Dubious data

Fickle statistical compasses guide global economy

Policymakers must rely on data but economic readings can be doubtful, incomplete, or difficult to interpret. With so much uncertainty about what's actually happening, it is a little surprising they get anything right.

Initial estimates of national accounts are based on small samples and fragmented bits of information. It takes a while to build a less incomplete picture. The UK suffered a double-dip recession in early 2012, according to the data released at the time. A year and a half later, the Office for National Statistics mutated that into mere stagnation.

It doesn't take that long to see some numbers aren't right. The combined 2013 gross domestic product of China's provinces is set to surpass the centrally-calculated national figure. Experts wisely doubt all the figures but many investors become concerned when growth rates slow by mere tenths of a percentage point.

Then there is "Change the rules, change the numbers." In September the European Union will update its overall accounting. The changes are pretty technical, but when the United Stated made them last year, the level of GDP instantly rose by three per cent. The EU statistics office expects a 2.4 per cent increase - helpful on the margin to governments striving to meet the euro zone's fiscal targets, which are measured relative to GDP.

Labour market figures also pose conundrums. The US unemployment rate has fallen nicely but the Federal Reserve, a central bank with a mandate to promote employment, needs to balance those good numbers with some bad ones - sharp increases in the proportion of working-age Americans who have quit the workforce.

In the UK, the unemployment rate has fallen more rapidly than growth appears to warrant. That posed a conundrum for the Bank of England, which last year tied policy - albeit loosely, to the labour market. No wonder its Monetary Policy Committee has complained about inadequate data. And, even less surprise that it's loosening those ties further.

No one likes driving in fog but politicians, central bankers and investors must feel their way. A good starting principle is to avoid basing decisions on only one or two necessarily flawed indicators.