Macroeconomic Data in Real Time Tara M. Sinclair George Washington University Weidenbaum Center Media Retreat Wianno Club in Cape Cod June 28, 2011

Why Do We Care About Macro Data? Federal Reserve Chairman Ben Bernanke:  “I think that having good data, good statistics— and the United States generally has better macroeconomic statistics than most countries— and having good economists to interpret those data and present the policy alternatives, has a substantially beneficial effect on policymaking in the United States.”

How Good Are US Macro Data? Two key issues:  We face an “accuracy-timeliness” tradeoff with almost all macroeconomic data. Data are regularly revised.  Different measures can give a very different picture of the economy. Therefore economists look at a lot of data. One related question:  What about macroeconomic forecasts?

Example: GDP Revisions Real GDP is measured quarterly, with estimates released monthly: “Advance” estimates are released one month after the quarter.  Gross Domestic Product, 2nd Quarter 2011, (advance estimate) will be released July 29 th. “Second” estimates are released two months after the quarter.  Recently renamed – had been “preliminary.” “Third” estimates are released three months after the quarter.  Recently renamed – had been “final.” Annual revisions each July for the previous year, plus occasional additional “comprehensive” revisions.  Next annual revision will be released July 29 th.

BEA News Release Friday, June 24, 2011

A More Extreme Example GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 Advance Preliminary Final (Percent change from preceding quarter) Real GDP

A More Extreme Example GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 Advance Preliminary Final (Percent change from preceding quarter) Real GDP

A More Extreme Example GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 (FINAL) Advance Preliminary Final (Percent change from preceding quarter) Real GDP

A More Extreme Example July, 2009 – revised to 1.5 GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 (FINAL) Advance Preliminary Final (Percent change from preceding quarter) Real GDP

A More Extreme Example July, 2009 – revised to 1.5 July, 2010 – revised to 0.6 GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 (FINAL) Advance Preliminary Final (Percent change from preceding quarter) Real GDP

2001 Recession Example

Example: BLS Employment Revision

How Good Are US Macro Data? - 2 There is a lot of macro data out there.  Which inflation measure should we rely on? How do we compare annualized growth rates to quarter- to-quarter growth rates to…? What about seasonal adjustment?  Which measure best captures the labor market?  What about cross-country comparisons?

Different Inflation Measures Overall/Headline: General rise in the price level. Core – excludes food and energy  Reduces volatility.  May be a better forecast of future inflation than overall/headline inflation. CPI versus GDP deflator versus PCE.

BLS CPI Press Release

BEA GDP Price Index Press Release

What’s the difference between 0.2 and 0.3? At a compound annual rate:

What’s the difference between 0.2 and 0.3? At a compound annual rate:  May Core CPI: 3.5%

What’s the difference between 0.2 and 0.3? At a compound annual rate:  May Core CPI: 3.5%  April Core CPI: 2.2%

Comparing Across Measures (compound annual growth rates)

Comparing Across Measures

Seasonal Adjustment Seasonal events affecting the economy follow a more or less regular pattern each year, so the statistics are regularly adjusted to make it easier to observe the longer term movements in the series.

BLS Press Release

Two Different Unemployment Rates The conventional unemployment rate, is defined as: “Total unemployed persons, as a percent of the civilian labor force.” The broadest Bureau of Labor Statistics (BLS) measure of unemployment, is defined as: “Total unemployed persons, plus all ‘marginally attached’ workers, plus all persons employed part time for economic reasons, as a percent of the civilian labor force plus all ‘marginally attached’ workers.”

Unemployment Rates

Average(mean) Duration of Unemployment

Labor Force Participation Rate

Cross-Country Comparisons US: GDP increased at an annual rate of 1.9 percent in the first quarter of 2011, (that is, from the fourth quarter to the first quarter). UK: GDP grew by 0.5 per cent in the latest quarter. GDP in the first quarter of 2011 is now 1.8 per cent higher than the first quarter of China: China's GDP grew 9.7 percent on year in the first quarter of Make sure real, not nominal.

Does this mean we’re trapped in an xkcd comic?

No, But… When it comes to forecasts, particularly about recessions, Laurence J. Peter may be right:  “An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.” Unfortunately:  “The success of monetary policy depends importantly on the quality of forecasting.” —Alan Greenspan (2004)

Example Forecast

Bank of England Inflation Forecast Fan Chart (‘river of blood’)

Final Takeaways Macroeconomic data can send mixed signals as it arrives in real time. Macroeconomic forecasts are even less reliable than the incoming current data. So…  don’t be surprised when the data and the forecasts change.  don’t rely on a single number.

Great Data Sources Data: St. Louis Federal Reserve  Most recently revised data: Federal Reserve Economic Data (FRED)  “Vintage” data: ArchivaL Federal Reserve Economic Data (ALFRED) Forecasts: Philadelphia Federal Reserve  Survey of Professional Forecasters time-center/survey-of-professional-forecasters/