That first-quarter 'pickup' in output: the period was really almost flat
North Egremont, Mass. — Quarterly statistical data continue to mislead the public as to the trend of the US economy. Despite the glowing reports of gross national product being "up strongly for the first quarter," the US economy has slowed its upward pace considerably since January. Moreover, the three quarters of recovery since the end of the 1980 recession have been slower than those in all six previous recoveries.
To begin with, real GNP (GNP in deflated dollars) did not go up 6.5 percent in first-quarter 1981 -- although at an annual rate the increase was 6.5 percent. Rather, first-quarter 1981 real GNP was 1.6 percent higher than fourth-quarter 1980.
And GNP did-not rise even 1.6 percent "during" the quarter im the normal sense. Thus. from January, the first month of the first quarter, through March, the last month of the quarter, the economy's production virtually leveled off.
The major monthly deflated measures of the economy all show little or no gain between January and March, This includes such deflated measures as employment, the unemployment rate, industrial production, personal income, and retail sales.
How can we have a leveling off from January through March when the first quarter is higher tham the fourth quarter?
Take a look at the Federal Reserve Board's monthly index of US industrial production (1967 equals 100).
1980 1981 Oct. Nov. Dec. Jan. Feb. March 146.9 149.4 151.0 151.7 151.1 151.7 To find the quarterly levels for the two quarters, the monthly figures for each quarter are averaged.
IV 1980 I 1981 Change 149.1 151.5 Up 1.6%
The cliche is that figures do not lie, but liars figure. The truth is that a failure to understand the makeup of economic data leads to conclusions by non-statisticians that are often incorrect. A failure to distinguish between quarterly and monthly data, actual percentage changes and annual rates, etc., may easily lead to a false picture of what is happening.
As for the recovery pace of the economy, measured by real GNP, the percentage increases in the first three quarters of the seven economic recoveries since 1949 have been as follows:
IV 1949 -- III 1950 Up 10.8% II 1954 -- I 1955 Up 5.9% I 1958 -- IV 1958 Up 5.6% IV 1960 -- III 1961 Up 3.8% IV 1970 -- III 1971 Up 3.8% I 1975 -- IV 1975 Up 4.4% II 1980 -- I 1981 Up 3.1%
It is clear that the current recovery is the slowest recovery in the entire post-World War II period.
While there is some politicization of economic data by those interpreting the data, it should be pointed out that our comments are not intended to belittle the first-quarter 1981 GNP increase on the basis of forecasting weakness in the months ahead.
The point here is that the rate of rise of economic activity has already slowed, that it slowed in the first quarter itself.
If the slowing that has already started continues, and prospects are fairly good that it will, the current economic recoverry will compare even less favorably with those in the past.
Regular readers of this column realize it has never been our tendency to magnify the negative aspects of the economy. But it is just as essential not to put on rose-colored glasses that obscure what is really happening.
A realistic appraisal of current economic data reveal that the upward pace of the economy has slowed significantly since January.
Leonard ard Lempert is director of
StatisticaI Indicator Associates in North