Trust in critical economic indicators in the United States is wavering, casting a shadow over the Federal Reserve's (Fed) currency policy. A combination of declining response rates, labor shortages, and budget cuts has resulted in a deterioration in the quality of key economic indicators.
On the 3rd (local time), The Washington Post (WP) reported that trust in major economic indicators used by the Fed to determine the direction of interest rates and currency policy is cracking. Key economic indicators include ▲ Gross Domestic Product (GDP) ▲ Consumer Price Index (CPI) ▲ Unemployment Rate ▲ Non-farm Employment Index, with particular uncertainty surrounding employment and inflation-related statistics.
The decline in the quality of statistics is intertwined with a decrease in response rates since the onset of COVID-19 and structural factors such as government budget cuts. It is believed that a primary reason is the reduction in 'field data,' which underpins the statistics. The Labor Statistics Bureau (BLS) has reduced key activities such as field surveys and researcher training due to budget shortages over the past decade, which has led directly to a decline in data quality.
In fact, last month, the BLS revealed that it is reducing the number of retail outlets surveyed in the calculation process for the Consumer Price Index (CPI). The BLS stated, "Due to labor shortages, some cities are completely unable to conduct surveys," adding that "the volatility of some components that make up the CPI could increase." Previously, the BLS had announced it would reduce the sample size of household surveys that comprise unemployment and employment indicators, but withdrew the plan due to rising concerns over data distortion.
As concerns about statistical data spread, Jerome Powell, the chairman of the Fed, issued a direct warning. During a recent congressional hearing, Powell noted, "Statistics are not currently blocking our economy," but pointed out that "the future trend is definitely concerning." Since the Fed relies on statistics to gauge real economic trends and determine the direction of interest rates, any distortion could inevitably disrupt policy decisions.
According to the WP, American citizens trust federal statistics more than they do the federal government. A survey conducted by the polling firm SSRS involving approximately 1,000 American citizens found that around 70% of respondents expressed a positive view of federal statistics, significantly exceeding their favorable impression of the federal government (51%).
There are warnings that the current situation could lead to economic shocks beyond just administrative issues. Nine lawmakers, including Ruben Gallego, a Democratic senator from Arizona, recently sent a letter to the Department of Labor and the BLS stating, "CPI has a significant impact on Social Security pensions, union wage negotiations, welfare benefits, and the overall U.S. economy," and warned that "if the accuracy of the indicators is compromised, millions of lives could be hit hard."
Experts are also expressing concerns. Mark Zandi, chief economist at Moody's Analytics, stated, "During a time when policies are rapidly changing across trade, immigration, and finance, more accurate statistics are required," adding, "The downward revision of job growth figures for March and April this year has exceeded 90,000, which is evidence that improvement is needed." Keith Hall, former director of the BLS, also emphasized, "The BLS needs not budget cuts, but an expansion of resources."
However, the White House is taking a defensive stance regarding the controversy over statistical reliability. Taylor Rogers, White House spokesperson, argued, "Unfounded doubts about BLS statistics do not negate the fact that hundreds of thousands of jobs were created under President Trump's pro-growth policies," and claimed, "Job creation will accelerate further once the tax reduction bill passes through Congress."
The spokesperson also completely refuted the issue of labor shortages at the BLS. Rogers added, "The BLS is protecting key field personnel, and the current director was appointed by former President Biden," and noted, "We are continuously striving to maintain statistical reliability."
However, the White House's clarification appears insufficient to support the actions of the Trump administration. The Trump administration had previously proposed to cut the BLS budget by about 8% in next year's fiscal year budget, which had sparked controversy.