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Data Issues & Revisions Norm Williams December 12, 2003 PowerPoint Presentation
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The Art of Forecasting: Economic Outlook for 2004. FDIC Division of Insurance and Research. Data Issues & Revisions Norm Williams December 12, 2003. U.S. Economic Data Revisions, What Are the Issues?.

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slide1

The Art of Forecasting:

Economic Outlook for 2004

FDIC Division of Insurance and Research

Data Issues & Revisions

Norm Williams December 12, 2003

slide2

U.S. Economic Data Revisions,

What Are the Issues?

  • Businesses and policy makers rely on economic information and forecasts in making decisions to hire, invest, and provide or remove stimulus
  • Trade-offs in collecting and providing data: Timeliness versus Accuracy Cost versus Benefit
  • Uncertainty in overall assessment of economy’s performance may lead businesses and policy makers to “pull their punches”
slide3

U.S. Economic Data Revisions,

What Are the Issues?

  • Challenge to forecasters: models specified to fit revised data may not work so well in real-time
  • 2001 Example:Not so much a case of Good Economy Goes Bad,but rather “Bad” Data Go Good
slide4

For much of 2001, many thought we would skirt a recession.

Some press quotes during June & July:(names have been withheld to protect the innocent)

“…and I do not think the United States economy is in a recession but I think it is in a growth slowdown.”

The economy is “probably at or near the bottom, and probably won’t tip into recession.”

“The economy is not going into a major recession”

Source: Bloomberg

slide5

Then in October many thought that 9/11 had tipped us over into a recession.

Some press quotes during late October:(names have been withheld to protect the innocent)

9/11 “will significantly harm the economy in the third quarter and the fourth quarter and increase significantly the likelihood that the economy is in recession.”

Conference board survey: 52% of those polled said that the U.S. economy would move into recession, up from 47% in September.

…but, in late November, we were officially told the recession began in March.

Source: Bloomberg

slide6

Forecasting is made more difficult when the current status of the economy is unclear.

BEA 2002 revision

BEA 2003 comp. revision

BEA pre-2002 revision

Forecast and Actual Real GDP Growth,

Change from prior quarter at annual rate, percentage points

3

Blue Chip mid-quarter forecast

2

1

0

-1

-2

-3

1Q2001

2Q2001

3Q2001

4Q2001

Source: BEA, Blue Chip

slide7

Initial GDP reports have under-estimated growth near the bottom of recessions, while showing smaller misses near the peaks.

1968-2000 average

slide8

So How Can We Address These Issues?

  • Knowledgeable users: some evidence that private sector forecasters treat revisions as random, even though they may be somewhat predictable
  • Trends in real-time information, like yield spreads and stock prices, do provide (slight) insight into direction of ultimate GDP revisions
  • Fed relies significantly on supplemental anecdotes to inform its policy decisions (Beige Book, etc.)
slide9

So How Can We Address These Issues?

  • BEA and BLS already taking major steps to improve quality: (1) BEA adoption of chain weights in 1996 comprehensive revision (2) BEA published 12th comprehensive GDP revision this week (3) BLS major update to employment (nonfarm payroll) methodology in 2003
  • NBER now using MA’s monthly GDP estimates
  • Would more funding for better statistics pay off?
slide10

By one estimate, paying for the 3 major US statistical agencies already provides a significant economic return, with plenty of room to fund data quality improvements.