Federal Economic Data Gets Furloughed by the Shutdown
(Bloomberg) -- As America’s partial government shutdown drags into its 25th day, it’s depriving economists and analysts of their intellectual lifeblood: federal data.
To understand why government data is so crucial, it’s worth looking back to a time before comprehensive federal statistics existed -- and fortunately Hugh Rockoff at Rutgers University has a National Bureau of Economic Research working paper out on just that point.
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The U.S. has collected census data since 1790, but in Rockoff’s telling, most government indicators emerged as an answer to a Great Depression-era problem: how do you know how income is distributed and how Americans are faring without a central information repository?
Commerce Department statistics on gross domestic product, for instance, have their roots in the 1929-1932 crisis, and “the political point, clearly, was to justify sweeping governmental economic initiatives,” Rockoff writes. The first national income report -- submitted by Simon Kuznets in 1934 -- served as a call-to-action that helped the government understand that it needed to respond aggressively to the downturn.
While expectations that federal statistics can accurately predict turns in the business cycle often fall short, Rockoff points out that today,“most private business plans depend in some measure on ideas about where the economy is headed.”
On that note, the fact that the Commerce Department and Census Bureau lack approved spending -- holding up reports from retail sales to inflation -- is sending Main Street companies and Wall Street firms into a scramble for some way to assess the economy.
That’s led analysts to tout their own private indexes. Morgan Stanley is holding up its output activity index, which shows signs of a moderating economy, as a proxy for official GDP data. Organisation for Economic Cooperation and Development figures fill other gaps, analysts say.
For more on what the shutdown means for economic data, read Bloomberg’s Quicktake.
Other research worth a read...
Speaking of alternative indicators, China’s stubbornly stable economic growth data are a perpetual puzzle for forecasters. Bank of Finland economist Eeva Kerola uses novel inflation gauges in a new discussion paper and finds that growth probably isn’t as rapid as the government says.
Her construction, compiled from dozens of individually reported price gauges, indicates that the pickup of 2017 turned to a deceleration in the first three quarters of 2018 that’s “well below what the official growth rate suggests.” Third-quarter growth last year was probably 4.8 percent, the average of estimates ranging from 3.3 percent and 6.6 percent. The government reported a 6.5 percent expansion in the three-month period.
Treasury Department economist Matthew Smith and co-authors from several universities team up to answer a key question about today’s super-rich: are they idle heirs or savvy business people? The answer, they discover in a new working paper, is mostly the latter. Looking at income measures that incorporate wage and business income, and other more passive capital income -- think interest and rent payments -- the analysts find top earners in 2014 benefited mainly from non-wage sources, particularly business income from pass-through entities. “Most top earners are working rich,” according to the paper.
So who are the bulk of the 1 percenters? Typical firms operate in fields like dentistry, law or consulting, while top 0.1 percent often are regional businesses like auto dealers, beverage distributors or large law firms.
The Federal Reserve’s ability to achieve one of its two primary goals is being questioned from within the institution itself. While open-market operations allow it to control interest rates and inflation in the short run, “because central banks have limited instruments, long-run inflation is ultimately determined by fiscal policy,” David Andolfatto and Andrew Spewak at the St. Louis Fed argue. Right now, it’s proving hard to break out of a period of persistently low inflation. But they warn that if a hot economy, high debt issuance and waning global demand for Treasury securities get prices going, America “could conspire to create the perfect inflation storm” that would also be tough for the Fed to fix.
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