# Presentation: 079405

## Data Issues & Revisions

**Norm Williams****	****	****	****December 12, 2003**
** **

## U.S. Economic Data Revisions,

** ****What Are the Issues?**

- Businesses and policy makers rely on economic information and forecasts in making decisions to hire, invest, and provide or remove stimulus
- Trade-offs in collecting and providing data:	Timeliness versus Accuracy	Cost versus Benefit
- Uncertainty in overall assessment of economy’s performance may lead businesses and policy makers to “pull their punches”

## 2001 Example:Not so much a case of Good Economy Goes Bad,but rather “Bad” Data Go Good

**U.S. Economic Data Revisions,**
** ****What Are the Issues?**

- Challenge to forecasters: models specified to fit revised data may not work so well in real-time

## For much of 2001, many thought we would skirt a recession.

- “...and I do not think the United States economy is in a recession but I think it is in a growth slowdown.”
- The economy is “probably at or near the bottom, and probably won’t tip into recession.”
- “The economy is not going into a major recession”

- Some press quotes during June & July:(names have been withheld to protect the innocent)

- Source: Bloomberg

## Then in October many thought that 9/11 had tipped us over into a recession.

- Conference board survey: 52% of those polled said that the U.S. economy would move into recession, up from 47% in September.

**Then in October many thought that 9/11 had tipped us over into a recession.**

- Some press quotes during late October:(names have been withheld to protect the innocent)

- Source: Bloomberg

**...****but, in late November, we were officially told the recession began in March.**

## Forecasting is made more difficult when the current status of the economy is unclear.

- -3

- -2

- -1

- 0

- 1

- 2

- 3

- 1Q2001

- 2Q2001

- 3Q2001

- 4Q2001

- Forecast and Actual Real GDP Growth,

- Change from prior quarter at annual rate, percentage points

- Source: BEA, Blue Chip

**Blue Chip mid-quarter forecast**

## Initial GDP reports have under-estimated growth near the bottom of recessions, while showing smaller misses near the peaks.

**Initial GDP reports have under-estimated growth near the bottom of recessions, while showing smaller misses near the peaks.**

## So How Can We Address These Issues?

- Knowledgeable users: some evidence that private sector forecasters treat revisions as random, even though they may be somewhat predictable
- Trends in real-time information, like yield spreads and stock prices, do provide (slight) insight into direction of ultimate GDP revisions
- Fed relies significantly on supplemental anecdotes to inform its policy decisions (Beige Book, etc.)

## BEA and BLS already taking major steps to improve quality:	(1) BEA adoption of chain weights in 1996 			comprehensive revision	(2) BEA published 12th comprehensive GDP 		revision this week	(3) BLS major update to employment (nonfarm 		payroll) methodology in 2003 

- NBER now using MA’s monthly GDP estimates
- Would more funding for better statistics pay off?

**So How Can We Address These Issues?**

## By one estimate, paying for the 3 major US statistical agencies already provides a significant economic return, with plenty of room to fund data quality improvements.