Monday, May 2, 2016

Americans haven’t gotten a raise in 16 years

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Mark Twain is credited with saying “figures don’t lie, but liars figure.” If he were around today Twain’s quote might go something like this: “Figures do lie, and liars figure out how to make people believe them.”
Granted, not as catchy.
But my quote goes a long way toward explaining something that is bothering many political pundits today. President Obama whined last week that he’s not getting enough credit for the economy.

Democrats are besides themselves wondering why Americans are so angry that they might be willing to elect Donald Trump president when the official unemployment rate is only 5%, oil prices are near their lowest level in a decade and the economy has been expanding for seven straight years.
Why aren’t Americans happier?
One of those pundits made me chuckle Tuesday night when he was talking about Trump’s primaries victories in another five states. He suggested that Americans were somehow being brainwashed by the media into thinking the economy was really bad when in fact it was good.
Then, on Thursday, the Commerce Department showed just how good the economy wasn’t. It announced that the Gross Domestic Product grew by an annual rate of just 0.5% in the first three months of 2016.
But that didn’t stop the media from trying to explain away the disappointment.
The New York Times, for example, suggested softly that “the recovery has two sides.” Toward the bottom of the piece, it included the startling facts that “factories shed nearly 50,000 jobs in February and March, wiping out all of the gains recorded last year. The proportion of Americans in the active labor force remains depressed by historical standards, and more than 6 million workers say they are in part-time positions because they cannot find full-time work.”
But hey, the paper continued, we found some anecdotes of companies that are hiring!
It’s not just political spin, however, that explains the rose-colored coverage. Another explanation is that the media is plain stupid — quick to accept guidance from economists on Wall Street, for example, who have a vested interest in making everything wonderful.
Economists understand what “statistical noise” is. If you don’t, here’s a definition from a website called WiseGeek:“Strictly defined, statistical noise is a term that refers to the unexplained variation or randomness that is found within a given data sample or formula. There are two primary forms of it: errors and residuals.”
In other words, economic statistics may not make sense in the short term because something is innocently interfering with the accuracy of the data or someone is intentionally fooling with the numbers.
I don’t think anyone today is intentionally fooling with the nation’s economic data, although I’ve proven that there were questionable data collections leading up to the presidential election in 2012. These days, I think the data is simply misleading.
Take the economic data that came out throughout the first quarter of 2016 as an example.
The Federal Reserve Bank of Atlanta keeps real-time track of the nation’s economy using something it calls GDPNow.
At the beginning of January, GDPNow was showing that US economy growth was around a 2.7% annualized rate. By last week, GDPNow had been ratcheted all the way down to 0.6% — which was slightly better than the actual number reportedon Thursday by the Commerce Department.
How could the Atlanta Fed have been so wrong? Statistical noise made it tone-deaf to what was going on in the real world.
As I correctly predicted last December, the government’s economic data in the first quarter was thrown off by inaccurate seasonal adjustments, among other things.
Seasonal adjustments try to smooth out predictable economic patterns so that data doesn’t bounce around. You don’t want data to show that, for instance, millions of jobs are lost in the summertime just because teachers are temporarily laid off.
Seasonal adjustment programs typically look back five years to see what constitutes “normal.” But economic growth in the first quarters of both 2014 and 2015 was dismal because of horrible weather. So I conjectured in December that the government’s computers would overreact to any normal growth in 2016.
And that seems to be what happened. Early in the first quarter the government reported better-than-expected data (which led to the Atlanta Fed’s bad forecast of 2.6% growth). But those numbers were then quickly revised over the next few months.
This sort of statistical noise has been going on for years, mostly because the Great Recession threw off normal adjustments. And this will continue to happen. US economic data today is untrustworthy. Even worse, it is causing the Federal Reserve and others to make bad decisions.
This unpredictable, inaccurate data is causing politicians and others to incorrectly understand the mood of the nation.
Americans are angry because they don’t care about the statistical noise — they care about what they see with their own eyes.
True, there may have been 15 million new jobs created during the Obama administration — which, on the surface, is laudable. But that’s about half what was needed to both absorb newcomers to the workforce and those who were laid off over the past decade and would like to return.
And that drop in the unemployment rate that everyone likes to point to? Even the Fed doesn’t trust it and has formulated its own replacement gauge.
Here’s why: When you count all the workers who have been stuck with part-time employment or who haven’t searched for work in a year, the jobless rate is twice the official 5% level. And many of the full-time jobs created have been in the lower-paying service sector of the economy.
When you include those people who haven’t sought a job in more than a year, the unemployment rate jumps much higher.
How high? Washington doesn’t even bother trying to calculate what it is.
One last statistic, from Sentier Research. Median annual household income in the US reached $57,263 this past March, which was 4.5% higher than in March 2015.
But — and here’s where the anger comes in — this March’s figure is still slightly below the $57,342 median annual income in January 2000.
January 2000!
Americans haven’t gotten a raise in more than 16 years.
Statistical noise doesn’t just confuse economists and politicians. It also drowns out the sound of people complaining.
John Crudele is a Post business columnist.

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