Economic Measurement Issues Arising from Globalization
One challenge of understanding the state of the economy is we don’t have clear measures. We attempt to gather accurate data but there is quite a bit of inaccuracy in the data (both from preliminary estimates – before all the data is in, which can take months, or longer – and just plain items we have to estimate no matter how long we have).
Related: Manufacturing Data – Accuracy Questions – Why China’s Economic Data is Questionable – What Do Unemployment Statistics Mean? – Manufacturing Jobs Data: USA and China – The Long-Term USA Federal Budget Outlook – Is China’s Recovery for Real?
Economists Seek to Fix a Defect in Data That Overstates the Nation’s Vigor
The federal agencies that compile the nation’s statistics increasingly acknowledge that they lack the detailed data needed to calculate the impact of imported goods and services as imports rise from an insignificant 5 percent of all economic activity 35 years ago to more than 12 percent today, not counting petroleum. As a result, many imports are valued as if they were made in the United States and therefore higher in price than their imported counterparts.
The problem is particularly acute in manufacturing. Imported components constitute an ever greater share of the computers, autos, appliances and other finished merchandise that roll off assembly lines in the United States – and an ever greater share of all of the nation’s imports.
The stated goal, among those at the conference, is to repair the statistics, but that requires several years, lots of money (from Congress) to gather more information about what companies are doing, and whole new procedures for measuring imports. Much of the conference was devoted to an analysis of the gap between existing data and reality, and ways to close that gap.
The Measurement Issues Arising from the Growth of Globalization conference has thankfully provided open access to papers from the conference including:
Offshoring Bias: The Effect of Import Price Mismeasurement on Manufacturing Productivity by Susan Houseman (Upjohn Institute), Christopher Kurz (Federal Reserve Board), Paul Lengermann (Federal Reserve Board), and Benjamin Mandel (Federal Reserve Board)
We find that the growth rate of imported intermediate input prices may have been biased upwards by between 16 to 35 percentage points, which in turn has led the average annual growth rate in manufacturing productivity to be overstated by 0.1 to 0.3 percentage point or by between 9 and 20 percent over the entire period from 1997 – 2007.
Effects of Imported Intermediate Inputs on Productivity* by Lucy P. Eldridge and Michael J. Harper, U.S. Bureau of Labor Statistics
By including imported intermediates in the MFP model, we find that private business sector multifactor productivity would grow 0.1-0.2 percent per year slower than the BLS published series. Also, we estimate that the growth in imported intermediate inputs contributed 14 percent to the average annual growth of labor productivity for the private business sector from 1997-2006.