IN THE coming week government statisticians in America and Britain will release their initial estimates of economic growth for the third quarter of the year. Markets will leap or sag, depending on the news. But investors are wrong to see the releases as a moment of statistical insight; they are merely the first round in a high-stakes game of “pin the tail on the donkey”.
Take January-March last year in America, when an icy winter kept shoppers at home. The intial estimate of GDP growth from the Bureau of Economic Analysis (BEA)—an annualised gain of 0.1%—was disappointing but not disastrous. The second estimate—a decline of 1%—made things looks bleaker. By the time the third and final estimate came in, at -2.9%, it was clear the quarter had been the worst since the depths of the financial crisis (see chart).
Statistics are revised for years, but their relevance soon fades. The BEA recently reviewed its data for 2012-14 and discovered that the American economy had grown more slowly than it had previously thought. At a stroke it removed $70 billion, equivalent to Sri Lanka’s entire output, from its figures. No one...Continue reading
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