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Wrong Numbers, Wrong Reaction, Wrong Policy

Everyone hangs on the next release of weekly, monthly, quarterly or annual economic news.  Jobs, growth, manufacturing, profits, you-name-it and there'll be some big announcement about it fairly regularly.  There's so much of it, it seems like there's an economic announcement a day. 

Often there are days of talking about the announcement that's coming;  then there's the announcement, followed by days of analyzing what was announced and the reaction to the announcement. 

Markets jump, up or down.  Politicians take credit or deflect blame.  The professional pundits talk endlessly about it.  The media from print to TV to blogs to whatever blares it from every angle.  Without really realizing it, an entire industry devoted to economic announcements has emerged and floods the public with one announcement after another.

But, there's also the inevitable subsequent announcements weeks, months, years later revising the prior announcements. Interestingly, those revisions show that the prior announcements are almost always wrong and the New York Times today reports on just how frequently how wrong they are in a terrific article that is grossly under-titled: "On Economy, Raw Data Gets A Grain of Salt." 

How much off are the initial announcements?  A LOT.  Here's the NYT: "The growth rate that the government announces roughly one month after the end of each quarter — news much anticipated in Washington and on Wall Street — has been off the mark over the period from 1983 to 2009 by an average of 1.3 percentage points, compared with more fully analyzed figures released years later, according to federal data."  

If that's not enough to make you think what a bunch of baloney, this sure will:  "Perhaps more important, the government underestimated the depth of the recession by a wide margin, initially calculating that the economy contracted by an annual rate of 3.8 percent in the last quarter of 2008. It now estimates the contraction rate at 8.9 percent. Instead of an annual growth rate of 0.2 percent from the fourth quarter of 2007 through the first quarter of 2011, the government now estimates that the economy contracted at an annual rate of 0.2 percent during that period."

That's not just wrong, that's wrong by so much that the government should stop making such announcements.  Think about this:  the government announces the growth rate or other data, which literally often directly results in trillions of dollars lost or gained as markets jump or fall and people, businesses and governments make all sorts of critically important decisions.  As a professor was quoted in the article, "it subsequently turned out the absence of urgency among policy makers was largely a result of looking at faulty data”

For all that to happen based on preliminary numbers (which gets lost in the announcement industry amplification and repetition) that we know for a fact are almost certain to be later revised by material amounts is wrong, dumb and bad for everyone. 

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