Saturday, December 12, 2009

Productivity stats:

Over at the Big Picture is a long post (worth reading in full) that has this interesting observation:
I want to quote a section from Dennis Gartman’s letter this morning. It illustrates why we have to be very careful how we use government data. Too often, we think the data is straightforward math and simply draws on the underlying data sources. The reality is that it is anything but. To wit:

“A PROBLEM AT THE VERY HEART OF DATA GATHERING: Recently in Washington a rather large number of economists from academia and from government met to try to hash out a problem with data gathering that has become more and more serious here in the US and has more and more distorted how we value the American economy itself. At heart is how imports into the US are accounted for.

“For example, when a part for perhaps $100 is imported from China and is used in an American automobile … something that happens more and more and more often these days … the stats show that the finished car is American-made because it was assembled here in the US and in the process the US GDP is raised by that same $100 when in fact it should have been deflated by that figure instead. In the process, American workers who might in the past have made the part in question are no longer doing so and are obviously made redundant, hence a job or jobs is lost.

“The unemployment data then ‘finds’ that unemployed worker and accounts for him or her, but the car that is assembled does not, and when it is produced and sold and its value makes its way through the system, it appears that productivity has risen … and rather dramatically so, when in fact it has not. As one of the economists attending that meeting said,

” ‘We don’t have the data collection structure to capture what is happening in a real-time way, or what is being traded and how it is affecting workers. We have no idea how to measure the occupations being ‘offshored’ or what is being ‘inshore.’ (...)

” ‘What we are measuring as productivity gains may in fact be nothing more than changes in trade instead.’

“This is not an insignificant problem, for as the US has become more and more international in its trading scope the data has become more and more important. Back in the 1975, imports into the US were only 5% of our total economic activity, but in recent years that has swelled to 12%, excluding imports of energy. Thus, many imports into the US are being, and have been, and will continue to be, valued as though they were manufactured here in the US, when indeed they were manufactured abroad and merely assembled here in the US.

“In autos, in computers, in appliances, this is a large and growing problem, but this is a problem too in the areas of services. For example, when an accounting firm out-sources some of its number-crunching to an accounting firm in India, for example, and then bills a client here in the US in US dollar terms, the work is done abroad but billed here and the work is recorded as having been done in the US, adding to US GDP when clearly that is not the case. It happens too, these days, more and more often in medicine, when patient files are sent to India or somewhere else abroad for diagnosis and the patient is billed here in the US as if the ‘work’ had been done here. GDP rises here in the US when it really should have been accounted for in India; productivity goes up; GDP goes up, when in reality neither has happened. ‘ Tis a conundrum.”
There's been a lot of talk about improved productivity and increased GDP - while employment is stagnant or declining. It appears that we need more accurate measures of what's happening in the domestic economy and not be mislead by "end result" statistics.

ALSO: I do some technical support for a doctor who is involved with pre-analysis of medical records in India (which he gives the final review) and that kind of work is substantial and it's expanding fast.


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