The speech Using Economic Data to Understand the Economy, given this week by Fed Governor Christopher J. Waller presented an informative glimpse into some of the data they use to arrive at their economic decisions.
Of the 12 slides provided, here are some of the best, starting with one of the most popular: GDP.
Imagine working for the Fed, getting paid to analyze this data. One would have to come up with something presentable, even if not sufficiently useful, as the Governor demonstrates in another speech a few weeks ago:
Consumer spending, which represents nearly 70 percent of GDP, has been quite strong thus far in 2023.
If the consumers spent just a little more, probably debt financed, then the GDP numbers could go much higher. Or if the Government contributed more multi-billion-dollar make work projects, GDP would also get a boost.
These are just a few potential ideas that could arise when analyzing such data. It leads to the most top-down approach possible, without consideration to what is best for the individuals comprising this whole or how to allocate society’s resources in any discernible manner.
Yet, members of the Fed find interpretation here, possibly from a survey or inference from more data points, as the Governor states:
The solid spending in the face of tightened monetary policy suggests consumption is likely supported by households’ strong balance sheets as well as confidence in future labor income.
Ratios also play a big role in reading the economic tea leaves, see below:
Waller explains the Vacancy-to-Unemployment Ratio:
…the number of job openings for every person counted as looking for a job was 1.2 in 2019 and shot up to a peak of 2 in March 2022. As we tightened policy and put downward pressure on labor demand, this ratio fell to 1.8 at this time last year and is currently 1.5.
As to the type and quality of the job, we know nothing. As far as what the ideal ratio should be, no one can say. If no one knows the ideal, then it becomes impossible to determine what exactly the Fed is striving for and why.
There also exists countless other factors why able-bodied individuals may not choose to work. Perhaps they are discouraged due to debt burdens, inflation, the types of jobs available. They could also not be enticed to work due to favorable government benefits, or allure of trading cryptocurrencies; no one can pinpoint the reason, including the Fed.
What makes the Labor Force Participation rate interesting is that much can be inferred.
According to the Fed’s own data:
…the number of people in the labor force as a percentage of the civilian noninstitutional population […] the participation rate is the percentage of the population that is either working or actively looking for work.
Its very definition leaves room for lots of exclusions, such as those in prisons, mental institutions, those in the military, and those not looking for work. The other consideration is that the inclusion of those who earn a living deriving from tax dollars aren’t contributing to growing the economy the same as someone employed in a private enterprise.
In other words, the amount of people working in private sector jobs who are required to financially support the entire nation is an infinitesimal amount.
The last chart to share is the Federal Funds Target Rate.
Given that the US Government is only $300 billion away from hitting the $34 trillion debt level, among all other debt related problems in the world right now, it’s a question of how much longer this can continue until rates are cut once again; but only the Fed knows this answer.
Data can be considered useful to many people for a wide variety of reasons. However, data becomes harmful when the Fed uses it as part of its Miraculous Machination Techniques, coupled with the aegis of a prudent scientific approach to justify their intervention in the free market. We are cautiously reminded that looking for meaning where very little exists more closely resembles persuasion and propaganda than a genuine economic method.
