Are the U.S. Government's Statistics on the Economy to Be Trusted?

Sheldon Filger
Writer, founder of GlobalEconomicCrisis.com

Posted: August 1, 2009 05:58 PM
Are the U.S. Government's Statistics on the Economy to Be Trusted?


There is an old adage which says there exist three types of lies; lies, damn lies and statistics. With that caveat in mind, how should one approach the government's claim that the U.S. economy contracted by "only" 1% last quarter? The question is of great importance, since this statistical marker underpins the claims being made by legions of politicians and financial analysts that the greatest global recession since the Great Depression is nearing its end, with recovery just around the corner.

Karl Denninger, a frequent guest on CNBC and commentator for a website with a skeptical take on the economy, Market Ticker, has offered a convincing rebuttal to those who stand by the official claim that Q2 witnessed a decline of a mere one percent in the U.S. economy's GDP. Here are the salient points of Denninger's critique of the numbers that came out of the Commerce Department's Bureau of Economic Analysis.

According to the Commerce Department, Q1 was actually significantly worse than the originally reported -5.5%; the actual decline was -6.4%. Due to the different benchmark, the .9% differential needs to be added to the decline in Q2, taking the actual figure to -1.9%. In addition, because the government reduced its spending in Q1 by 4.3%, and comprises approximately 30% of the total economy, its share of Q1 contraction is 1.3%. Here we come to the heart of Denninger's mathematical analysis. He believes that it is consumer activity that points to the strength or weakness of the American economy, not government spending. Accordingly, he argues that reductions or increases in spending by Washington should be subtracted from quarterly GDP measurements in order to ascertain the actual temperature of the real economy. With that in mind, he backs out the reduction in government spending in Q1, which reduces that quarter's contraction to just above -5%.

In Q2, Denninger points out, the government's spending grew by 10.9%, contributing to a positive movement of 3.3% in the second quarter's reported GDP. Remove that 3.3% from the equation, and the actual Q2 data for the consumer economy witnessed an overall contraction of -5.2%, a figure substantially worse that the official government Q2 report. ............(more)

The complete piece is at: http://www.huffingtonpost.com/sheldon-filger/are-the-us-governments-st_b_249311.html

Overall, I think the government statistics are reasonably reliable. It might take some work to put a given statistic in context; for instance, the job situation under * sucked, but the U-3 unemployment rate looked good. Going to the BLS website would allow you to find how those two facts could be reconciled. (There was a massive upward movement in the "Not in Labor Force" category which provided a seemingly low unemployment rate.)

So yeah, I think that overall the stats are good...when you have enough of them. :)

The statistics coming out are manufactured guesses and hopeful misdirection.
The lies are bold-faced, and the damned lies are criminal.

I had hopes that Obama would break that mindset and pattern. I was disappointed. Not even a policy statement has come out on this very important issue. Obama wants to let sleeping dogs lie. Thing is, these dogs aren't sleeping, they just aren't barking while they eat our lunch and destroy our nation.

The most common one we hear about being fudged is unemployment, but the way they measure inflation is also fudged. Obama is not going to change it, it will have to come from a nongovernmental source, and become popular enough that is replaces the government's numbers in the public's eye.

Historically speaking, the U.S. Government is the best and biggest reason that trust should have been a four letter word. After all it is just like a toxic corrosion that with time, eats the body where ever it is allowed to remain. That's just rust preceded by a t. right?