Wednesday, January 20, 2010

The frequency of economic statistics matters at turning points

How are the data presented? At an annual, quarterly, monthly, or weekly frequency? At the onset of the New Year, you will undoubtedly see many charts illustrating records broken in 2009 using annual measures. This is always fun (from a data junkie's point of view), but it only tells the reader where we were, on average in many cases, rather than where we are now! Quarterly data are the same story - often presented well after the culmination of the period.

Alternatively, monthly data are a little more telling but still lagged by at least one month. For example, the employment report is the first major economic release of the month, which sets the stage for many subsequent releases. However, by the release date, generally the first Friday of the month, the survey information is already one month old.

This leaves weekly, or even daily, data. High-frequency data can tell us "where we are now", but are subject to substantial volatility. Nevertheless, high-frequency data are quite informative at economic turning points. So where are we?

Here are three high-frequency indicators that show an improving labor market, as illustrated by initial claims and daily tax receipts. However, the money multipliers remain at historically low levels, signaling that consumer spending and credit growth continues to elude monetary policymakers.

The weekly initial claimant count is dropping off quickly. So far, the 4-week moving average is 33% off its peak, a definite positive. And comparing to previous recoveries, the claimant count does suggest that this recovery will look more like a job-plus, rather than a job-less recovery.
However, don't get too excited - an awful lot of jobs need to be created each month just to drop the unemployment rate.

The stabilization of the labor market is likewise seen in the Treasury's daily tax receipts. Daily receipts have stabilized, and are now growing, off of their lows.

High-frequency monetary aggregate indicators show that traditional Fed policy - increasing bank reserves through open market operations - is not flowing into the economy as new money for spending on goods and services. Money multipliers of all types are half of what they were just two years ago (dropping even lower in recent months).

This is the bane of the Fed's policy existence during and in the aftermath of the banking crisis. Inflation is not going to be a problem until this money clog frees up.

There is widespread stabilization, and even improvements, as shown by the high-frequency economic data. Perhaps I will follow up this post on the remaining weekly data, like on credit extension and housing.

Rebecca Wilder


  1. Would like to see those charts, too. Its like I've said for years, the data that come out monthly are very prone to being changed, sometimes drastically, in subsequent months so are not very reliable. Seems like either long term or very short term may be the way to go. Granted, the long term is already dated but is more reliable.

  2. Warning. You'd better back up your historical and current data. Upon reconstruction, or revisions, the old data is most often overlaid, effectively burying the truth. The period under Paul Volcker was turned completely upside down.

    Total reserves increased at a 17% annual clip (trough/march to peak/dec). The present data shows that total reserves fell.

    The debit series final revision also overlaid all the previous data.

  3. Oscillations suffer from errant data. Errant data may originate from faulty theoretical interpretations, flaws in defining the data, and errors in the survey, collection, calculation, and publication of the government’s call reports, etc.

    There is errant data for both the (1) seasonal mal-adjusted data, as well as the raw (2) non-seasonally adjusted data. And it is problematic that there are also undetected mistakes in the raw data.

    The corresponding data is then reported using periodic revisions to seasonal factors (hence there are always mal-adjustments). The technical staff's economic justification for this practice (using last year’s seasonal factors for this year’s release), has its roots in the fallacious “Real Bills Doctrine”.

    And the raw data may be revised, reconstructed, or spliced, causing noticeable changes and distortions. Geographical statistical areas and sample sizes’ may change.

    The data might not conform to the data from original release. And when some statistical releases are revised, these time series overlay (wipe out), the original data.

    I.e., the government’s reporting agencies don’t always keep separate iterations of the old historical data. Reporting may also be delayed, published less frequently, or only available as seasonally mal-adjusted.

    It is instructive that the FED has never cooperated by supplying continuous, comparable, and timely data. Supporting data is required for the proper investigation, the subsequent proof, and ending conclusion, for any economic research.

    If the catalogue of facts and their measurements (1) don’t correlate, (2) consistently compare, or (3) conclusively prove; the validity of a one’s arguments (theory), then there is a higher probability that the FED’s data is wrong, rather than the time series, or the theory supporting it.

    You can't construct a time series without comparable figures. The FED certainly has not been cooperative in supplying comparable figures. E.g., for a time a figure is not seasonally adjusted, then only seasonally adjusted data are available. Data may be revised, reconstructed, or spliced, causing noticeable changes and distortions (not conforming to the original release). Reporting can be delayed, published less frequently, or contains unidentified errors.

  4. Dear Rebecca,

    I beg you the superior grace not to repeat the use of the acronym by which some people pretend to designate the (economics of) Mediterranean countries - "invented", if I am not mistaken, by a schizophrenic creature that writes for the telegraph and passes to be a economist since the day he had the idea that Europe should have adopted the pound instead of the euro.
    It is a rude, histrionic barbarity, adopted by barbarians. Please notice I’m not accusing this people of sleeping over their own vomit and/or urine. Just remembering that, at end of the day, I’ve seen a fair amount of compatriots of them that wouldn’t be proper to describe as unsoiled people.

    I will not be ungraceful to the point of reminding the regrettable fact that those people exited the pig stalls were his ancestors used to live precisely because of the Mediterranean civilizations with whom they have learned almost everything that is worth to be known in this business of being alive.

    I would suggest them to respect themselves in order to be worth of respect.