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Ed Gillespie is Exerting Massive Centripetal Force
From Ed Gillespie's attempt to edit NBC's reporting:
'Are there numbers besides the "government number" to go by? Is there reason to believe "the government number" is suspect? How does the release of positive economic growth for two consecutive quarters, albeit limited, stop "just short of the official declaration of a recession"?'
First, let's deal with whether there is "reason to believe 'the government number' is suspect." Due to changes made during the Reagan administration (to measure the cost of housing not by the actual cost of housing but by imputing a cost of housing from how expensive it is to rent a similar home) and Clinton administration (to assume that when a price of a good goes up, people trade down to a cheaper item, and to assert that technological advancement must be "backed out" of what people are actually paying), inflation is systematically understated and real economic growth systematically overstated. For instance, first-quarter 2008 real GDP was 0.6%, and the "deflator" used to estimate inflation was 2.6%. If you think, as I do, that inflation was running faster than a 2.6% annual rate in the quarter, then real economic growth must have been lower than 0.6%.
At least as misleading are the monthly "payroll jobs created" figures. In 2003 (and this just possibly might have had something to do with the weak job creation numbers being posted with an election coming up) the Bureau of Labor Statistics created a model better at picking up job creation in new entities that the payroll survey missed. This solved the problem of the payroll survey understating job creation, but created a new problem. Now, the survey -overstates- job creation during economic slowdowns. In April, we officially lost -20,000 jobs, but the "fudge factor" (it is called the "birth/death model") introduced in 2003 added +262,000 of those jobs. Go back to the pre-2003 calculation, and we lost 282,000 jobs.
Gillespie:
The GDP estimate was a positive 0.6% for the first quarter. Slow growth, but growth nonetheless. This followed a slow but growing fourth quarter in 2007. Consequently, even if the first quarter GDP estimate had been negative, it still would not have signaled a recession - neither by the unofficial rule-of-thumb of two consecutive quarters of negative growth, nor the more robust definition by the National Bureau of Economic Research (the group that officially marks the beginnings and ends of business cycles).
First, go back to my comment above--that +0.6% number is overstating growth and understating inflation. Second, note that even if the 0.6% growth we've posted over the last six months was an accurate estimate, it ran behind the 1.0%+ population growth rate. Per capita economic growth--real income per individual--fell during those six months. Last, the head of the NBER, who Gillespie foolishly cites, is Martin Feldstein. Although the final determination will not be made for months, Feldstein believes we are in a recession, as do other lightweights like Warren Buffett and JP Morgan CEO Jamie Dimon. I'll also note that buried in the Q1 GDP number is the first outright decline in personal consumption since the 1990-1 recession. A broader measure of growth that strips out volatile inventory and trade number--real sales to domestic purchasers--fell 0.4%, the first time it has done that since --you guessed it--the 1990-1 recession.
Gillespie:
Furthermore, never in our nation's history have we characterized economic conditions as a "recession" with unemployment so low - in fact, when this rate of unemployment was eventually reached in the 1990s, it was hailed as the sign of a strong economy. This rate of unemployment is lower than the average of the past three decades.
If you've managed to read this far, you won't be surprised to learn that one reason the unemployment rate is so low in historical terms is that the formula used to calculate it has changed. If you include segments of the population that the "headline" unemployment figure does--those working part-time because they can't find a full-time job and those who want to get a job but have given up looking for one--then the unemployment rate has risen from 8.2% last April to 9.2% this April. Gillespie also might recall that never in our nation's history have four consecutive months of rising unemployment -not- coincided with or preceded a recession.
So, to answer Mr. Gillespie's question--'are there numbers besides the "government number" to go by? Is there reason to believe "the government number" is suspect?--I would reply that yes there are (you just need to dig deeper into the data the goverment releases) and yes there is. Tinkering with "headline" economic numbers is an easy way to fluff up one's economic record. Spin all you want, Ed, but the pain out in the real world is real.





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