Are U.S. Economic Stats Being 'Massaged'?

Many market-watchers claim that U.S. economic statistics are increasingly being revised downward in subsequent periods, suggesting that the figures initially being reported by Washington are "puffed up," so to speak, most likely for political purposes.

Well, I went back and had a look at the differences between the reported and revised data for various series, including monthly retail sales, nonfarm payrolls, industrial production, and durable goods orders, to try and figure out if the cynics are right.

Using data from Bloomberg, I calculated whether the revised data for each month was lower than the first-cut estimate. Then I tabulated 12-month running totals for each series to see if there has been some sort of systematic bias (in other words, whether the pattern of monthly downward revisions was trending higher instead of undulating up and down).

To make the comparisons easier, I subtracted the 12-month tally as of May 2002 (an arbitarily chosen date) from the monthly totals for all four economic series so that the starting point for each would be the same -- zero.

Based on a quick read of a graph of the data (see below), it does seem as though the pattern of negative revisions has been trending higher lately, especially during the past year or so, suggesting that the cynics may be on to something.

That said, I am not a statistician, and the results may be nothing more than "noise." There is also the possibility that my methodology is lacking (because, for example, the margins-of-error for each month's data are relatively large, or because of certain quirks that crop up when an economy is in transition).

Still, you gotta wonder...

Comments

[debtacid:]

For that matter, how do we know that the daily real time market charts are accurate or just reflect the whim of some grand market wizard at Goldman Sachs and the PPT

May 14 10:24 AM

[Angel Martin:]

Baloney! I guarantee you that the economists and statisticians at the BLS, BEA and Census bureau have enough to do to get the data out on time without trying to "game" financial markets with data revisions. You need to read the published documents on the methodolgies of the surveys, imputation for non-response, sample rotation, benchmarking etc. before producing uninformed articles like this.

May 14 12:16 PM

[cyclingscholar:]

Better yet get a FRESHMAN statistics book and learn about the inherent difficulties in seasonal forecasting and adjustment.

Or you could put your money where your mouth is and start your VERY OWN economic statistics organization, publish tghe results, trade upon them, and solicit accounts based upon your mathematical brilliance.

I won't bet on either outcome materializing.

May 14 12:35 PM

[old boat guy:]

Give me a break!! A "25 year old 'veteran'" of the stock market and a protege of CNBC trying to put a positive spin on what most of us know already as scam. He is trying to dig out, has been put up to this, or--really--trying to sell his book. This little opportunist needs to be sent packing.....goodbye.

May 14 12:40 PM

[Market Sniper:]

I enjoy Panzner but nothing new here. In the immortal words of Benjamin Disraeli...there are three kinds of lies. Lies, damn lies and statistics...a quote erroneously attributed to Samuel Clemens.

May 14 01:01 PM

[Market Sniper:]

Maybe because markets are notoriously inefficient. That efficient market theory was thrown out decades ago!

May 14 01:58 PM

[Market Sniper:]

LOL! No I subscribe to price action my friend.

May 14 02:02 PM

[theobannion:]

I'm not a statistician either, but I'm far less humble and far more cynical than yourself. To a cynic, your chart looks fine! I trust Washington & it's partner, Wall Street, as far as I could throw Jackie Chan.

My vote - definitely massaged.

SOB.

May 14 02:17 PM

[ValueInvestor:]

Cetin believes in the EMH. That speaks volumes.

May 14 02:21 PM

[Jasper M:]

"I subscribe to price action my friend."
Oh, Cetin has another friend! (that's so cute)

theo - Jackie was pretty light. And he's lost a Lot of weight since then . . .

May 14 04:05 PM

[genghis khan:]

cyclingscholar wrote: "publish tghe results"

I'm sorry, but what are tghe results?

May 15 01:44 AM

[onebir:]

"Based on a quick read of a graph of the data (see below), it does seem as though the pattern of negative revisions has been trending higher lately, especially during the past year or so, suggesting that the cynics may be on to something."

Initial releases are based on incomplete data. In recessions, the extra data tends to be bad, and revisions tend to be negative. I imagine you'd see the same pattern in earlier recessions, and a reverse pattern in earlier upturns.

If the recent pattern is more marked than in earlier recessions that might substantiate your claim. (Or perhaps not: I think your current binary methodology is likely to give non-comparable results for different-sized recessions.)

May 15 10:53 AM

[cyclingscholar:]

Oops! Sorry Genghis. Tghe results would be simple. Tghe guys would create their own statistics organization, publish tghe results of their own compilations, trade on tghe results, and if they made millions trading against tghe supposedly bogus Commerce Department statistics, then and only then would I believe tghe CD stats are systematically and intentionall biased.

Hopefully they would publish tghe stats with fewer typo's, as well! :)

cyclingscholar

On May 15 01:44 AM genghis khan wrote:

> cyclingscholar wrote: "publish tghe results"
>
> I'm sorry, but what are tghe results?

May 15 10:56 AM