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Source: The New York Times, September 18, 2003,. "If all economists were laid end to end, they would not reach a conclusion." So goes a humorous comment made by George Bernard Shaw at the expense of the dismal science. In the column "Economic Scene," economist Alan Krueger describes how two economic policy makers could look at the exact same data and come to different conclusions. The unemployment rate in July 2003 was estimated at 6.18 percent. In August, the estimate was 6.08 percent. Secretary of Labor Elaine Chao optimistically proclaimed that the unemployment rate dropped. Her subordinate, Commissioner of the Bureau of Labor Statistics Kathleen Utgoff, took a more cautious view, asserting that the rate was "essentially unchanged." On page 223 of the textbook, you learned the formula for calculating the unemployment rate. You also learned that the data plugged into the formula comes from a monthly survey of 60,000 households conducted by the Bureau of Labor Statistics (BLS). Of course, there are a lot more than 60,000 households in the United States. The U.S. population is close to 300 million people living in about 107 million households. It would be impossible to try to call every person in the population every month to find out whether they have a job or are actively seeking work. The science of statistics (some students prefer to call it "sadistics") has a solution. Rather than contacting everyone, the BLS randomly generates a sample. The article explains how this methodology produces an estimate of the rate of unemployment—a pretty accurate estimate, but an estimate nonetheless. Estimates based on statistical surveys come with sampling errors and the change from July to August was smaller than the size of the margin of error. In July, the official unemployment rate of 6.18 percent came with a standard error of 0.12 percentage points. That means that the statisticians at the BLS can be confident that the true unemployment rate was somewhere between 6.06 and 6.30 percent. In August, the range (based on an estimate of 6.08 and the same standard error) would have been between 5.96 and 6.20 percent. The two ranges—called confidence intervals—overlap. This is why Commissioner Utgoff was unsure about whether the drop in the official estimate represented a meaningful improvement in the employment situation. Questions for Discussion:
"What's Ahead: Blue Skies, Or More Forecasts of Them?"
Source: The New York Times, December 5, 2005. The definition of a recession is two consecutive quarters (two 3-month periods) of negative growth in real gross domestic product (GDP). The problem with this definition is that economists cannot say we are in a recession until it has already been going on for six months. That is quite a lag time! Business executives and stock market analysts need to respond much more quickly to changes in the nation's output. For this reason, the book author interviewed for this article, argues against having a "recession obsession." Rather than focusing on predicting recessions, business executive Joseph Ellis, the author of Ahead of the Curve, suggests that we should concentrate on slowing rates of growth. Ellis predicts slower growth in 2006, contradicting many other economic forecasters. He focuses on one economic indicator: the growth in wages compared with inflation rates. At the end of the article, other economic analysts suggest some other nontraditional economic indicators, from the number of pawn shop wrenches to the thickness of the newspaper on the day after Thanksgiving to the quality of restaurant help. Can you come up with any interesting indicators for your local economy or the U.S. economy as a whole? Questions for Discussion:
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