Jobs-data flux distorts economic picture
Published 7:02 pm, Tuesday, October 30, 2012
Imagine you are watching a 49ers game and the team scores a touchdown. The Niners get six points right away. As a fan, you are thrilled.
Now, imagine that in the next quarter, the referee re-emerges and says that last touchdown was actually only worth four points. He was wrong, and now he is revising his previous score. Picture the ensuing chaos.
Unfortunately, when we track the economy, we watch it as if it were a sport even when we cannot measure it with the certainty of accepted and widely known rules. With President Obama's re-election chances so closely linked to the strength of the economy, we have developed a habit of treating each new data release as points scored for either side. The result has been frantic coverage of economic data that doesn't tell us anything about how the economy is really performing.
Take the monthly data we receive on domestic job growth. On the first Friday of the month, the U.S. Bureau of Labor Statistics releases its estimate of how many jobs were added or subtracted in the previous month. These numbers are based on a survey of 14,000 employers around the country. There is one major problem, though: The initial estimate is almost always wrong.
This isn't because the bureau isn't any good at its job. It is, but collecting data like this takes considerable time. Over the next few months, the agency will release revised estimates of that same month's data as it gets more information.
So far this year, that initial data release has been, on average, about 30,000 new jobs fewer than were actually created. This adds up.
Since the economic recovery began in the summer of 2009, these monthly revisions total 1.1 million more jobs than were in the initial headlines.
As the government gets better information on employment when businesses file their taxes, the bureau will release a new number. In September, the bureau announced that it had undercounted job growth by 386,000 jobs, a number that roughly equals the population of Oakland.
This hasn't stopped the American public from breathlessly following every monthly jobs-data release and using it as points on a political scoreboard while ignoring the subsequent revisions that tell the real story. Headlines such as "August report is more bad news for Obama" or "New jobs numbers change narrative in race for president" have become the standard, rather than careful analysis of the data.
The next release, which happens Friday, just five days before the election, will be the most politicized of all. It will be the last opportunity for both presidential campaigns to make their case on the economy. Everyone will obsess about a number that probably will change months from now.
None of this means we shouldn't cover daily economic news, because we should. But economic data is really messy, and there is an uncomfortably fine line between reporting it in real time and spreading falsehoods. This is a major and unenviable challenge for everyone involved, including reporters, policymakers and economists. This is also why most economists have a "wait-and-see" attitude toward evaluating the economy.
Economists understand these data give us glimpses at the direction we are headed, but not how fast we are getting there. This is why economic forecasting is more art than science, and why forecasters have such different estimates of how strong economic growth will be in the future. It's all so infuriatingly uncertain.
We can always be certain about how a game is scored. A touchdown counts for 6 points on the board. Always. We never have to doubt whether those 6 points will be there in the future. It's that certainty that allows us to follow sports and react in the moment - cursing and cheering as events unfold.
Earlier this football season, there was universal outrage at the quality of the replacement referees during the NFL lockout. Everyone agreed that the botched calls and the uncertainty surrounding the lackluster officiating were ruining the game. And yet, those who closely follow the economy deal with that type of uncertainty all the time.
Our economic recovery is not a sport. Perhaps, even for just a few months after the election, we can move away from the tendency to treat it like one.