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Why obsessing over economic indicators may hinder economic improvement

March 6, 2014 at 6:26 PM EDT
The monthly jobs report is big news on the first Friday of every month, swaying the financial markets and prompting immediate analysis. But should these numbers matter so much? A new book, “The Leading Indicators,” argues we overvalue data like the GDP and inflation. Economics correspondent Paul Solman talks to author and analyst Zachary Karabell.

GWEN IFILL: Every month, we bring you news of the latest jobs report, generally interpreted as a sign of economic health or more. We will tell you about the latest of that tomorrow, but how useful are these numbers, really?

NewsHour economics correspondent Paul Solman wondered that too. The answer is part of Paul’s ongoing reporting Making Sense of financial news.

WOMAN: Breaking news: We have a new jobs report that missed expectations by quite a lot.

PAUL SOLMAN: The monthly jobs report — it’s released by the Bureau of Labor Statistics the first Friday of every month — is big news.

WOMAN: The market took off this morning, after a far better April jobs report than anyone expected.

PAUL SOLMAN: The report moves financial markets, prompts instant analysis.

MAN: It wasn’t a great report, but it was not a terrible report.

PAUL SOLMAN: And it spawns spin from the right and left.

REP. ERIC CANTOR, R-Va., House Majority Leader: These job numbers are pathetic. And, you know, the American people really deserve better.

PRESIDENT BARACK OBAMA: We welcome today’s news that our businesses created another 121,000 jobs last month and the unemployment rate ticked down.

PAUL SOLMAN: The actual numbers so sought after, BLS economists like Karen Kosanovich are quarantined in the days and hours leading up to the Friday 8:30 a.m. release.

KAREN KOSANOVICH, Bureau of Labor Statistics: We’re in a secure location. Different parts of the office are physically isolated while production is involved. The suites are actually locked. There’s no trash collection or recycling that occurs during that time. The economists have to take out their own trash. And access to those work areas is limited to people with a definitely need to get in.

PAUL SOLMAN: But economic analyst and money manager Zachary Karabell a question: Should these numbers matter so much, or matter at all?

ZACHARY KARABELL, Author, “The Leading Indicators”: We have the desire, an understandable desire, to understand us, understand the world. Numbers are a convenient peg to hang our understanding. The question we should be asking is, is our complicated reality well-served by these kind of simple statistical numbers?

PAUL SOLMAN: In a new book, “The Leading Indicators,” Karabell argues that we over-rely on official data, like the GDP, inflation and overall jobs figure.

ZACHARY KARABELL: The unemployment number is a synthetic average that treats the nation as unitary, so it acts like we have one unemployment rate in California and it’s the same in Nebraska and it’s the same in Massachusetts. And it’s not. Nebraska hasn’t had an unemployment rate above 5 percent throughout this entire crisis, recession and recovery.

Central California, Central Florida, parts of Detroit have had employment rates well into the teens for much of this time. So just saying, well, there’s an unemployment rate of 6.5 percent is not going to get you to this very complicated and very variegated reality.

PAUL SOLMAN: So, one objection is that unemployment varies based on where you are and also on your education, as we have found in our own reporting. The job market looked great for college-educated Joe Gellis, whom we met last month in suburban D.C. He was schooled in information security.

MAN: There seems to be a lot of availability out there. I have had at least 10 interviews to date.

PAUL SOLMAN: But employers were blowing off Zakira Thomas, with just a high school diploma, when we talked to her last summer in inner-city Boston.

WOMAN: You don’t have the experience we need. You don’t have the degree we want you to have. You don’t have the things that’s required to have this job.

PAUL SOLMAN: At the time, economist Andrew Sum gave us the stunning statistics for Thomas’ male counterparts.

ANDREW SUM, Northeastern University: Take a young black high school dropout, low-income male, you’re talking 5 percent employment.

PAUL SOLMAN: That’s a 95 percent jobless rate.

Economist Kosanovich points out the BLS produces lots of data. Not only is that where Andrew Sum got his numbers.

KAREN KOSANOVICH: We prepare a 40-page report with 25 tables and lots of detailed, well-thought-out analysis that doesn’t make it into a headline.

We produce about 30,000 data series that go online, dozens of online tables, and a few weeks after the national report comes out, we release a report that has state and local area data.

PAUL SOLMAN: Yet, the monthly national employment number, along with the tally of jobs added or lost, gets all the attention, for better or worse.

BLS economist Julie Hatch Maxfield.

JULIE HATCH MAXFIELD, Bureau of Labor Statistics: There’s a level of frustration for us, because we take time to craft our message, and sometimes we are called to validate things that — that either are not the truth or not out there.

PAUL SOLMAN: The government, under President Herbert Hoover, began collecting national unemployment data during the Great Depression.

ZACHARY KARABELL: The reason we have an unemployment rate was because of 1929. And it was because there was a crisis that was clearly unfolding, but there was no sense of just how bad things were, that Hoover himself, who was kind of an apostle of scientific management of government, said, OK, fine, let’s fund the Bureau of Labor Statistics sufficiently to create this — to create a number that gives some sense of how bad things are.

Lo and behold, that number was quite bad. And Franklin Roosevelt used those preliminary numbers as a way of defeating Hoover in 1932.

PAUL SOLMAN: Quite bad turned out to be an unemployment rate of 25 percent, which only dropped to single digits with the huge industrial outlays of World War II.

Yet today, though survey methods have evolved, essentially, the same data still guide us, says Karabell, at our peril.

ZACHARY KARABELL: They’re meant to measure industrial labor forces that worked in factories. They’re not really well-suited to a kind of 21st century, high-service economy, fluid labor force that’s moving a lot, that isn’t working in large factories for large companies. And those numbers bear the stamp of the time they were invented.

PAUL SOLMAN: But addressing unemployment today, Karabell says, may require spending in particular ways and places on people with particular backgrounds. That may have been the problem with President Obama’s 2009 stimulus, for example.

ZACHARY KARABELL: One of the promises of that bill was that $800 billion of spending would translate into 3.5 million jobs created or saved. Now, to be fair, we may have saved 3.5 million jobs, because we will never quite know how many jobs wouldn’t have been — you know what, would have been lost if we hadn’t spent the money.

But I think one of the reasons that there was a mismatch between that promise and the outcome is simply that the formulas of macroeconomics that said, if you spend X, companies will hire Y, that’s clearly breaking down.

PAUL SOLMAN: So, your objection is to people who say, hey, look, all we have to do is pump up aggregate demand, more spending, as opposed to specific demand to hire the people who are currently unemployed? 


It may have been true when you had a closed economic system, where you couldn’t outsource labor, where you didn’t have robotics, and all these things, that, if you simply spent more or you boosted demand, companies would then hire more workers. And it would be this virtuous circle of employment and output and consumption and demand.

But if all this is going on, on kind of a three-dimensional chess level globally, and if part of it’s robotics, part of it’s labor, part of it is just changing industries, then those correlations don’t need to exist.

PAUL SOLMAN: It’s a new world, says Karabell, and the longer we obsess over the monthly unemployment rate…

MAN: It’s definitely weaker, but not a disaster.

PAUL SOLMAN: … the longer it may take to help put millions of Americans back to work.