On Wednesday, Federal Reserve chairman Ben Bernanke told the House Financial Services Committee that the rapidly falling unemployment rate reported over the past year by the Bureau of Labor Statistics (BLS) does not fit with the other data he has been seeing. He said:
The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend.
Bernanke is showing a lot of common sense here. Although he has not looked carefully at the BLS data, he realizes that something is fishy. Former Reagan budget director David Stockman calls the manipulations of the data by the Bureau of Labor Statistics and the Bureau of Economic Analysis (BEA) "The Economists' Truman Show."
For example, the unemployment rate fell in January partly because the Bureau of Labor Statistics reclassified 1.177 million people who might otherwise have been considered as unemployed as having dropped out of the labor force. (To find this December-to-January adjustment in the BLS press release, check out Table C.)
Bernanke had probably looked carefully at the GDP numbers just released that morning. The headlines trumpeted the increase in real GDP in the fourth quarter at an annual rate of 3.0%, but a closer examination reveals that real GDP would only have grown at a minute annual rate of 1.3% if not for inventories growing at a 1.7% of GDP clip. The following table shows the contributors to GDP growth during each quarter of the past year.
|Contributors to Real GDP Growth|
|Business Fixed Investment||0.2%||1.1%||1.6%||0.6%|
|Total Change in Real GDP||0.4%||1.3%||1.8%||3.0%|
Bernanke doesn't seem to be aware that the goal is to trumpet positive numbers as loudly as possible, in hopes that positive expectations will produce a recovery. The Blaze reports that the stock market fell steadily while Bernanke was speaking:
The Dow, which had been up by as many as 51 points, reversed course as Bernanke started speaking. It turned negative within the hour. The current market losses are broad, with nine of the 10 industry groups in the S&P 500 losing ground. Materials and energy stocks had the sharpest declines, while consumer products and financial companies were nearly flat.
The Obama administration is hoping that the U.S. economy will grow rapidly, even while it permits mercantilism, restricts fossil fuel production, and grows entitlements. Its hope is that improved business expectations will increase business fixed investment and thus produce a recovery. The BLS and the BEA have been doing their part to improve expectations. Bernanke needs to get with the program.