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To: long-gone who wrote (15195)	8/3/1998 9:26:00 AM
From: Alex	Read Replies (2) \| Respond to of 116762

NUMBER'S DON'T LIE? THE GOVERMENT'S DO By JOHN CRUDELE ------------------------------------------------------------------------ WALL Street was expecting no economic growth in the last three months. A big zero. At best - a couple tenths of a percentage. Some even had the nerve to predict a decline in economic activity in the quarter. Put two or three declines together and you know what you have - a recession. And the pros had good reason to expect little. Corporate profits have been disappointing. Asia is crumbling. And companies have been responding with a large increase in layoffs, which should be getting to consumers by now. But on Friday, Washington surprised most reasonable people when it reported that the U.S. economy grew at a 1.4 percent pace in the quarter that runs from April 1 through the end of June. Now, 1.4 percent isn't anything fabulous, especially when compared with the revised 5.5 percent expansion in the first quarter. But if you are a politician who, say, is in the middle of an enormous scandal, the number is perfectly agreeable. Since the economic data behind this GDP number is as flexible as a wet sponge - able to be plugged into any speech to clean up a mess - betting on a decline in economic activity, or even zero growth, was a sucker's bet. A horrendous quarter just wasn't in the cards. If the Justice Department is agreeable to helping the White House by nixing an independent counsel for the campaign finance scandal, who's to say that the same bend-over-backwards attitude isn't saturating the Commerce Department? At the Commerce Department, there is an enormous amount of gray area on how the nation's economy can be reported. For instance, the GDP figure on Friday came in a lot higher than Wall Street expected, primarily because the Commerce Department used a much lower level of inflation than anyone expected. According to economist Walter B. Williams, who covers this economic data like I keep track of new Chinese restaurants, the government assumed an annual inflation rate (through something called the implicit price deflator) of just 0.9 percent during the second quarter. Experts had been expecting inflation to be at a more reasonable rate of about 1.5 percent. Is the GDP inflation number accurate? I suppose anything's possible. But inflation, as measured by the CPI (another product of the government) rose at a 2 percent annual rate in the second quarter. How'd the government come up with 0.9 percent on Friday? You'd have a better chance at guessing the PowerBall numbers. That razzle-dazzle alone contributed about 0.6 of a percentage point to the 1.4 percent GDP increase. Without it, the growth of 0.8 percent would've looked pretty woeful. Williams has discussed methodology with the Commerce Department. These economist-to-economist chats (wouldn't you just love to have a recording of those for your collection?) led Williams to believe that only 10 percent of the first GDP estimate put out by the government are real numbers and 90 percent are estimates. The government says that vastly overstates the guesswork involved. But Williams says that even the estimates aren't solid. For instance, Wall Street had been expecting consumer spending to be flat. But the Commerce Department estimated that it grew at an annualized rate of 5.8 percent after inflation. Are consumers really spending that much? If they were, then they'd have to be cashing out of the stock market to do so. If it wasn't for the jump in consumer spending and the very low inflation rate, the U.S. economy would have been statistically clobbered. Oh, yes, there is another thing. The Commerce Department did what is called a benchmark revision of the GDP numbers this quarter. This is easily explained. Take a copy of this paper, tear it into little pieces and try to put it back together in a readable fashion. Alan Greenspan warned about this benchmark revision a couple of days ago. He said those forecasts of an economic decline weren't taking this particular numbers trick into account. And, I'll add, they also weren't taking politics into account. Better luck next time. nypostonline.com