John Edward teaches economics at Bentley and UMass Lowell. He’s a frequent contributor of columns on economic issues. Here is his latest:
The good news is our government is very good at collecting economic data. The bad news is the headline numbers can be misleading.
March 7, 2014 The Fall River Herald News – Unemployment rises to 6.7%.
The headline sounds like bad news. A closer look reveals the news was good.
The unemployment rate did not go up because people lost jobs. Actually, 42,000 more had jobs. The increase was due to more people looking for work.
If someone wants a job, but is not working, it sounds like they are unemployed. However, if they have not actively looked for a job in the last four weeks, the Bureau of Labor Statistics (BLS) does not count them as unemployed. The BLS calls them “marginally attached.” In February, the number of marginally attached fell by almost 300,000.
In addition, the BLS counts people who are seeking full-time work but can only find part-time work as fully employed. The number of “involuntary part-time workers” fell as well.
On page 26 of the BLS report, they calculate U-6. Many call it the underemployment rate. For U-6, the BLS counts both the marginally attached and the involuntary part-time workers as underemployed. In February, U-6 fell from 12.7 to 12.6 percent.
The good news is the underemployment rate went down. The bad news is the employment situation is much worse than the headline number of 6.7 percent.
February 28, 2014 Boston Herald – Estimated Q4 economic growth rate cut to 2.4 pct.
The number cited in this headline reports how much Gross Domestic Product (GDP) grew in the last quarter of 2013. The economy grew by 1.9 percent for the entire year. Neither number sounds like very good news, but we need to take a closer look. It matters what parts of the economy were growing, and which were not.
Residential and non-residential investment went up. That is good news, as we need more private investment to promote long-term economic growth. However, inventory investment went up for the second year in a row. That may be bad news. It means firms were producing more product than they could sell. The Bureau of Economic Analysis treats the increase in inventories as a positive, but it will become a negative if firms have to reduce production this year.
The good news is personal consumption was up. The bad news is people were borrowing more in order to spend.
The good news is the economy grew despite a big cutback in government spending. The bad news is the Congressional Budget Office projected the economy would have grown by an additional 1.5 percentage points had it not been for “fiscal tightening.”
February 21, 2014 The Bond Buyer – Jan CPI +0.1% Core +0.1%: Tame at Under 2% Pace.
The headline may not be easy to comprehend, but the news on inflation has been boring. Boring is not bad news.
The Consumer Price Index (CPI) measures inflation. It increased in January by a very small amount. However, back in February of 2013, the CPI went up by 0.7 percent. If that rate were to persist for a full year the annual inflation rate would be above 8.5 percent. That would be very bad news.
It is not unusual to have a one-month jump in prices. Often it is due to a spike in volatile energy and food prices.
The “Core” inflation rate excludes energy and food. In February of 2013, the Core rate went up by only 0.2 percent. In the following month, energy and food prices went back down and the CPI decreased by 0.2 percent.
The good news is inflation has been under control for more than two decades. The annual inflation rate is “tame” at below the Federal Reserve’s target of 2.0 percent. The bad news is the Fed’s target is too low. The economy would benefit from modestly higher inflation.
June 6, 2013 The New York Times – Productivity Gains Are Modest.
Productivity is the Ringo Starr of economic statistics. Unemployment, GDP, and inflation are the John, Paul, and George — the three data points on center stage. Productivity sits in the background providing the backbeat that keeps the economy moving.
Productivity measures output per worker hour. In the long run, healthy increases in productivity have enabled the impressive improvements in standards of living the United States has enjoyed.
The BLS reports productivity quarterly, but the long-term trend is key. Since the end of World War II, productivity has increased at an annual rate of a little over 2 percent. Two percent may seem modest, but over time it adds up. Workers in the U.S. are four times more productive, for every hour they work, than they were seventy years ago,
The good news is productivity gains have lead to the U.S. being one of the most affluent nations in the world. The bad news is not everyone has benefited.
When workers are being more productive, firms are becoming more efficient. In some cases this leads to firms needing fewer employees, so productivity gains can lead to job loss. Many who still have jobs, and who are being so much more productive, are not seeing their pay increase with their increased output.
The BLS also reports data on labor costs. In the last decade, labor costs have gone up by 12 percent. During the same period, productivity increased by 18 percent and prices increased by 26 percent.
The good news is productivity is increasing and inflation is under control. The bad news is wages are not keeping up with either.
March 13, 2014 The Boston Globe – More trapped in low-wage jobs / Wall St. bonuses rise 15%, profits fall.
These two headlines appeared side-by-side. Lack of pay increases is a problem for some, not for others.
The first article observed “inflation-adjusted income has declined by 9 percent for the bottom 40 percent of households since 2007.” The second article reported “Cash bonuses paid to Wall Street employees in New York City rose 15 percent on average to $164,530… the biggest average bonuses since 2007.”
The good news is our economy is growing fast enough that we should be able to stay ahead of China for a couple of more decades. The bad news is we appear to be trying to catch up to China with respect to low-paid labor and extreme inequality.
The bad news is economic headlines can be deceiving. The good news is now you know.