Federal Reserve Reports
The Federal Reserve conducts studies and publishes reports to assess the state of the economy and possible future trajectories. A useful report called the Beige Book offers an overall analysis on each of the major districts for key lawmakers and business leaders. These numbers are based on statistical calculations and key indicators/measurements in different industry sectors. Sometimes these numbers are helpful for businesses while at other times they leave major holes in conclusions.
The Beige Book brings forward an overview of current economic activity over a specified period of time. For example, the most recent analysis from August to October indicates that labor and wages are up, manufacturing is soft and real estate is increasing in most markets. One could conclude that the labor market is becoming tighter in certain sections and softening in others.
The Feds state, “While reports of labor shortages varied across skill levels and industries, there were multiple mentions of difficulty hiring in manufacturing, hospitality, health care, truck transportation and sales." Manufacturing is soft while at the same time there is a shortage of skilled workers. If the incongruity is resolved through additional data businesses could adjust their training and hiring accordingly.
The market is a mix of hundreds and thousands of different types of measurement and activities that would be impossible for the Beige Book or any other entity to capture with current technology. At present, the government uses conservative measurements that have been shown to at least be modestly associated with actual performance. They maintain and track this data to continually assess possibilities of future economic performance and the policies that are needed to get there.
Perfect metrics are non-existent as each one is mixed with multiple compounding factors that make it difficult to decipher. A battery of metrics is more helpful because they seek to address a wider trajectory that indicates growth in multiple key sectors and the factors that relate among those sections. Specifics are often lacking but a general idea is usually formulated for key decision makers to ponder in the determination of their next strategic moves.
Each report is like a mixed bag of data that doesn't often seem to correlate well together to provide a complete picture. We must find patterns in the data mix to determine overall trends. This requires considerable knowledge of business and the economy as well as the intuitive ability to see between the lines. This isn't possible unless you actually know what information is missing.
For example, housing growth without availability of accessible financing might not be a long-term trend and be more of a market fluctuation. To know the longevity of this change it is necessary to look at savings rates, interest rates, construction rates, the commodities that are converted to construction materials, population growth, age, wage, and the list can go on and on into finite data details if they are available.
To provide some perspective, a study of credit spreads as predictors of real time economic activity used Bayesian Model Averaging to forecast real time measures of economic activity (Faust, et. al. 2013). Indicators were credit spreads based on portfolios of secondary market outstanding bonds, their credit worthiness and risks. In this case new research found new correlations that might be beneficial for inclusion in analysis.
Understanding how each of the factors impacts each others and how strong that influence is can determine what is most likely to happen a few months down the road. You might find this occur if there is an increase in manufacturing materials while at the same time an increase in export sales. Together one can start seeing a stronger picture of activity.
Successful projections are based on the quality of data (Parssian, Sarkar, & Varghese, 2004). Source data must be selected with care if the projected outcomes will have any validity. As more data becomes available internationally there will be a need to reassess which data are being collected and how they contribute to the overall development of knowledge.
Better projections requires rethinking our current economic data and whether or not it is the most advantageous information for businesses and governments to consider when setting their own strategies and economic policies. Understanding the information needs of stakeholders can raise assessment of evaluation and projection in a way that leads to greater influence on future business decision making.
Stakeholders and Solutions
Stakeholders often look to government reports to determine whether or not they should invest in local economies, hire employees, or develop new product lines. Government is in the business of generating information and using that information in ways that can influence economic investment and performance through policy and direction. It is beneficial for them to re-evaluate and review their current economic performance metrics to ensure that it provides for stronger connections between available market data and stakeholder decisions. This re-evaluation should consider that data which makes it easier for national and international stakeholders to draw stronger trend confidence through the use and dissemination of user supported metrics.
-Survey and review government and non-government stakeholders ranging from saturated administrators to flexible implementers on what macro-statistics are helpful in spuring business growth and investment.
-Government could provide main key economic measures and allow local and global corporations to openly innovate and populate sub-measures commonly used in their industries to create greater data patterns.
-Review available literature and research on data measures to determine what statistics are more accurate and beneficial for projection.
-Review economic measurements used by other countries and their effectiveness in reflecting economic activity.
-Review all current measures for validity, ease and accuracy. Make adjustments to increase overall effectiveness of government calculations.
-Hedge the calculating power of companies and individuals to fill in economic data gaps using new open innovation and crowd sharing technologies.
Parsian, A., Sarkar, S. & Jacob, V. (2004). Assessing data quality for informational products: impact selection, projection, and cartesian product. Management Science, 50 (7).
Fausse, J. et. al. (2013) Credit spreads as predictors of real-time economic activity: a bayesian model-averaging approach. Review of Economics and Statistics, 95 (5).