Hearing that the U.S. economy gained 243,000 jobs last month, wouldn’t you think that there were 243,000 more jobs?
NY Times financial journalist Floyd Norris explains that actually, the economy LOST 2,689,000 jobs. But, it would be misleading for the Bureau of Labor Statistics (BLS) news release to report the real number because of seasonal fluctuations in the jobs market. Holiday hiring during every December inflates the numbers and then they quickly deflate during January. To compensate for data that would have obscured our true economic trajectory, the numbers were seasonally adjusted…from -2,689,000 to +243,000.
However, not everyone agrees on the appropriate approach to seasonal adjustment. And that returns us to the problem with statistics. Seemingly objective, a close look (as with college ranking) reveals much more.
The Economic Lesson
If you saw more job creation during December 2008, you could have concluded that the economy had entered the road to recovery. However, knowing the holidays were the reason, and that it happened every December, you might have changed your mind. Called seasonal variation, adjusting monthly data to let us see where the economy is going is perfectly explained by the Dallas Fed here. The graph that they include with a seasonally adjusted and a seasonally unadjusted line ideally displays the difference between the two.
An Economic Question: Before looking at the Dallas Fed’s graph, draw an unemployment graph with unadjusted data for an economy experiencing a worsening recession during one year. Then, eliminating the temporary economic impact of summers and holidays, draw a second unemployment graph for the same year.
When a valid research study with dependable numbers says the marriage age has climbed to historic heights, should we assume its conclusions are valid?
In Economix, Catherine Rampell describes the problem. Her story begins with a Pew Research Center study telling us that a typical bride (age 26.5) and her new husband (age 28.7) are much older. As a result, “In 1960, 72% of all adults ages 18 and older were married; today just 51% are.”
However, a University of North Carolina sociologist points out that the base year, 1960, is misleading. A marriage age graph between 1890 and 2010 looks like a flattish “u” with 1956 the low point and 1960, close. By selecting 1960, the study placed our current marriage age in a misleading time frame.
You also might want to listen to this econtalk discussion about other studies with conclusions that could be re-examined.
The Economic Lesson
Fiscal, monetary and regulatory policies depend on accurate statistical research. After Nobel Prize winning economist Simon Kuznets (1901-1985) developed the concept behind the GDP, the country could respond to the business cycle more appropriately. Also because of Dr. Kuznets’s work, we could reallocate resources more appropriately during the Second World War.
An economic question: How might later marriages affect government’s economic policies?
Posted by: adminEcon
Tags: marriage, Simon Kuznets, statistics
How high is Mount Everest?
No one really knows. China says 29,017 feet, Nepal, 29,028, and the National Geographic Society, 29,035. We don’t even agree about sea level. The U.S. uses the St. Lawrence River in Quebec. But the U.K uses another baseline. And other countries use a local reference point. Furthermore, the Himalayas are rising by several millimeters each year. As one scientist said, “The idea of saying, ‘The height of Everest is this, is an anachronism.’”
The Economic Lesson
Similar to Mount Everest’s height, a “Country of Origin” statistic no longer is accurate. A Toyota Camry is primarily American while a Ford pick-up is not. The Made in China iPhone has components from 9 countries. Learjet is based in Wichita, Kansas and owned by a Canadian company, Bombardier. For the origin of the Learjet 85:
- wings: Belfast
- horizontal and vertical stabilizers: Mexico
- engines: Canada
- fuselage: Mexico
- electrical system: Mexico
An Economic Question: How might balance of trade statistics be affected by more accurate data?