Meaningless Statistics- Some Meaningful Statistics

Posted by Jeff Carter
on July 11th, 2012

A lot of statistics are bandied about in conversations, idle gossip, the media and then used by politicians for political advantage. They are actually meaningless when it comes to analyzing the health of an economy when viewed by themselves, or in a vacuum.

Here they are:

1. Trade Balance (deficit) with China, or any particular country-It doesn’t matter that we import more goods than we export to China. It simply means US consumers are getting cheaper goods and we are saving money. Businesses in the US analyze where its more efficient to manufacture and distribute goods. If it’s out of the US, who cares? All that means is US companies need to figure out more efficient ways to make things here-or start new businesses here.

2. Income disparity-because the wealthy don’t always stay wealthy, it’s a bullshit statistic. Income isn’t static. It’s volatile. There is income mobility in the United States. Just because you are rich today doesn’t mean you are going to be rich tomorrow. Vice versa for the poor. The real stat to look at is if all incomes are rising. The rich are better off than they were twenty years ago in the US, but so are the poor. In addition, women don’t earn less than men. Most of the time they are employed in jobs that pay them less, like domestic help. Women choose careers that allow them to have families. Many times that choice means making less money.

3. Unemployment levels in certain communities-ethic, gender or age based. Stats like these are used to create division, when they can be purely explained by educational levels and/or skill level. Income level is almost always predicted by educational level, and poor people of all races have a tougher time of it than more educated people.

4. Diversity of company or board based on gender or ethnicity. It just doesn’t matter. Get the best possible people for your company or board of directors without regard to what they are. Diversity of experience and thought means far more than picking based on any other factor.

5. US median income. Because costs of living are so variable, and people make a lot of different individual choices, median income makes no sense. If I make 200k a year in a place like San Francisco versus 200k per year in a place like Louisville there is a huge difference in my standard of living. Levels of income in a city simply indicate that there is better income potential in that city. New York is expensive because a lot of people make a lot of money there, so demand is higher driving up the cost of living.

Then there are the stats that really matter. The ones that you need to pay attention to.

1. Unemployment-shows the health of the economy. It’s a seminal predictor for a lot of other stats.

2. Gross Domestic Product-shows how a country is growing its economy, but isn’t necessarily correlated to employment. Countries can produce more through technological innovation without creating jobs. Although, that technological innovation tends to create more jobs than it displaces. Those jobs usually are more highly skilled and require higher levels of education.

3. Inflation rate-sometimes you can simply print more money and make everyone feel richer. Unless there is real production behind it, GDP becomes meaningless.

4. Debt to GDP ratio-keep an eye on it. If a country’s economy is growing, it can support higher levels of debt. But if growth stops, that debt becomes a double edged sword and cuts a country down. All debt has to be paid by taxes.

5. Purchasing Manager’s surveys-shows what business is planning to do.

6. Consumer Confidence-gives the mental and planned state of the consumer. As Robert Lucas pointed out in his Nobel Prize winning thesis. Households in a macro sense use information and plan efficiently.

There are others, but I think those are the main ones for a quickie macroeconomic analysis. What do you watch? Why?

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