The Government's Published Statistics Paint a Misleading Picture of the Economy
April 02, 2008
– Comments (9)
Let me begin by saying that I am not saying that the government is flat out lying to everyone, though that is probably closer to the truth than it should be. To just make numbers up out of thin air would require too massive a conspiracy that would be next to impossible to keep a lid on because of the sheer number of people that would have to be involved. What I am saying is that the government seems to be bending the statistics that it publishes and that they don't tell the whole story. They often adjusts the methods that are used to calculate the numbers that they publish to serve their own purposes.
I touched upon this subject a little bit a few weeks ago when the absolutely absurd benign CPI report was published, http://caps.fool.com/Blogs/ViewPost.aspx?bpid=40126&t=01001019292467236494.
One example of how the government "massages" the numbers is when it replaced housing prices with "owners' equivalent rent" years ago when calculating the CPI. Housing prices have been rising quickly for a number of years. Easy credit and low credit standards fueled this rapid rise in home prices and enabled tons of people to purchase new homes, keeping house and apartment rents artificially low. By focusing on rent instead of home prices, the CPI ignored the fact that people had to pay through the nose to get a new home. Inflation has been dramatically understated over the past several years.
Another way the government bends the numbers to suit its needs is by focusing on "core" inflation, which ignores food and energy prices. The supposed logic behind looking at the "core" CPI instead of the real number was that food and energy prices are volatile. Again "core" inflation dramatically understates the inflationary pressure that real consumers like you and I feel when we pay our bills every month. The last time that I checked, we all pay for food and most of us use gas in our cars. Other than a car payment and a mortgage payment, these are likely two of our biggest expenses every month for goodness sake. I highly doubt that the price of oil or the price of food are headed anywhere but up in the long run, so ignoring them because they are "volatile" is nuts.
Now let's take a look at the government's statistics on unemployment. There was a great article on this subject on CNNMoney this morning:
http://money.cnn.com/2008/04/02/news/economy/jobs_outlook/index.htm
In February, the government reported that our country's unemployment rate was 4.8%. Economists are forecasting that it will rise to 5.0% in March, which in itself is disturbing. Even more troubling though is that this statistic probably dramatically understates what the "real" unemployment rate. It would stand to reason that if the jobs market was really bad and people had to look for a long time to get a job that some of them might become discouraged and stop looking for work. Conveniently, the government excludes these people from its reported unemployment rate. Similarly, the unemployment report completely ignores the quality of jobs that people are taking. Many people who have been unable to find full-time positions settle for part time work. Again, the government's reported unemployment rate does not take them into account either. Also, the unemployment report ignores the number of independent contractors who have lost their jobs. I know a number of them who did not have their contracts renewed and have not been able to find new work yet. Here's another one. I find it awfully convenient again that the number of people who want jobs and do not have them, but are no longer to be considered part of the "official" labor force for a variety of reasons increased by more than half a million people from November 2007 to February 2008.
I could go on and on about how the government bends the statistics to make things look better than they really are, but alas I am out of time for now. I am not implying that we are headed to some sort of huge stock market crash (that was a heck of a rally yesterday wasn't it), just that it is important to take every number that the government publishes about the economy with a grain of salt. The understatement of inflation will enable the Fed to flood the system with as much liquidity as possible to fix the understated unemployment problem to keep the economy going for as long as possible. The Fed may well succeed in helping the economy turn around for a while, but it will likely be at the expense of a lower U.S. dollar.
Deej
RSS Headlines
Fool UK