Tags: US | Growth | Data | Reliable | economic

NY Times: US Growth Data Isn't Always Reliable

By Michelle Smith   |   Wednesday, 17 Aug 2011 02:03 PM

Perhaps it would be best if U.S. statistics were released with a disclaimer – Warning: The following information may be drastically inaccurate and is subject to change. The unreliable nature of the nation's data was spotlighted in a New York Times article focusing on the drastic change in economic growth figures.

The Times reported that in April, the government claimed that “the economy had grown at a moderate annual pace of 1.8 percent in the first quarter.” Three months later, that figure has been chopped down to only 0.4 percent in the first quarter.

Revising statistics is neither the rarity nor cause for embarrassment that one may assume; it is actually common practice. People place significant value on U.S. data without realizing that the information is often based on guessing.

“The basic problem is easy to understand,” the Times reports. “More than half of the ingredients in the first estimate [of economic growth data] are based in whole or in part on projections from past months. The government doesn’t actually know how much people spend on their cellphone bills or how much companies spend on construction. It simply makes an educated guess based on past spending.”

When projections are made, new information will eventually become available. Then, the numbers are crunched again and the result is often a new statistic.

The Times notes that the government announces growth rates roughly one month after the end of each quarter and they usually different from the figures that are released years later.

Unreliable data isn’t just a problem seen with economic figures, it exists with a wide range of U.S. statistics.

For example, National Public Radio (NPR) spotlighted a similar problem with education statistics, which had become so unreliable that the Bush administration ordered all states to make calculations of high-school dropouts based on a federal formula.

Many states still don't have a system capable of accomplishing the task as they have been instructed to do it. “So how can the federal government require states to calculate a rate that's beyond their technical ability?” says NPR.

The inability to provide reliable figures is more pervasive than many people may realize.

“When the government says the economy added 117,000 jobs last month, or grew at an annual rate of 1.3 percent last quarter, it doesn't mean that the nation actually added that many jobs, or that the economy actually grew at that rate. It means those are the best estimates from the people who are trying to figure out what's really going on,” says another NPR article.

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