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Macroeconomic Data in Real Time Tara M. Sinclair George Washington University Weidenbaum Center Media Retreat Wianno Club in Cape Cod June 28, 2011 Why Do We Care About Macro Data? Federal Reserve Chairman Ben Bernanke: “I think that having good data, good statistics— and the United States generally has better macroeconomic statistics than most countries— and having good economists to interpret those data and present the policy alternatives, has a substantially beneficial effect on policymaking in the United States.” How Good Are US Macro Data? Two key issues: We face an “accuracy-timeliness” tradeoff with almost all macroeconomic data. Different measures can give a very different picture of the economy. Data are regularly revised. Therefore economists look at a lot of data. One related question: What about macroeconomic forecasts? Example: GDP Revisions Real GDP is measured quarterly, with estimates released monthly: “Advance” estimates are released one month after the quarter. “Second” estimates are released two months after the quarter. Recently renamed – had been “preliminary.” “Third” estimates are released three months after the quarter. Gross Domestic Product, 2nd Quarter 2011, (advance estimate) will be released July 29th. Recently renamed – had been “final.” Annual revisions each July for the previous year, plus occasional additional “comprehensive” revisions. Next annual revision will be released July 29th. BEA News Release Friday, June 24, 2011 A More Extreme Example GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 Advance Preliminary Final (Percent change from preceding quarter) Real GDP............................................... 1.9 A More Extreme Example GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 Advance Preliminary Final (Percent change from preceding quarter) Real GDP............................................... 1.9 3.3 A More Extreme Example GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 (FINAL) Advance Preliminary Final (Percent change from preceding quarter) Real GDP............................................... 1.9 3.3 2.8 A More Extreme Example GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 (FINAL) Advance Preliminary Final (Percent change from preceding quarter) Real GDP............................................... 1.9 July, 2009 – revised to 1.5 3.3 2.8 A More Extreme Example GROSS DOMESTIC PRODUCT: SECOND QUARTER 2008 (FINAL) Advance Preliminary Final (Percent change from preceding quarter) Real GDP............................................... 1.9 July, 2009 – revised to 1.5 July, 2010 – revised to 0.6 3.3 2.8 2001 Recession Example 10 8 6 4 2 0 -2 00Q1 00Q2 00Q3 00Q4 01Q1 01Q2 APRIL_2002 01Q3 01Q4 02Q1 2001 Recession Example 10 8 6 4 2 0 -2 00Q1 00Q2 00Q3 00Q4 01Q1 APRIL_2002 01Q2 01Q3 JULY_2002 01Q4 02Q1 2001 Recession Example 10 8 6 4 2 0 -2 00Q1 00Q2 00Q3 00Q4 01Q1 JULY_2002 01Q2 01Q3 JULY_2004 01Q4 02Q1 2001 Recession Example 10 8 6 4 2 0 -2 00Q1 00Q2 00Q3 00Q4 01Q1 JULY_2004 01Q2 01Q3 JULY_2009 01Q4 02Q1 Example: BLS Employment Revision 140,000 138,000 136,000 134,000 132,000 130,000 128,000 2003 2004 2005 2006 2007 2008 2009 2010 Employment according to data in January 2010 Employment according to data in February 2010 (benchmark revision) How Good Are US Macro Data? - 2 There is a lot of macro data out there. Which inflation measure should we rely on? How do we compare annualized growth rates to quarterto-quarter growth rates to…? What about seasonal adjustment? Which measure best captures the labor market? What about cross-country comparisons? Different Inflation Measures Overall/Headline: General rise in the price level. Core – excludes food and energy Reduces volatility. May be a better forecast of future inflation than overall/headline inflation. CPI versus GDP deflator versus PCE. BLS CPI Press Release BEA GDP Price Index Press Release What’s the difference between 0.2 and 0.3? At a compound annual rate: What’s the difference between 0.2 and 0.3? At a compound annual rate: May Core CPI: 3.5% What’s the difference between 0.2 and 0.3? At a compound annual rate: May Core CPI: 3.5% April Core CPI: 2.2% Comparing Across Measures (compound annual growth rates) Comparing Across Measures Seasonal Adjustment Seasonal events affecting the economy follow a more or less regular pattern each year, so the statistics are regularly adjusted to make it easier to observe the longer term movements in the series. BLS Press Release Two Different Unemployment Rates The conventional unemployment rate, is defined as: “Total unemployed persons, as a percent of the civilian labor force.” The broadest Bureau of Labor Statistics (BLS) measure of unemployment, is defined as: “Total unemployed persons, plus all ‘marginally attached’ workers, plus all persons employed part time for economic reasons, as a percent of the civilian labor force plus all ‘marginally attached’ workers.” Unemployment Rates Average(mean) Duration of Unemployment Labor Force Participation Rate Cross-Country Comparisons US: GDP increased at an annual rate of 1.9 percent in the first quarter of 2011, (that is, from the fourth quarter to the first quarter). UK: GDP grew by 0.5 per cent in the latest quarter. GDP in the first quarter of 2011 is now 1.8 per cent higher than the first quarter of 2010. China: China's GDP grew 9.7 percent on year in the first quarter of 2011. Make sure real, not nominal. Does this mean we’re trapped in an xkcd comic? No, But… When it comes to forecasts, particularly about recessions, Laurence J. Peter may be right: “An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.” Unfortunately: “The success of monetary policy depends importantly on the quality of forecasting.” —Alan Greenspan (2004) Example Forecast 6 4 2 0 -2 -4 -6 -8 2007 2008 REAL_GDP 2009 2010 SPF_1_QTR_AHEAD 2011 Bank of England Inflation Forecast Fan Chart (‘river of blood’) Final Takeaways Macroeconomic data can send mixed signals as it arrives in real time. Macroeconomic forecasts are even less reliable than the incoming current data. So… don’t be surprised when the data and the forecasts change. don’t rely on a single number. Great Data Sources Data: St. Louis Federal Reserve Most recently revised data: Federal Reserve Economic Data (FRED) “Vintage” data: ArchivaL Federal Reserve Economic Data (ALFRED) http://research.stlouisfed.org/fred2/ http://alfred.stlouisfed.org/ Forecasts: Philadelphia Federal Reserve Survey of Professional Forecasters http://www.philadelphiafed.org/research-and-data/realtime-center/survey-of-professional-forecasters/