The US economy: what a mystery. Its growth rates seem too high. Its unemployment rate bounces about suspiciously. Its two famous polls, the Household Survey and the Establishment Survey, contradict one another like siblings. Perhaps the problem is political bias. After all, Friday's news that unemployment has at last made it down into the 5 per cent range after a scary period in the sixes seems too convenient for the Bush team. Sceptics, especially those in the Democratic party, charge that government data are imprecise and that they obscure the true economic pain that comes as manufacturing jobs disappear.
The sceptics are correct - the data are not perfect. The problem, however, is not one of right versus left but of old versus new. The methods Washington uses to collect these numbers were determined in a calmer economy where people worked for one company all their lives. Let us label it a Ford economy after its big component, the car. America is not a Ford economy any more. It is what we might call a Staples economy, after the office supply retailer. People change jobs more frequently, communicate more frequently, create start-ups and home offices more frequently. The Staples economy means some bad news but more good news. Neither kind is entirely captured by the data.
Start with the bad news, a bit obscured by Friday's news of 5.9 per cent unemployment. The figure is about the same as unemployment at other points in US history - the 5.7 per cent of, say, 1963. Still, many people say that the current 5.9 per cent "feels" worse.
There is logic to that emotion. These days, Americans change jobs more often, and the very concept of a "job" is being eroded. The new instability generates bitterness, especially for those who insist on replicating their old job situation. "You can look for 2 1/2 years for the same job but you won't find it," says Michael Cox of the Federal Reserve Bank of Dallas, an expert on labour market culture.
The cost of Staples instead of Ford goes beyond social issues to the stability of the economy. In the first half of this year the country saw 835,000 personal bankruptcies, a record figure. Unlike the growth data, personal bankruptcy is not in "recovery". The record suggests a vulnerability that will have consequences when interest rates go up.
So much for the negatives. More often, the trouble with government data is that they have a hard time recording the good news. The first example of this is the much-debated Household Survey, a poll that calls families at home to inquire about employment status. The Household Survey has shown strong employment lately so the Bush critics tend to argue that it is too positive. But the opposite is probably the case.
When someone does not answer at home, the pollster simply dials another number. And in the era of two-parent employment, houses where no one is at home are more - not less - likely to be houses where the adults work. The analysts try to compensate for this but the study has a bias that causes it to miss employment, not exaggerate it.
Then there is the Establishment Survey, a measure that focuses on collecting employment data from workplaces. Its lower numbers have made it a favourite of Bush opponents. But the Establishment Survey, too, reflects too much of the old world. The survey sometimes fails to capture individual self-employed contractors and entrepreneurs - a ubiquitous type in the Staples economy. Well aware of such problems, officials have created a meter to measure "births" and "deaths" of companies but have not yet perfected that measure.
David Malpass of Bear Stearns thinks that the federal data fail to take into account the degree to which companies are now contracting out work. The reasons for that contracting are often negative - screamingly high healthcare costs for employees, the pressures of post-crash and post-Enron government regulation. But the consequence is that workers may be under-recorded.
Mr Malpass points to other data that indicate hidden growth or hidden growth potential. Non-farm proprietors' income, a measure that looks at the profitability of unincorporated business, is up strongly; the growth outpaces late-1990s rates. The number of self-employed in the Household Survey has risen sharply as well. This suggests a strong recovery, since new businesses are an engine of US growth. The National Federation of Independent Business's Small Business Optimism Index is likewise up sharply, Mr Malpass notes.
Now we come to another big measure: productivity, which was at a disconcerting high of 9.4 per cent last quarter. The formula for determining productivity is output divided by labour and other inputs, more or less. So if the statisticians are under-counting labour, productivity may be less impressive than advertised.
Still, US productivity remains higher than developed nations usually can manage. And productivity, because it looks at what companies achieve rather than whether workers show up, comes closest to capturing the potential of the Staples economy. That 9.4 per cent figure - or say it's 7.4 per cent and be conservative - is a promise of future work and higher wages that will hold as long as the government doesn't load too many costs on to employers. And the Bush administration is not loading on costs.
In other words, when we evaluate the administration's overall economic direction in these challenging years we see that it has been wise, growth-oriented and - yes - accurate.
© Copyright 2003 Financial Times
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