Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.
So now we learn that there really was not a dip in job creation in August but actually a modest gain of 89,000 (along with a preliminary September guess of 110,000 more). The question arises whether the Federal Reserve would have lowered the federal funds rate at all, or perhaps made only a 25 basis point cut rather than 50, had the August figure been reported then as now.
Of course, the data on the credit crunch when the Fed acted was real and pressing, and may alone have justified the dramatic rate cut. But we’ll never know the “counterfactual” because it turns out we didn’t really have the facts. Indeed, the dramatic sharemarket drop, which served as a backdrop to the Fed’s decision, which occurred when the original August number was released itself may not have transpired in such an adverse dimension, and again that eventuality could have changed the Fed’s thought process.
This blog has previously questioned whether the billions of dollars of investment and market capitalization that trades on release of official data on such measures of the economy as GDP and job growth is being ill-served by the apparently premature release of flawed data that is almost always revised a month or so later to a significant degree. Of course, the markets are free to discount the value of the early estimates, but with nothing else to go on, markets will “print the legend” (as the reporter famously explained in “The Man Who Shot Liberty Valance”). But movies about the old Wild West are one thing — we should not be making momentous policy decisions about the direction of US economic policy by an “oops” factor!
Putting aside private gains and losses on the basis of bad official guesses, it seems a serious question whether official actions, like those of the Federal Reserve, are being adversely affected, in terms of policy direction, by premature “data” (the Fed has trumpeted its “data-dependence”) that turns out not to be data at all, but rather a miss by a mile!
What would be the harm in waiting until the first week in October to release good, solid data on the employment picture for August? We would all just have to bear with the delay, but at least we could more confidently take action based on the data rather than pretending we have something reliable to act upon. Same goes for GDP. Why not wait until the end of November for a really reliable look at third quarter figures rather than getting a preliminary estimate at the end of October that, on recent track record, could turn out to be from 10% to 50% wrong within the month.
Halloween could bring us a lot of phantoms.
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