AMA - Inaccurate Government Numbers

The Real Estate Espresso Podcast

AMA – Inaccurate Government Numbers

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AMA – Inaccurate Government Numbers

Welcome to the Real Estate Espresso Podcast, your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce. Today is another AMA episode, that is, Ask Me Anything. I love to answer your questions. If you have a question you think is of broad interest, send it in and I’ll answer it live on the air. Send your questions to Victor at VictorJM.com.

Today’s question comes from Greg who writes, “After listening to your recent segment on oil production data, it does not seem like any data from the US government is accurate. We’ve known for a long time that job data is flawed. It seems there are better ways of collecting data. Is it simple incompetence? Are there alternative motives for publishing bad data? Additionally, is there better data from other nations? Thank you for your insight. I love the show.”

Well Greg, this is a great question. My reading is that there are many government agencies. Some of them have more political influence than others. When we find problems with the US government data, it’s often by cross-referencing data from different government departments. That’s how we find the flaws. For example, why aren’t we using IRS data to measure the size of the economy? It turns out we do, but only much later. We can’t use it in real time because it’s updated once a year. There are adjustments being made to correct for what might be misleading effects. Often, these adjustments end up altering the data to the point where you can no longer recognize what’s happening on the ground.

For example, when we’re talking about inflation measures, there are so many different ones. These range from the consumer price index to personal consumption expenditures and the core personal consumption expenditures, which the Federal Reserve prefers. Each measure is somewhat different and each one is subject to various seasonal adjustments. For example, a price increase in imported tomatoes in January is not deemed to be inflationary, compared to locally grown tomatoes hitting the store shelves in August. Clearly, there are seasonal pricing impacts that should be considered. However, what about the concept of substitution? This is another adjustment performed in the CPI calculation. For instance, when the price of beef rises, it’s assumed that consumers will switch to a cheaper alternative like pork. If the price of eggs rises, maybe they’ll switch to cheaper Cheerios for breakfast. The line between adjustment and outright distortion is where things get blurry. Politics also influence the outcome.

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