is the economy doing as well as the numbers suggest? sage advisory services fall 2007 conference...
TRANSCRIPT
![Page 1: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/1.jpg)
Is the Economy Doing as Well as the Numbers Suggest?
Sage Advisory Services Fall 2007 Conference
Raymond W. StoneStone & McCarthy Research Associates
September 27, 2007
![Page 2: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/2.jpg)
Nature of Economic Data
Economic Data Are Largely Derived from Surveys
In Contrast to:
Data points from Physical Sciences Derived from “Controlled Experiments”
![Page 3: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/3.jpg)
Misplaced Emphasis?
• Financial Press/Talking Heads attach too much emphasis to the latest release
• Economists all too often treat economic data, as “hard numbers”
• Policy-Makers can be misguided by deficiencies in the data
![Page 4: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/4.jpg)
Consider the Establishment or Payroll Survey of Employment
• Includes: monthly inference drawn from a sample of about 330,000 establishments accounting for about 30% of all employment
• Includes: adjustment for net payroll changes outside of sample due to births and deaths of businesses
• Adjusted for recurring seasonality, based on the history of recent years
![Page 5: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/5.jpg)
Benchmark Revisions
• Once a year the BLS realigns monthly estimated payroll growth to Unemployment Insurance records
• On October 5 the BLS will release a preliminary estimate of the March 2007 benchmark revision
• The problems with the payroll data go beyond the magnitude or direction of the benchmark revision
![Page 6: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/6.jpg)
Recall Record +752,000 March 2006 Benchmark Revision
March 2 0 0 6 Benchm ark Revision By I ndust ry ( 0 0 0 s)
-25 0
25
50
75
10
0
12
5
15
0
17
5
20
0
22
5
25
0
Mining &Natural resources
Construction
Manufacturing
Trade,Transportation & Utilities
Information
Financial activities
Prof &Business Services
Educ & health services
Leisure and hospitality
Other services
Government
![Page 7: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/7.jpg)
March 2006 Revision Skewed Towards a Few States
Diffe rences in Job Grow th QCEW - CES ( f r om Ma r ch 2 0 0 5 to Ma r ch 2 0 0 6 , 0 0 0 s)
Kansas
New J ersey
Pennsylvania
M innesota
North Carolina
Illinois
Tennessee
Louisiana
Texas
California
![Page 8: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/8.jpg)
Observations from 2006 Revisions
• Largest revisions were in states with a high incidence of illegal or unauthorized workers
• Largest revisions were in industries wherein a high incidence of unauthorized workers are employed
• From a separate BLS survey, about 45% of all employment growth during the period was among foreign-born workers, mostly Hispanic
• Wave of legislation aimed at restricting illegal workers and increasing penalties on employers that knowingly hire illegal workers
![Page 9: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/9.jpg)
Inferences From 2006 Revisions
• Payrolls understated, but payroll growth overstated
• Much of the job growth during the period reflected illegal workers going from “off-the-books” to “on-the-books”
• Wage & Salary Growth overstated• Productivity understated• Unit labor Costs overstated
![Page 10: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/10.jpg)
Payrolls Understated, Payroll Growth Overstated
![Page 11: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/11.jpg)
Disconnects in Current Payroll Data…How About those Residential Construction Jobs?
![Page 12: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/12.jpg)
Food Service Payrolls Out of Sync with Expenditures at Food Service Outlets
Food Service Payrolls as Function of Spending
8200
8400
8600
8800
9000
9200
9400
9600
9800
340000 360000 380000 400000 420000 440000
Above Trend- - >
![Page 13: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/13.jpg)
March 2007 Benchmark Revision should be downward
(to be released on October 5)
![Page 14: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/14.jpg)
But even if the Benchmark Revision is not negative, Payroll Growth is still overstated
• The shifting of illegal workers from “off-the-books” to “on-the-books” renders an increase in the rolls of unemployment insurance eligibility, but really isn’t an increase in employment
• Overstatement of Payroll Growth renders an overstatement of Personal Income Growth
• Overstatement of Payroll Growth renders an understatement of productivity growth
![Page 15: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/15.jpg)
Policy Decisions Misled by Payroll and Income Data?
(August 7 FOMC minutes)
In their discussion of monetary policy for the intermeeting period, Committee members again agreed that maintaining the existing stance of policy at this meeting was likely to be consistent with the overall economy expanding at a moderate pace over coming quarters and inflation pressures moderating over time. The expansion would be supported by solid job gains and rising real incomes that would bolster consumption
![Page 16: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/16.jpg)
What About Construction Productivity?
![Page 17: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/17.jpg)
X-Construction, Productivity Stable
![Page 18: Is the Economy Doing as Well as the Numbers Suggest? Sage Advisory Services Fall 2007 Conference Raymond W. Stone Stone & McCarthy Research Associates](https://reader036.vdocuments.us/reader036/viewer/2022082612/56649f305503460f94c4a7d7/html5/thumbnails/18.jpg)
Potential GDP, the economy’s “speed-limit” may be a little faster than the Fed thinks