the ministry of funny numbers
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Analysis: The ministry of funny numbers
By Martin Hutchinson
UPI Business and Economics Editor
From the Business & Economics Desk
Published 8/9/2002 6:17 PM
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WASHINGTON, Aug. 9 (UPI) -- Trying to draw economic conclusions from the productivity statistics produced by the U.S. Bureau of Labor Statistics is rather like choreographing a ballet using the staff of Monty Python's Ministry of Silly Walks. The erratic nature of the statistics, and their tendency to be hugely revised several years after the event, make economic prognostications very difficult.
The BLS is not the only Ministry of Funny Numbers, of course; there's also the Bureau of Economic Analysis.
This is the agency that claimed throughout 2000 that that year's corporate profits were $946.2 billion, up 10.5 percent from 1999's $856.0 billion.
Then, in July 2001, it produced figures claiming they were $876.4 billion, up 6.2 percent from 1999's $825.2 billion.
And then, on July 31 of this year, produced yet a further revision claiming that they were actually $788.1 billion, down 2.2 percent from 1999's $805.8 billion.
In fact, therefore, corporate profit figures for 2000 released at the time of the 2000 election were not only fully 20 percent too high; they were also falsely claimed to be sharply above the 1999 figure (up 10.5 percent), whereas the true trend was a decline of 2.2 percent.
Truly, Enron or Worldcom could hardly have done worse.
This is very serious. Not that the American voter, or any other voter, delves in substantial numbers into these figures, but that, even with the best will in the world, those who are paid to interpret the economy for the American voter are given data that is wholly false, and by a large order of magnitude.
Voters have learned to be cynical about the claims of politicians, media and statisticians, but if this is the best that the extremely expensive government data-gathering service can do, how can they be otherwise?
The BLS data on productivity, released Friday, were at first sight optimistic. First-quarter 2002 productivity growth in the non-farm business sector was revised up from 8.4 percent to 8.6 percent at an annual rate.
Second-quarter productivity growth came in at 1.1 percent, higher than had been expected in a poor quarter for gross domestic product growth. Thus, productivity growth from the same quarter a year ago was a surprisingly robust 4.7 percent.
However, even on the face of it, these figures are not as positive as they look. Non-farm output in the second quarter of 2002 was up only 2.1 percent from the previous year; thus, all the growth in productivity was due to a 2.5 percent decline in the number of hours worked.
However, the average workweek in the second quarter of 2002, taken from the BLS employment report published last week, was 34.23 hours, up slightly from the same quarter of the previous year. The total number of persons employed was down only 1.1 percent.
Hence, to get such a large decline in the number of hours worked, the BLS must have assumed a huge goofing-off among the self-employed, which seems unlikely on the face of it to hold up in the "revision" process.
In any case, productivity numbers are also highly subject to downward revision in future years.
The 1999 non-farm output per hour index (1992=100), originally reported at 113.5, has now been revised down by 0.5 percent to 112.9. The figure for 2000, originally put at 118.1, has now been revised down by 1.1 percent to 116.2. And the 2001 number, which was originally reported at 118.8, has been revised down to 117.5.
Even the vaunted increase in productivity growth in 2002's first quarter is in fact a decline in the index, from 122.8 as originally reported to 121.8 now. The current second-quarter figure of 122.1 is in fact 2.4 percent per annum BELOW the originally reported first-quarter productivity figure.
These revisions may sound trivial, but they're not; they go to the center of the argument about the New Economy, the '90s boom and stock prices.
The BLS continued in Friday's release to proclaim proudly that 1990-2001's productivity growth rate in non-farm businesses was 1.9 percent per annum, up from 1.3 percent per annum in 1973-90.
However, that statistic results from careful choice of starting and end points. 1990 was at the bottom of a recession, whereas 1973 was notoriously the end of the long postwar boom, the year of the first oil crisis, and the beginning of almost a decade in which the U.S. economy performed anemically, particularly on the productivity measure.
Suppose instead that, rather than 1990, you take 1992 as the break point (this is, after all, the year from which the BLS calculates its indices and also, coincidentally, the year Bill Clinton won the White House).
In that case, the 1992-2001 productivity growth rate (recession to recession, or maybe end-recession to beginning-recession) for non-farm businesses, by BLS statistics, was 1.81 percent per annum. The productivity growth rate from 1982 to 1992 (also recession to recession) was 1.94 percent per annum.
Both these figures were much lower than the 1947-73 growth rate (boom to boom) of 2.87 percent per annum, but they were much better than the 1973-82 growth rate (boom to recession, therefore artificially depressed) of 0.84 percent per annum.
There is, in other words, now no evidence whatever of a productivity miracle in 1992-2001, the Clinton years, or the years of the New Economy.
Indeed, since the amount of capital poured into new investment was so huge in 1999-2000, it is likely that, when we get 2001 figures from the BLS next March, multi-factor productivity growth (including productivity of capital) in 1992-2001 will be found to have been considerably lower than in the preceding decade.
Federal Reserve Board Chairman Alan Greenspan has repeatedly claimed that the "productivity miracle" justifies the high stock valuations still prevailing, even after recent declines, and that his "irrational exuberance" speech of December 1996 was mistaken.
However, his monetary policy since the Clinton inauguration has been very different from that before 1992, with M3 money supply growing at close to 10 percent per annum, whereas it had grown only very grudgingly in the first five years of his term in office, from 1987 to 1992.
It may or may not be a coincidence that his relationship with and later marriage to noted liberal Democrat TV journalist Andrea Mitchell dated from about this time.
If this was a conspiracy, the liberal Democrat staffers in the BLS, the liberal Democrat staffers in the BEA, and Greenspan, heavily influenced by his liberal Democrat wife, would have engineered the statistics and monetary policy to make it seem like a fantastic and unprecedented boom had occurred in the late 1990s, ending around the time Bush was elected in November 2000.
The conspirators would then ensure that, after a mild recession in 2001 -- during which the economy continued to show its great health in terms of stock prices and productivity -- it would then plunge into an abyss, with an accompanying stock market crash, in 2002-3.
By that time, the disaster could be blamed on the Bush administration's mistaken tax cut and other rich-favoring policies.
Fortunately, I don't believe in conspiracies hatched by our noble Fed chairman and the upstanding, hardworking honest staffers of the BLS and BEA. Of course I don't.
But isn't it strange that the above economic scenario appears to be exactly what's happening.
Must be a coincidence, of course ...
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