U.S. to alter economic indicators

January 16, 1995|By New York Times News Service

WASHINGTON -- Federal statisticians have begun the most ambitious effort since the late 1950s to remedy mounting deficiencies in measuring the nation's economic performance.

Government and private analysts worry that the statistical system increasingly fails to capture the numbing array of new technologies and structural changes in today's $7 trillion economy.

Indeed, it is widely believed that government tax and spending policies along with monetary regulation by the Federal Reserve have been thrown off to some extent by misleading data.

For example, had the "true severity" of the 1990-1991 recession been known earlier, the Bush administration's Council of Economic Advisers wrote in January 1993, "policy might have been conducted in a different fashion" to more aggressively counter it.

And Alan Greenspan, the chairman of the Federal Reserve, told Congress last week that the Consumer Price Index overstates inflation by as much as 1.5 percentage points.

With social security and other entitlement spending as well as adjustments in tax brackets pegged to the inflation rate, Republicans in Congress were quick to seize on the corollary -- by changing the index's formula, they could free up $150 billion in federal funds over the next five years without a single specific budget cut.

The private sector is also frustrated by various government figures. "When you read that capacity utilization is close to its historic maximum, that doesn't mean much of anything," said Vladi Catto, chief economist at Texas Instruments, referring to a widely followed gauge of inflation potential calculated by the Federal Reserve.

To a large extent, the officials responsible for federal statistics -- which cost taxpayers $2.6 billion a year to amass -- acknowledge the gaps and distortions and say they are working hard on improvements in a climate of rapid economic shifts and tight budgets for data collection.

Having last week formally identified gaps and shortcomings, the Commerce Department will decide in the next several weeks which statistics most urgently need repairs and will recommend specific remedies. In March, the department plans to convene a "town meeting" here of statistics users whose views will be incorporated in the plan.

The Labor Department, which sweepingly updated its monthly employment report last January, is well along with an overhaul of the Consumer Price Index, which would take effect in January 1998. And by this June it plans to switch methodology to make the closely scrutinized tabulation of payrolls more accurate by telling states which establishments to survey instead of giving them industry quotas.

"Our statistical system can only meet the expectations of its users by changing as rapidly as the economy it measures," said Everett M. Ehrlich, Under Secretary for Economic Affairs at the Commerce Department, in announcing just before Christmas the review of its national income and product accounts, which make up the gross domestic product.

This is the set of figures, created in the late 1920s when goods were more important than services, that provides quarterly totals of economic activity and the degree to which it is expanding or contracting. The Commerce Department and the Labor Department are the government's chief purveyors of nonagricultural statistics.

The struggle to keep up, Mr. Ehrlich said, means adapting to "the changing composition of the economy, the implications of technological progress, the greater level of global economic integration and a variety of other forces that affect what we measure and how we measure it."

Current statistics involving total output of goods and services are not capturing the full effect of such things as computer software,securities-market derivatives that vault international boundaries and advances in telecommunications technology.

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