The Magic Pseudo-Surreal Economic Indicator Game

As a student of economics in college, I was as convinced as my professors that the macroeconomic health of the nation was accurately measured by the voluminous array of statistics spewed forth each month by various government agencies – from the Federal Reserve Banks, the Census Bureau, the U.S. Bureau of Labor Statistics, et al. Sometime thereafter, in a process that was as slow as it was painful, it occurred to me that my college man’s understanding of how the world worked was warped.

Now that I’m thinking about it more specifically, and in a vastly different context, it may be that those statistics are warped as well. What I’m talking about is the disconnect between the numbers that measure our national economy and the actual situation of the working man and woman in the United States. As evidence of this disconnect, I offer two anecdotes.

It has been some years since I graduated from college – 10 years for those counting – and as I write this the words “anecdotal evidence” reverberate in my head, as though spoken by a professor looking over his glasses at me with disdain in his eyes. Yes, that bane of the social sciences, anecdotal evidence, was expunged from all logical discourse on philosophy, economics, political science, etc. in the ivory towers. But in the “real world”, perhaps there is just a bit more room for the ugly, unsubstantiated monster.

The first of these anecdotes occurred shortly after my graduation, while working as a “field economist” for the Bureau of Labor Statistics (BLS). Still green, and still believing very much in the scorecard numbers of the U.S. economy, it was my job to travel to various companies in the mid-Atlantic region to poll business owners or purchasing managers about the costs of their raw materials.

As a field economist – a grandiloquent title meaning, roughly, “number gatherer” - I was recording the numeric details of these interviews to deliver to the BLS statisticians who would, in turn, aggregate them and put them through the Bureau’s number crunching machine to produce what is known as the Producer Price Index. The PPI, as it is known in bureaucratic acronym-ese, is the lesser known and more business-oriented cousin of the Consumer Price Index (CPI), which is used by economists as a general measure of inflation in the U.S.

On a particular visit to a Delaware-based business, I was accompanied by my mentor, who was putting me through my paces as a number gatherer or, ahem…field economist. Our interview of the business owner was fairly straight-forward and he had the uncanny ability to recall the exact prices of all of his company’s purchased raw materials. He was clearly perturbed by something, however, and by the end of the interview it became clear what was bothering him. When our official interview had ended, he asked me, point-blank, “You’re an economist. So what do you think of the health of the economy right now?”.

I was taken aback, but thrilled to be asked to expound on the state of the economy. Perhaps there was something to this title “field economist” after all, I thought. Armed with the latest economic data, I rattled off an answer to the effect of “Well, GDP growth is strong right now, and inflation has been held in check at the same time. The stock market indices have been moving upward, interest rates are reasonable and the unemployment rate has been steady or declining for several months so, overall, I’d say the U.S. economy is fairly healthy right now”.

After my brilliant economic analysis, he looked at me blankly, turned to my older and no doubt wiser mentor, and asked her what she thought. To which she replied, “I think the economy is terrible right now. Every business owner I talk to says the same thing – that they’re struggling to make ends meet”. The business owner shook his head knowingly and noted that it was the same with his business. Prices were up, health insurance was too expensive, revenue was down, etc.

I was flabbergasted. Every economic indicator available showed that the U.S. economy was chugging along without so much as a whisper of slowing down or yielding to inflation, yet here were two professionals staring in the face of these data and ignoring them. It was at this crucial point that I realized that people’s impression of the economy has nothing to do whatsoever with the statistics put forth by the various government agencies, or even with the actual health of the U.S. economy. Rather, individuals view the economy through a personalized lens – one that reflects only their own role in the broader economy and how they are personally faring.

At this point, any economist or economics student will no doubt be howling that these are merely anecdotes, or examples of a single company within a veritable sea of other public and private companies with varying levels of financial health. Furthermore, my mentor’s slightly broader vision of companies within the mid-Atlantic region was still only a tiny sample within a huge universe of potential respondents.

And the howlers would be right. Asking how the economy is fairing and then substituting the poor showing of one’s own company for a truly objective analysis of the economy as a whole is shortsighted and downright inaccurate from a scientific perspective. Doing so also indicates a lack of understanding regarding the “macro” in macroeconomics.

But I realized quickly at that point that, apart from economists and those working in the finance industry, no one cares very much how the overall economy is faring, so long as things are going well for them individually. Truth be told, not even the financial professionals would care how the economy is performing if a bad economy didn’t equate so specifically with their own financial well-being, or lack thereof. On that same note, the financial professionals can often be seen smiling gleefully when announcements of mass layoffs occur, due to the fact that a company’s purging of real people represents to them merely cost cutting – and therefore “profit increasing”. But I digress.

This notion that economic indicators bear little resemblance to real-world scenarios was further driven home to me just a few months ago. After writing a short blog post about how hiring managers were more aggressively recruiting college seniors, and how this was a great thing for new grads, someone posted a comment to the effect of “That’s great – where do I find all these great companies wishing to hire new grads?”. The comment itself was rife with spelling and grammatical errors so I assumed that, unless a particular position didn’t entail writing or speaking, this individual was poorly qualified to work for any of these “great” companies. Despite that, the comment did reinforce the disconnect that I’ve come to understand.

Here was a recent grad trying desperately to find a good job after spending four years and untold dollars attending college. Rather than having companies knocking down his door to hire him, he was searching in vain for a position with any company that would have him. I faced a similar situation upon graduation and angrily attributed my four month job search to the “it’s who you know” theory.

Anecdotes and semi-literate vitriol aside, though economists have devised numerous methods for measuring the U.S. economy, and can generally produce a numerically accurate account of what is going on at the aggregate level, the relation of this analysis to the average person’s personal employment and financial situations is remote, at best.

This is not a denigration of all those adherents of the dismal science out there - far from it, in fact. Economics is one of those “fuzzy” social sciences that make its students and adherents long for the simplicity of a controlled laboratory environment. Instead, they receive as their raw data the millions upon millions of dollars, people, jobs, companies, etc. that make the economy tick and have to make the best of a sloppy data set.

However, for the individual job seeker looking to land an accounting gig in Topeka, Kansas, the recent college grad looking for any professional position in Baltimore, Maryland or the recent B-school grad looking to buy and sell the world on Wall Street, this macroeconomic analysis can be taken with a grain of salt. For the individual, “economics” is all about “what do I have?” In that sense, the economics of the individual is the most extreme version of “microeconomics” that exists.

Tags: consumer price index, economic indicators, economics, field economist, labor statistics, recent college graduates

Share This | Posted in Economics | 3 Comments