Book Review: Secrets of Economic Indicators Belongs on Business News Desk

Almost every business journalist, at one time or another, has prepared a report based on periodic economic indicators.

The ritual is well established. We announce the data -- job growth, retail sales, consumer prices, etc. We tell whether or not the number met the expectations of forecasters. Then we explore what the data mean -- for the economy, the political landscape, the investment climate. But we hardly ever explore what the indicators are.

Bernard Baumohl, an economist and former journalist for Time magazine, has taken on the challenge of describing economic indicators that for the last 10 years or so have comprised essential elements of the business news file.

The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities (Wharton School Publishing, September 2004) belongs on the shelf of every business news department.

In a dispassionate, encyclopedic style fitting for discussions of statistics, Baumohl explains, for example, the difference between the establishment survey of jobs and the household survey of jobs.

This may sound dull. But in the 2004 presidential race, the distinction between the two monthly data series became a hot political topic. The household survey seemed to present a more upbeat picture for President Bush. But Federal Reserve Board Chairman Alan Greenspan endorsed the establishment (employer) survey as the preferred indicator.

Competing inflation measures is another topic that draws arguments among economists and economic policymakers. The market-basket approach used by the U.S. Department of Labor to track the Consumer Price Index has been criticized as a false indicator of inflation. Debates on Social Security policy often are enlivened by proposals to replace the current CPI as the basis for adjusting benefits.

In contrast, a price index reported along with monthly Personal Consumption Expenditures (PCE), issued by the U.S. Department of Commerce, is based on actual spending by consumers. The PCE price index is gaining popularity as an inflation indicator.

Business journalists who want to boost the authoritative tone of their reporting need to understand these and other distinctions among the periodic economic reports. His chapters on domestic and international Web sites for economic data are especially useful.

Oddly, however, Baumohl failed to tackle the more intriguing -- and readable -- challenges in reporting economic data. In his initial chapter, he introduces a friend who belittles his idea to write a book about economic indicators. "Let's get real here," she says.

Baumohl could have done so using a more critical eye.

Periodic economic reports have risen in the public consciousness because they provide trading prompts on Wall Street and fodder for cable TV business programming, not because their intrinsic value to long-term investors has increased.

Millions of dollars are bet in advance of certain reports, such as monthly job growth and monthly retail sales. Goldman Sachs and Deutsche Bank conduct auctions in the days before several reports, enabling institutional trading desks to speculate or hedge their bets on the "number."

Nonetheless, the utility of conventional economic statistics is frequently questioned. In a recent speech, Greenspan pointed out that monetary aggregates (the so-called M's) were celebrated as vital economic indicators in the 1970s and early 1980s but today, are rarely mentioned. He said that asset values -- including real estate and equity prices, neither mentioned by Baumohl -- are becoming more important indicators for Fed policymakers.

On another theme Baumohl should have explored, the National Association for Business Economics has complained in recent years that budget cutbacks at several federal bureaus jeopardize the integrity of economic indicators.

Indeed, economic and political columnist Paul Krugman said on ABV television recently, "If you actually work with economic numbers, you have less respect for them than people who don't."

Conventional economic indicators are just that -- conventional. Why don't business journalists present the periodic reports of high school dropout rates -- a much more meaningful long-term economic indicator?

These and other talking points about economic indicators would have allowed Baumohl to write a better book and be less defensive about his important mission.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism