government has been gradually
replacing its classification of industries in the last few years — a
move that has affected thousands of figures collected by many
agencies. Yet while the Federal Reserve painstakingly reconstructed
decades of old data to match the new framework, Mr. Berner said, the
Census Bureau has been unwilling or unable to follow because of a
lack of money.
The experts all said that almost constant revisions in methods
and data sources made continuity a recurring problem in government
statistics. Drawing comparisons of trends in inflation, employment
and growth could be tricky, even, Mr. Berner said, for periods as
short as five years.
"The statistical agencies are a little too cavalier about saying,
`Well, we want to have a very accurate snapshot right now, and to
hell with continuity,' " Professor Mitchell said. "If they break the
series, the users of that information — the clientele — don't have
any alternative. We're at their mercy."
Putting aside budget shortages, Mr. Berner said that the
government's statisticians and economists were able to work in an
independent, scientifically minded way. But Professor Mitchell, who
has consulted for several federal economic agencies, said they also
faced political pressures.
As an example, he said, researchers making revisions to price
indexes may have been pushed to understate inflation, as such a
change would result in smaller liabilities in the Social Security
system when the baby-boom generation retires. "In reality, those
kinds of things do play some role."
Mr. Soss agreed. "It's sort of in the air," he said. "For 35
years, countries have wanted their inflation rates to be lower, and
I think there's a natural tendency of anyone living in the society
to breathe the air. The air surrounding these processes was
something that led to looking for ways that inflation might be
lower."