The Economic Data Is About to Get Weird

It's going to be awful no matter how you read the data.

If unemployment figures in the past have been based on the interviews with a sample of some 60K people then no wonder we find those numbers unbelievable; get real, why are not the numbers gathered in a sampling from the states at the very least...why would any state be lying about its real unemployment numbers? It sounds as though it is sustaining the jobs of those interviewers is more key than having real numbers. Most unemployment figures are probably questionable anyway: people who can be fired at will for no real reason probably makes these numbers more real but those exact same employers can DENY a person getting unemployment monies in part because the employer has contributed to the state's unemployment budget and does not want to pay more into it. Interviewing 60K people does nothing to account for those happenings in any states. Just look at the variety of amounts in unemployment payments nationwide as they vary from state to state; hence some people with an addition of $600/week will actually make more money over that time frame than when they actually worked! Imagine the degree to which some employers who still have the ability to deny your getting anything might react as in 'this will inflate my taxes when things get better and or I might have to pay more hourly then and deny everyone...No winners there and so many LOSERS.

This assumes that the recent economic data (last several years at least) was sound and let’s be honest—these numbers have not been based on reality for a very long time. The tools and definitions are based on assumptions about the old economy and have never fully articulated the complexity of our new economy where under-employment is endemic. Significantly the gig economy (a fun new name for jobs that abuse workers and offer no rights) isn’t accurately reflected in any data terms that are largely based on the historical data of the “company man” myth which assumed a lifetime of upward mobility for both blue and white collar workers and completely excludes the pink color or new collar economy. These unicorn and rainbow numbers like unemployment and market valuations have served to make Wall Street euphoric these last 3 years but the front line workers have known for years that the emperor has no clothes. Finally Wall Street is seeing reality.

The article rightly points out that traditional economic metrics become meaningless when data goes "off the charts". For example, economic activity which falls by 30% this quarter cannot be annualized to minus 120%. But frankly, weird quarterly data will be the least of our problems. The economic damage may take a generation to repair.

Deflation, the grim reaper of economies, may already be at the front door. March to April prices slipped even without oil. 1.5 percent long bonds are commanding a substantial premium. We could be very close to the edge.

The economic data reported may look weird, but reality is a bit clearer: - 22 million people filed for unemployment so far; - given labor force participation, unemployment is already above 12%; - retail sales plunged nearly 9%; - the twin trade and fiscal deficts are separately and together at record deficit levels; - Trump pushed the Fed to gin up the economy a year before the global pandemic, reducing monetary firepower imprudently; - Trump pushed for a permanent corporate tax cut that blew a trillion hole is the structural budget defict, to gin up the stock market; - Instead of investment and higher wages, companies bought back stock at high prices in a massive destruction of wealth; - Trump's trade and currency wars destroyed long-standing supply chains. - Trump's high tech wall that Mexicio was supposed to pay for fell over in a gust of wind; - Trump's disassembling of the CDC's global pandemic response unit and PREDICT program in 2018 was myopic and inane; Trump's Taj Mahal was bankrupt within a year. 5 other bankruptcies occurred in short order. If he didn't work with Russian mobsters he would be penniless. But this time he has a printing press.

And that’s not even dealing with the elephant in the room: the fact that a VERY large portion of today’s workforce - and the most directly affected part, at that - consists of gig workers and part-timers, for which most states’ labor departments haven’t even created appropriate rubrics yet, so they don’t yet show up in the stats...

Are we witnessing the fall of an empire, the America we use to love? I know of many investors now starting to move wealth to other countries, like EU, China and Canada b/c they see the writing on the wall that America will be isolated much longer than needed to be. Conservatives and libertarians seem to put very little value on human life until the food chains and healthcare logistics truly break down and the wealth of the wealthy start to disappear. We can only hope that from this mess a better world will emerge, social democracy and value for human life and suffering. It’s sad to watch America fade-away as many lives are lost b/c leadership has little value of human life.

Really great article - super interesting and learnt a lot! The only consolation is Trump did not read data - in fact I don't think his reads. So at least his policy cannot get any worse.

Not mentioned is that Trump being the pathological liar that he is could put extreme pressure on the federal agencies that gather the data, making that data essentially worthless. Like other commenters I think data gathered from private sources maybe a better indicator.

With Covid-19-induced economic black hole, are we justified in adhering to the familiar conceptions of normality and abnormality in the world?

This article neglects to mention the largest problem with national economic data: Donald Trump. Trump has always been dedicated to dishonest manipulation of facts to promote himself, and this is even more evident in the COVID crisis . We cannot trust any data that comes from the Trump administration. There can be no progress in health or economics until Trump leaves office in Jan. 2021.

Yet the stock market heads back to its over priced pre virus levels. Business news is terrible, but corporate heads and stock portfolio managers claim the V shaped recovery will turn the economy around by December. One can't tell what is going to happen at this point until the virus is reined in.

Pedant alert but I like quality writing: "The Economic Data Is About to Get Weird"? I are just as confused as when my friends and I is using "data" as if it were the singular. It's like writing "The beautiful birds is about to get weird". Please write: The Economic Data Are About to Get Weird.

Economics is always made harder to be useful when government keeps meddling. Free people trading freely in free markets has the proven (repeatedly) best outcomes over time. 100% of those living now will die. It's unfathomable that in a once free country where government's duty was to preserve our rights, instead destroys the economy for 100% of Americans (and the world will suffer with us) in order to protect 1%, and most of them will die anyway from Covid as they are sick/elderly/obese. Liberty works wonders. America should try it on again.

Whether it's the virus, with it's lack of testing or the skewed economic data with it's lack of nuance, I'm gonna take it one day at a time, hunker down physically and financially and assume everything out of this administration is twice as bad as they're telling us.

Why just moan and groan instead of doing the things that can tell you something about how inaccurate your normal tools are? Can't go out and contact people directly? You should be able to determine what fraction of your pre-COVID results depended on that and use that to estimate the induced uncertainty. Businesses not responding to surveys? What fraction didn't respond before compared to now gives another measure of increased uncertainty. Seasonal adjustment and annualization not applicable? Don't do them! But do take account of the expected error this induces. You can quantify 'more uncertainty' if you just do your job right.

We can only read the measurements from the measuring tools we use. The tools, up to this point, give us a picture by connecting specific dots. Those dots are now virtual dots, instead of dots from a tangible economic reality. The Treasury Department has traditionally been concerned with either returning the economy to a form that it was or making small advances toward stability through investment. Banks make money by lending, not by holding onto profits. Rich people like to hold onto money but the new economy requires that the wealth from the future is more attractive than the wealth from the past. The market indicators now have to focus on short term risks and long term risks, not stability. The 1-percent class is about to get taken down a peg and long term investment in public works, healthcare, and education is about to keep the country from Dickensian economics... or not!

It is a truism in organizations that you can only manage what you can measure. Mostly accurate as a description of how we behave if unusefully limiting of possibility. The fact that our economic theories are obsolete has been evident for some time — sort of like trying to use Ptolemy in the time of Galileo. We have not been able to explain inflation rates, interest rates, or productivity for some time now. We keep attributing increasing income and wealth to Capital because they are not clearly are not moving to Labor or Land as traditionally considered. Could therebe a fourth factor? If Capital in its pure sense were gathering resources we would have experienced higher interest rates, the pure return to Capital, even before the recent events. Not the case. As is often observed, the virus is simply accelerating already existing flows. Here it is the breakdown of prior economic theory. The confusion, uncertainty, and ambiguity present in this piece are simply telling us that we are now aware that we don’t know after a long period of believing that we did — a useful next step. Do we greet this dawning awareness with trepidation and anxiety or with a sense that we are or can be up to the challenge and joy of something new emerging?

Agree, a paucity of data does little to illuminate the problems. However, the most interesting part of unemployment was discussed by myself and someone who is a statistician in the state unemployment office. There is a huge future difference between claiming unemployment for a furlough and claiming unemployment for being laid off.

In the physical sciences when there are high gradients the time-stepping or mesh is tightened to accommodate for the severe changes. Econometrics can do the same.

There is nothing rational about the current levels of the stock markets. We are currently in a new phase of a massive series of bubbles in an assortment of assets that began when the Federal Reserve began expanding its balance sheet massively in September 2008 in response to the housing bubble. Bubbles are collective, self-rationalized, endlessly parroted loops of dubious simple logic. They are often collectively self-fulfilling. Since February 26th, the Federal Reserve has injected $2.2 trillion into the financial system by buying Treasuries. The money used to make these purchases has been printed out of thin air. There are very few markets large enough to be able to absorb the trillions recently injected. The stock markets are the only practical game in town for such magnitudes. If participants are selling bonds to the Fed that means, more or less, that the proceeds have to go into stocks. Unlike the politicians, the Fed acted swiftly and has stabilized the financial system, which was beginning to lock up. The Fed should be applauded for that. However, the massive QE injections are going right into the stock market. The central banks are further inflating massive bubbles which endanger the whole world financial system. The magnitudes of the current injections have gone way too far and the Fed and other central banks need to taper off immediately. Current monetary excess will only serve to widen the already massive divide between the super rich, and the poor.

They are doing everything that led to the great depression, why should the outcome be any different? 10 years of suppressed interest rates has led to a global hunt for yield that has caused all kinds of crazy investments such as condos worth millions left empty for capital growth, airbnb rentals, bitcoin and other crypto currencies, profitless unicorns, subprime II, emerging markets and single commodity exporters with history of multiple defaults drowning in debt, students borrowing money to major in exotic majors, studying on campuses borrowing money to put up facilities that have nothing to do with teaching or learning. Hospitals borrowing money to expand their elective surgery offerings entering an era where few may be able to afford them. After creating this mother of all bubbles, the central banks are back to doing what they do best, picking winners and losers in the real economy, bailing out everybody serially. The Regulator for Fannie Mae and Freddie Mac, Mike Calabria, has spoken the basic truth, FNM and FRE have only negative contribution to home ownership. The Fed has to face some facts, printing money is not really free, bailouts have consequences, once you start down the path of an unusual monetary policy, you cannot stop, because it only leads to bigger and bigger bubbles leading to bigger bailouts, until finally, the too big to fail becomes too big to save.

Muddled data are the consequence of muddled policy I continue to be amazed that the US Congress did not adopt what works: The German concept of Kurzarbeit . Under that concept, you are kept on the payroll (i.e. employed) if you work partial or none at all To cite the Financial Times of London , April 1, 2020 “Temporarily laid-off workers receive “Kurzarbeitergeld” or “short-work money” from the Federal Employment Agency, which is also responsible for issuing unemployment benefits. “ “Volkswagen, Daimler and Puma are among the large companies that have applied. ..Lufthansa, asked for 31,000 of its cabin crew and ground staff to join the programme after grounding most of its 763 planes.” Germany’s unemployment rate is likely to rise briefly above 6 per cent this year, according to Katharina Utermöhl, senior economist at the German insurer Allianz.  “We expect a rebound in the second half, particularly in the retail and services sectors that will soak up a lot of the slack in the labour market quite quickly.” FT, 4/1/2020 The latest official forecast is that German unemployment will peak, briefly, at 5.9%

The Art of Spin: New UE claims are down by over a million since last week. The economy's improving already!

Excellent story. In normal ties it is always hard to get at the real facts, in a once in a lifetime bizarre crisis like this it is next to impossible. That is why any stats that come out, even from agreed upon experts should be labeled in capital letters, estimates and subject to change when the crisis is over.

Number crunching is overrated, since the numbers collected will likely be defective. I wish we had the honesty to admit this with our political polling data, and the numbers guys (they are always guys...) we have annointed as our political experts in years past... The numbers and the way they are spun are often overrated. Open your eyes and look around you. Numbers can be used to deny people's reality, and humanity... Beware the wisdom of the numbers men. Sometimes, they are the LAST ones we ought to be listening to...

I never understood why economists lean toward seasonally adjusted statistics when year over year statistics need no manipulation and are easier to understand. Some wise bard long ago pointed out that "seasonally adjusted, Lake Erie never freezes over".

The private sector has better data. E.g., ADP processes most of the payrolls from large- and medium sized companies, so they have a real-time view of who's getting paid. Credit-card processors have a real-time view of consumer spending, and most now maintain historical profile categories. That means they can detect not only overall decreases, but shifts in what gets bought where. Further, since a large proportion of small-scale corporate spending is via corporate cards, they have a window into corporate spending. These same banks also manage the large-scale debt offerings companies use to get a cushion early. Smart companies with good forecasting will secure debt early while it is cheaper. So the banks have both micro- and macro-level information on business activity, often broken down by sector and fast- or slow-movers. Government economic data is now largely relegated to whatever shadow-play is necessary to motivate or suppress regulation, legislation, and public relations. As shown by today's story about AT&T over-counting broadband reach, using business surveys is slow and prone to self-serving errors. Historically, keeping government from infecting business with policy has led to more nimble economies, but now it has destroyed even the possibility of rational economic policy.

Good comment on the likely problems with the birth-death model. That's why it's often been said that in times of extreme movements in the economy the much smaller sample in the household survey may give a better sense of true trends in employment, but with personal visits now out the household survey may also be seriously flawed. One thing that could have been mentioned: because of the household survey problems BLS was unable to make an estimate of March unemployment in Puerto Rico.