Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Bio
X •  LinkedIn
   Bob Stein
Deputy Chief Economist
Bio
X •  LinkedIn
 
  Doesn't Government Lie?
Posted Under: Autos • Employment • Government • ISM • ISM Non-Manufacturing • Monday Morning Outlook

Like a Plow Horse, the US economy keeps plodding along – GDP and payrolls keep growing.  This confounds many pessimistic, debt-focused, perma-bear investors, who fall back on the belief that anything good must simply be a lie. 

They claim the government is lying about jobs, lying about debt, lying about everything.  Some of this is about the Obama Administration, but some of it is just general distrust.  Even if there's no direct White House link, the pessimists argue that federal bureaucrats are in on the con.

We can understand some doubt about the veracity of the government, but the evidence supposedly proving that the government is lying shows that many people misunderstand the data.  Exhibit A is the argument that government is lying about the federal debt – it has been stuck at $16.74 trillion since May, despite continued budget deficits.

But this isn't a lie; it's just the way the accounting works.  The US hit the debt ceiling in May and cannot issue any new debt, on net.  So, in order to fund spending in excess of revenue, it's borrowing from federal worker retirement systems and issuing IOUs, which don't count toward the official debt.  This is not the first time the government has done this, and it's happened under both Republicans and Democrats.  All of it is recorded, it's not hidden.  It's not a lie.

Another claim is that any gains in employment should be discounted because it's mostly part-time work.  So far this year, 66% of the increase in employment has been part-time.  Ironically, those who say we can't trust government data are willing to put aside their qualms when they find data like this. 

But this is a mistaken view as well.  Figures on part-timers are extremely volatile from month to month, so it's important to use these numbers over periods of at least a year.  Part-timers plummeted 316,000 in the last four months of 2012, so focusing on just the eight months this year skews the results.  In the past 12 months (including late 2012), part-timers have only made up 13% of job gains, which is less than usual.             

Another claim is that the official unemployment rate of 7.3% is hiding discouraged workers and part-timers who want to work full-time.  Including them pushes the "true" unemployment rate to 13.7%.

However, this more expansive definition of joblessness, also known as the U-6 unemployment rate, is down from a peak of 17.1% in 2009.  Like the official unemployment rate, the U-6 also comes from the government and dates back to 1994.  Since then, whether in good times or bad, it has generally been about 80% higher than the official rate.  Right now, it's 88% higher, a little more than usual. 

The bottom line is that the labor market is making progress but still far from operating at its full potential, which is the same exact message sent by the overall unemployment rate.

But the final nail in the coffin of government data conspiracy theories is that not all the reports are from the government.  The two surveys from the Institute for Supply Management – one on manufacturing, the other on services – as well as auto sales, all show steady economic growth.  Over the past four years, a composite of the two ISM indexes has averaged 54.2, the same as it did in 2001-05, when real GDP growth averaged 2.8%.  This time around, real GDP growth has averaged 2.2%.  Auto sales, compiled by the automakers themselves, show a gain of 11% in the past year.  In other words, private data has been better than the government reports.

A healthy dose of skepticism is usually a good thing.  But there's a big difference between reasoned skepticism and a case of denial designed to postpone confronting comfortable theories that haven't worked.  The economy could be much better if government got out of the way, but it stopped getting worse more than four years ago.

Click here for a PDF version

Posted on Monday, September 16, 2013 @ 10:03 AM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
 PREVIOUS POSTS
Brian was on Bloomberg's "The Hays Advantage" this morning
Retail Sales Increased 0.2% in August, +0.5% Including Revisions to Prior Months
The Producer Price Index (PPI) Increased 0.3% in August
Possible Shutdown, No Default
Non-Farm Payrolls Increased 169,000 in August vs Consensus Expected 180,000
Nonfarm Productivity Increased at a 2.3% Annual Rate in Q2
The ISM Non-Manufacturing Index Rose to 58.6 in August
The trade deficit in goods and services came in at $39.1 billion in July
The Bond Bear is Waking Up
The ISM Manufacturing Index Increased to 55.7 in August from 55.4 in July
Archive
Skip Navigation Links.
Expand 20242024
Expand 20232023
Expand 20222022
Expand 20212021
Expand 20202020
Expand 20192019
Expand 20182018
Expand 20172017
Expand 20162016
Expand 20152015
Expand 20142014
Expand 20132013
Expand 20122012
Expand 20112011
Expand 20102010

Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.