- Tools for Investors
- Stock News
- Investing Ideas
- Econ & Policy
- Personal Finance
One of the most frequently asked questions is whether the government manipulates economic data. I caught up with Greg Ip – The Economist U.S. Economics Editor and author of The Little Book of Economics — to get some answers …
Damien Hoffman: When I see these government stats like GDP reaching 3.2% or I see the unemployment rate, should I be skeptical of some of those numbers or should I genuinely see them as good indicators? Is Bernanke tweaking those or the BLS? That’s something that tends to have gotten spread around a little bit in the downturn.
Greg Ip: I think in the United States we are fortunate that most of our statistics are very trustworthy in the sense that the people who produce them — for example in the Commerce department, in the Labor department, the Federal Reserve — they are really doing their best to produce statistics that tell us where the economy really is going. The Labor department really does think that the unemployment rate is 9% and that the inflation rate is 1.5%.
There are countries where the government does interfere with the statistics. In Argentina (ARGT), for example, where the government did not want people to think inflation was really as high as it was, they ordered the statistical people to take out the fastest rising prices and so nobody in Argentina believes the official inflation data. It’s a common problem in China (NYSE:FXI) — nobody is really sure if the statistics are reliable. Sometimes if you add up all the figures coming out from the provinces in China they don’t equal the number coming out from the national government and there’s always suspicion that the government has doctored the figures in order to support a particular policy.
That just doesn’t happen in the United States. I’ve been covering economics here for well over a decade and I’m not aware of a single instance where the economic data was doctored for political reasons. Now that’s not the same as saying the data is always right. You have to remember, the people that are trying to measure the economy are trying to measure something that’s really big and really complicated and always changing. I mean, trying to measure something like how much did the price of a computer go up or down last year is really hard when computers are changing so much. So there is a certain amount of supposition and estimation and downright guesswork that goes into this.
Are You Making Money Despite Economic Worries? Join the winning team of stock pickers with Wall St. Cheat Sheet’s acclaimed premium newsletter.
Plus almost all the data we have is based on surveys, so when we look at the unemployment rate, the government did not go out there and ask all 130 million households out there or whatever the figure is, whether they were employed or unemployed, they only asked about 60,000 households and then they extrapolated from that to the population as a whole…so it’s quite possible that in that process of extrapolating they get something wrong. That’s not the same as saying it’s biased; it’s just a fact of life. It’s like with opinion polls — there are margins of error with everything.
So, yeah you’ll get confused by the data sometimes and sometimes the data will turn out to be wrong and we’ll know that because they go back and revise it, but generally speaking the errors cancel each other out — it tends to be sort of random. For somebody who’s like an investor or anybody who’s trying to monitor the economy, the best thing is to look at lots and lots of data. I mean, one of the good things is we have quite a few different numbers out there for tracking the economy.
If you are wondering about the job market you can look at the unemployment rate. You can also look at the non-farm payroll numbers. You could also look at the weekly numbers on claims for unemployment insurance. These are all different ways of measuring the health of our job market and because each of them has its own biases and quirks, sometimes you get a better view by looking at as many different sources of data as possible.
Greg Ip is The Economist U.S. Economics Editor and author of The Little Book of Economics.
Don't miss one of the biggest bull markets in history! Covers Gold, Silver, Gold & Silver stocks, and miners.
There's always a bull market in some sector! Find the best opportunities in commodities.