Economic Statistics Seldom On The Money Lots Of Numbers Are Churned Out. They Influence Policy. Then Come Revisions.

Posted: September 05, 1993

The U.S. economy cruised ahead in the fall, lost power in the winter and clicked back into first gear last spring.

No, scratch that. The U.S. economy streaked ahead in the fall, slammed on the brakes after New Year's and picked up modestly in the spring.

Or did it, perhaps, take a different path altogether?

Strangely, no one is quite sure. The official statistics that shape the nation's view of its economy, influence policy decisions, dominate the evening news and electrify Wall Street traders often miss the mark - sometimes dramatically.

Highly publicized reports are routinely revised. Just Tuesday, new figures

from the Commerce Department suggested that the 1990-91 recession was milder and the recovery more vigorous than depicted last year. The next day, the White House slashed an earlier forecast for growth this year.

Consumer inflation reports, by contrast, typically aren't corrected, although many analysts believe misleading U.S. price data lured the Federal Reserve Board toward an errant boost in interest rates a few months ago.

From specialized gauges of home sales and exports to overarching measures of jobs and growth, the story is much the same.

"We not only have a hard time telling where the economy is going, but we have a hard time telling where it is - and we're not sure where we were a few months ago," laments Michael J. Boskin, who was chairman of President Bush's White House Council of Economic Advisers.

In large part, the culprit is the $6 trillion economy itself, a relentlessly evolving mishmash of goods and services that challenges the most capable of bean-counters.

Small enterprises come and go, invisible as minnows in a murky sea. There are flourishing services and technologies that data-crunchers never dreamed of. Globalization, advances in quality, changing business practices and the far-reaching underground economy all conspire to throw off the government's best guess of what's going on.

"Hundreds of billions of dollars get based on these statistics, which, for those of us who know how unreliable they are, is a joke," said James F. Smith, an economist at the University of North Carolina at Chapel Hill.

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Actually, the Commerce Department, the Bureau of Labor Statistics and the Census Bureau, which track many of the economy's vital signs, are widely credited with doing a first-rate job - within the limits of their budgets. The government spends more than $600 million a year to take the economy's pulse, according to the White House Office of Management and Budget.

Nonetheless, the job is harder than ever, and the zigzags of statistics add a chronic note of doubt to what's happening in the real world of factories, offices, shops and services, many analysts agree.

For instance, Bush was widely accused last year of overselling the national recovery, an allegation buttressed by some of the data available at the time. But Tuesday's findings suggest the economy was picking up steam throughout 1992 and racing forward by autumn - more in line with Bush's position.

Virtually every week, the news media turn a new statistic into a prominent news story. When the revisions come later, even whopping changes may get little notice. To cite just one example, a tepid gain in May retail sales ballooned sevenfold by the time the final data came out - in a small footnote to July's report.

By design, initial estimates often are a hybrid of sketchy evidence and projection; the fuller picture becomes available in the following months. News stories rarely emphasize such limitations, however, and an army of private economists offers authoritative-sounding commentary on the preliminary reports.

"It's very disconcerting to see people take a single piece of data and assume it means much more than the people who produced the data thought it means," said Janet L. Norwood, former commissioner of the Bureau of Labor Statistics and now a senior fellow at the Urban Institute, a Washington think tank.

Many people don't want to wait for more detailed evidence, however. Public interest in economic statistics has soared in recent years, along with an expanding investment industry and the spread of electronic news services that offer a rapid-fire volley of the latest numbers - all against the backdrop of growing concerns about the U.S. economy.

"I'd like to see my own publication and others report the numbers a little more skeptically," said Stephen H. Wildstrom, senior news editor in Business Week's Washington bureau. "But you can't stop reporting them just because they may be wrong."

Experts say the safest way to interpret a new number is to view it as one fragment of a larger jigsaw puzzle. Only as varied pieces of evidence are fitted together does a reliable picture gradually emerge.

"It's always risky to take these figures at face value," said Michael Metz, chief investment strategist at Oppenheimer & Co. "The revisions are often astonishing."

Professional investors, by contrast, have their own uses for the data, which may have little to do with economic forecasting. "It's gamesmanship," said Metz. "You're trying to outsmart the other traders."

All of which can lead to the peculiar Wall Street exercise of calculating how others are calculating a statistic's impact on the economy, however tentative the statistic is.

"Even if you don't believe the number, you're guessing how other people are going to respond to it," explained Gary Schlossberg, an economist at Wells Fargo Bank in San Francisco who advises bank traders each morning.

The reason all this matters to more than statistics junkies is that misleading data can lead to mistakes in national policy. Decisions that affect virtually everybody - interest rate levels, public works spending, taxes - are influenced by the official take on the economy.

"If somebody says you have a tummy ache and you have appendicitis, you have a problem," said Richard B. Hoey, chief economist at the Dreyfus Corp. With more precise data, he believes, policy-makers would have better appreciated the "credit crunch" that hit the economy in the late 1980s as lending dried up.

Slippery statistics have hindered public debate on many issues, including trade and saving habits. U.S. exports are widely believed to be undercounted, perhaps by tens of billions of dollars. The savings rate once was revised upward by more than 50 percent for 1985, '86 and '87.

Inflation is the latest example of the link between policy and dubious data. Earlier this year, after the Consumer Price Index showed a pattern of increases, the Fed signaled that it was close to raising interest rates. As a result, public worries mounted, investors hoarded gold and business executives braced for increased borrowing costs.

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