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The Government's Published Statistics Paint a Misleading Picture of the Economy

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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

9 Comments – Post Your Own

#1) On April 02, 2008 at 8:44 AM, Gemini846 (46.06) wrote:

If they wanted to account for volatility in food and oil they could just do double cycle billing like the credit cards do. Get the average over the last 2 years and then use that number. I agree those 2 things have seen the highest increase and impact more people than the cost of big screen TV's which is going down due to our currency being in the crapper.

I think they are trying to go to $1 coins so we won't just use the bills as TP when a roll of TP costs $50.

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#2) On April 02, 2008 at 8:49 AM, bellard (99.12) wrote:

"government bends the statistics"

Hi Deej;

As an economist, and a statistician, I usually ignore all US gov't data. I don't think the US tries to mislead, but individuals(including myself from time to time), use statisitcs to bolster their position. The current administration is a case inpoint - I have never seen such a bunch of perma-bulls. 

 The  unemployment rate is one of those dumb surveys. The second question asked is "are you currently seeking work?".If you say you have no job, and are not looking for a job today - you do not count as unemployed by the US. This is very misleading. Many people just give up when the economy is really bad. This is the data we should be looking at for insight into where the economy is heading - but instead the gov't throws this data out!

 The worker participation rate is a better statistic. This rate has been falling for several years. With the next 5 years, I think we will go below 65%. That means only 65% of adults are working. This is the # we should be using, - I only look at actual job growth and ignore the US published unemployment rate.....

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#3) On April 02, 2008 at 9:37 AM, mandrake66 (43.29) wrote:

I've read that the way inflation is measured has changed over time such that, if it were currently measured the way it was back in 1980, it would be somewhere around 11%. Not being a statistician, economist, or accountant I can't really speak to what the changes have been, but current numbers are not comparable to earlier periods.

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#4) On April 02, 2008 at 11:32 AM, FoolishChemist (97.42) wrote:

I agree with you that you can't trust all the numbers the government puts out.  That's why I did a little number crunching of my own to help compute just what my family's own personal inflation rate is since my folks are entering retirement.  I posted it in my blog a few months back.  There is actually some deflation in some of our expenses because of cutting back and conservation.  I think everyone should take a close look at their own personal numbers to get an idea where the money is going.

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#5) On April 02, 2008 at 12:12 PM, abitare (49.76) wrote:

"they [the government] always lie you know that"

Jim Rogers 

 

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#6) On April 02, 2008 at 12:55 PM, TDRH (99.49) wrote:

 

 TMFDEEJ,

http://www.shadowstats.com/

Think you are definitely on to something.  The government tweeks the measurements nearless as much as CEO's tweek their reporting to meet option goals.   

In particular I am fascinated with the government's inflation number.   Not sure which fool I stole this link from, but it gives you some interesting insight even at the non-subscriber level.

James

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#7) On April 02, 2008 at 1:53 PM, DemonDoug (32.31) wrote:

Deej, I'm right with you on all of this.  I'm so sickened and disheartened sometimes at these fake numbers.

As far as food and energy prices, what could (and should) be done to even out the reporting is to take an average of price increases over the trailing twelve months, or, better yet, just compare the price to a year ago (instead of month over month).  Ron Paul calls inflation the "hidden tax" and I only wish the MSM and public were more aware of it.

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#8) On April 02, 2008 at 3:54 PM, ATWDLimited (< 20) wrote:

Amen Deej, we have a real problem here, the government apparently can not only manipulate, but it can just hide and not even release data, like the M3, which was last published in 06. I have out lined the actual data, to the best of my ability in The Official Dollar Report, although it is not 100% accurate, but I ma honest at least.

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#9) On April 02, 2008 at 5:57 PM, TMFDeej (99.24) wrote:

Thanks for the comments everyone.  It's been a crazy day at work so I haven't been able to stop in.  I'll definitely have to hop on over and check out shadowstats.  I'll check out the blog posts that you mentioned as well.  Hmmmm, so much reading to do :).

Deej

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