Perryman: Data

The recent firing of Erika McEntarfer as head of the Bureau of Labor Statistics (BLS) following a disappointing jobs report has potentially profound implications. This one is serious!

Despite my vigorous and youthful appearance, I have been around for quite a while. I have worked with and around the folks who provide economic data through nine Presidents of varying political stripes. Without exception, they wished the numbers were higher.

Those who have the thankless job of compiling the information that we rely on are dedicated public servants who are not impacted by politics. They follow well-defined protocols to produce credible numbers.

That is not to say that the information is perfect. In fact, my poor students back when I was a professor had to endure an entire hour on some of the challenges. Economic data is derived from surveys (which necessarily have margins of error) and must be periodically updated to reflect changing times (otherwise, rotary phones would remain in the Consumer Price Index). Response rates vary; budget cuts limit resources; revisions and benchmarking occur regularly as better information becomes available; the decennial Census (which is itself subject to errors and undercounting) leads to updating a broad swath of numbers every ten years. The data is not perfect — but it is consistent, credible, and compiled in an impartial manner.

The consequences of diminishing trust in the integrity of economic data are enormous. At their core, markets are merely vehicles to process information. Multiple Nobel Prizes have been awarded to those who articulated and demonstrated the role of markets in this context. This function is a critical element of the global economy, providing the signals that trigger investments ultimately supporting future prosperity.

In 2001, a major economic downturn occurred (most often associated with Enron, Washington Mutual, and WorldCom) when markets lost confidence in financial information from public companies. Similarly, the Great Recession in 2008 largely transpired because markets were given unreliable data regarding the quality of mortgages and the associated bonds. 

These crises (and countless others throughout history) were related to unreliable information making its way to investors and precipitated major reforms to improve reporting. The fallout would be cataclysmically worse if markets lost confidence in the reliability of official data provided by the largest and most important economy on earth and one whose currency and financial strength undergird the entire international business complex. When markets have bad information, bad things happen! When markets have bad information regarding US economic performance, really bad things happen!!

We all prefer good economic news, but what we need is accurate information that is diligently compiled and released with utmost integrity. Our agencies have done that for decades, and the process must continue. Stay safe!

Editor’s Note: The above guest column was penned by Dr. M. Ray Perryman, president and chief executive officer of The Perryman Group (www.perrymangroup.com). The Perryman Group has served the needs of over 3,000 clients over the past four decades. The above column appears in The Rio Grande Guardian International News Service with the permission of the author. Perryman can be reached by email via: shelia@perrymangroup.com.

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