Im-Politic: The Washington Post’s Phony Probe of Policing Abuses

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crime, Im-Politic, journalism, law enforcement, Mainstream Media, police misconduct, police reform, policing, statistics, Vera Institute of Justice, Washington Post

As RealityChek readers surely know by now, reporting information out of context is one of my biggest gripes about journalism these days. (See, e.g., here.) So if there hadn’t been so much important news coming out of the Ukraine war and on so many other fronts this week, I’d have already written about an especially egregious example that appeared in the Washington Post this past Thursday.

Its big “exclusive” finding? “The Post collected data on nearly 40,000 payments [to resolve police misconduct claims] at 25 of the nation’s largest police and sheriff’s departments within the past decade, documenting more than $3.2 billion spent to settle claims.”

Sounds like a bundle right? Even a criminally large amount of money. In isolation, of course. But information never exists in isolation. And any reporter or anyone else with a working brain or a lick of integrity would have tried to answer these two questions: How does this sum compare with the nation’s total policing budget over the same period? And how does it compare with the national cost of crime?

None of this background appeared in the Post piece. But it took me a grand total of thirtyseconds of searching on-line to find answers from reliable sources.

The national law cost of policing? That’s $115 billion per year, according to the Vera Institute of Justice, whose declared mission is ending “the overcriminalization and mass incarceration of people of color, immigrants, and people experiencing poverty.”

That is, the organization isn’t exactly an apologist for current policing performance. But it’s telling us that over ten years, the cost of settling police misconduct claims equalled 0.28 percent of America’s policing budget (of $1.15 trillion). Any decent person would like to see that number fall to zero percent, but 0.28 is pretty close. And it’s even better considering that, as at least Post reporters Keith Alexander, Steven Rich, and Hannah Thacker (along with their editors) had the honesty to observe (in the middle of this long article) that

“City officials and attorneys representing the police departments said settling claims is often more cost-efficient than fighting them in court. And settlements rarely involve an admission or finding of wrongdoing.”

The authors also state that their figures exclude payments of less than $1,000. Let’s suppose, however, that including these incidents doubles the total amount of payouts over the last decade. Then they’d represent 0.56 percent of the national policing budget. That’s still awfully close to zero for a line of work whose employees lay their lives on the line every day, and who constantly need to make split-second life-and-death decisions.

It’s of course certain that the number of police misconduct charges that produced payouts, whether they stemmed from genuine abuses or not, doesn’t include all cases of misconduct because so many undoubtedly aren’t reported. But even if all of them were, and consequently the total cost of misconduct got doubled, its share of total U.S. policing spending over the last decade would barely top one percent. So forgive me if I’m not overcome with outrage.

As for the second question, in February, 2021, a team of academics and policy analysts estimated that in the 2017, crime cost the U.S. economy $2.6 trillion. That single year number is more than 8oo times bigger than the Post‘s figure for the last ten years’ worth of costs for police misconduct payouts.

As a result, these police misconduct costs as a percentage of the costs of crime to America over a year – much less a decade – don’t even represent the proverbial “drop in the bucket.” They’re more like an aerosol particle in the bucket.

The researchers who came up with the cost-of-crime figure acknowledge that limitations on the available data for crime forced them to include modeling techniques in their calculations, and that more work (and more actual information) should be performed to produce greater accuracy. But even if the $2.6 trillion overestimates the national cost of crime by half, it would still render the police misconduct payouts total utterly trivial in comparison.

Policing abuses definitely need to be reduced dramatically. But how about setting the same goal for the kinds of rampant journalistic abuses most recently epitomized by this Washington Post investigation?

Following Up: Time for a “Truth in Testimony Act” for Think Tanks

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business, civil society groups, Congress, corporations, data, exports, Following Up, globalization, idea laundering, imports, Jobs, labor unions, offshoring, statistics, think tanks, Trade, trade balances, transparency

So far, my work on the problems for our democracy caused by corporate- or other special interest-funded think tanks has emphasized that the media has a special responsibility – and ability — to help solve them. How? By making sure that whenever they quote staffers from these organizations as experts on this or that issue, they reveal who’s signing the tankers’ paychecks.

But another major segment of society also needs to play a role in preventing what I call think tank idea-laundering – posing as objective, academicky-type organizations in order to portray their staffs’ findings as the products of disinterested scholarly research rather than exercises in agenda-pushing. That segment is government.

Legislatures at the local, state, and federal levels should pass what might be called “Truth in Testifying Acts.” That is, whenever they invite input from think tanks in hearings they hold, or in public comment exercises they conduct, the law-making bodies should require these organizations to disclose all their funders with a financial stake in the subject being examined, or the decision that’s pending. As a result, the public or any other consumers of these analyses would have the information they need to judge how much credibility they feel the information deserves, and what kind of material has been deliberately exaggerated or spotlighted or downplayed or ignored altogether.

In fact, these requirements should be imposed on so-called civil society groups, foundations, labor unions, academic institutions, and business organizations, too. Sometimes their biases are obvious from their names, but only sometimes. Best to err therefore on the side of caution – and more disclosure.

Further, while we’re on the subject, I’d like to see something else added to these Truth in Testimony Acts, or follow-on legislation, which is especially relevant to the trade issues I follow so closely: requirements that business groups and their think tank fronts lay out comprehensively their own domestic and international operations and structures, and those of their major funders. They’re needed because representatives of these organizations have long gotten away with literal intellectual murder by presenting legislators with shamelessly cherry-picked data.

For example, when trade agreements and other trade policy decisions are being examined, it’s become standard operating procedure for witnesses in favor of greater liberalization to present figures on exports from the country as a whole, from individual states or Congressional districts (always of major concern to Senators and House members), or from whatever company or industry they represent. And typically, they’re allowed to ignore the import and trade balance sides of the equation. Talk about a total crock.

Similarly, these individuals and organizations are happy to report on how many workers they employ nationally, and in various states and localities, and how many of these jobs depend on exports at a given moment. But they have no interest in discussing how these trends have changed over time, or how many jobs and how much production they’ve sent overseas or have lost to imports, or how these situations have evolved, say, over the life of a certain trade deal.

The companies and industries justify this selectivity by contending that information on imports and offshoring is proprietary, and that keeping it confidential is crucial to their commercial success. That’s often true. But the Truth in Testimony Act should specify that if witnesses wish to keep close to their vest information on one side of the trade ledger (e.g., their firm’s imports), then they can’t brag about their performance on the other side (e.g., their firm’s exports). There’s simply no reason to allow these businesses to play, “Heads, We Win; Tails, You Lose.”

Nor need there be anything the slightest bit coercive about such requirements. If businesses and industries and their various representatives feel so strongly about the secrets to their success, they should be free to decline invites to appear before lawmakers.

Actually, I’d like to extend these requirements to the financial statements public companies need to file with the feds. As with their testimony, such businesses often include flattering trade-related information in quarterly and annual financial statements. If they’re not willing to give investors the full picture, they should need to drop the whole subject.

And why restrict such disclosures to public businesses? Companies of all kinds are required to report all sorts of information to Washington. Their submissions form the basis of much of the economic data that is made publicly available by the federal government. The shield of anonymity provided by the Census Bureau and other statistical agencies to prevent rivals from using the data to gain advantage is entirely reasonable from the standpoint of these businesses. But from a national standpoint, it makes no sense at all. Indeed, it puts policymakers and the public in the position of flying largely blind when it comes to evaluating the impact of trade policy decisions.

The same kind of problem is created by the narrow range of trade-related info that businesses are legally obligated to share. Why not force them to specify their job and production offshoring, the wages of their U.S. and overseas workers, their foreign and domestic procurement, the foreign and domestic content of their products, and similar statistics? And why not demand time series, so that long-term patterns can be identified?  BTW — content information has been required of auto-makers selling in the United States since the 1990s, so major precedent exists. 

The business secrets problem is easily solved: If all firms wishing the privilege of operating in the United States need to share the same information, no one company is put behind the eight-ball. And again, no coercion is involved. Companies would be perfectly free not to comply – and exit the world’s most lucrative market by far in the process. And what about the regulatory burden that would be placed on smaller firms? There’s a strong argument for exempting them, as larger firms dominate U.S. trade flows anyway.

Such a sweeping “Truth in Globalization Act” would probably be a heavier legislative lift than the “Truth in Testimony Act,” so I’d focus first on the former. But both are urgently needed to ensure the soundest possible U.S. policymaking process.  And how could anyone genuinely devoted to the national interest object?  

(What’s Left of) Our Economy: More Dubious Manufacturing Figures – from the Regional Feds

Tags

data, inflation-adjusted growth, Institute for Supply Management, ISM, manufacturing, Philadelphia Federal Reserve, statistics, survivorship bias, {What's Left of) Our Economy

I hope that RealityChek regulars remember my posts debunking the idea that a widely followed private sector gauge of manufacturing’s health has much to do with manufacturing’s health. As I explained, the Institute for Supply Management’s (ISM) monthly surveys of American industry suffer badly from “survivorship bias.”

In other words, they may accurately report on the performance of the nation’s manufacturing base at that moment. But because they only question companies still in existence in a given month, they provide no information on how that base has changed over time, and especially on the vital question of whether the base has shrunk or grown. As a result, I was able to show that in recent decades, the ISM’s findings that domestic manufacturing is in “expansion” mode have usually – and increasingly – clashed with the (more comprehensive) government data.

At the same time, the ISM is far from the only survey-based report on manufacturing that’s closely followed by students of the economy and of industry – including investors. Many of the Federal Reserve’s regional banks analyze manufacturing in their geographic districts in the same way, and one such series that often makes headlines comes from the Philadelphia Federal Reserve. I just looked over its latest release – from this morning – and it was so completely weird that I checked to see whether its findings have matched up or not with government statistics on manufacturing’s growth in the area it covers. And guess what? Its results could well be as off base as the ISM’s.

What set me off was the Philly Fed’s finding that manufacturing in its district – which includes the eastern three-fourths of Pennsylvania (pretty much everything up to Pittsburgh), southern New Jersey, and Delaware – had moved back into expansion mode in July. Nothing strange per se about that. What was utterly bizarre was the contention that this improvement took place even though new orders for this same manufacturing complex plunged deep into contraction territory, and the employment indicators performed almost as badly.

These aren’t the only measures tracked by Philly Fed economists (and their counterparts at other regional Fed banks), and much more positive readings for other indicators pushed the overall headline figure – which is a composite of all the data – into the black for July. But let’s leave aside whatever narrow technical issues this methodology raises and grant the Philly Fed’s view that such a mix represents “expansion” or “growth.” Let’s also leave aside the reliance of the ISM and Philly Fed and the like on manufacturers’ judgments on how their companies are performing – rather than on their actual performance.

That still leaves us with the question of how well this definition of expansion or growth tracks with U.S. government data on the actual production achieved by manufacturing in the district over time. These strike me at least as better measures since they focus (however imperfectly) on what’s measurably come out of a factory. And of course, without adequate output, higher profile gauges of manufacturing’s health, like employment, can’t possibly be expected to be satisfactory (Unless you’re OK with productivity stagnating – which seems to be the case recently.)

There are no output numbers for the Philly Fed’s district as such. But you can get a pretty good idea of the situation by looking up the manufacturing production statistics for the major towns and cities it contains, which are kept by the U.S. Commerce Department. At this level of specificity, such data only go up to 2014. But the contrast between them during the current economic recovery (which began in 2009), and the Philly Fed headlines over the 2009-20014 period, is striking.

Here’s a chart from the Philly Fed that shows those headlines:

As you can see, the brown “current activity” line doesn’t indicate terrific performance. But it stayed over zero (i.e., in expansion) for most of the relevant five years.

The Commerce Department keeps statistics on manufacturing production pre- and post-inflation for 18 of the “metropolitan areas” in the Philly Fed district. I looked at the former, since it yields the best sense of volumes, and therefore of the level of activity. And these figures show that manufacturing production rose in nine of them. Score one for the Philly Fed? If you’re generous.

But there are still two big problems. First, two of those increases, in tiny Gettysburg and Bloomsburg-Berwick, were minimal – i.e., much less than one half of one percent. In bigger Lancaster, manufacturing production expanded by a total of 2.10 percent in real terms. Harrisburg-Carlisle, in the middle, size-wise, between those two areas, fared better, with 3.95 percent after-inflation manufacturing growth. But these increases look pretty paltry over a five-year stretch.

By far the best performance in the Philly Fed’s district was turned in by the Trenton, New Jersey area, where constant dollar manufacturing output soared by more than 54 percent between 2009 and 2014. But its manufacturing sector is still peanuts, relatively speaking. Moreover, the real manufacturing declines that show up in the Commerce data were much bigger on average than the increases.

The second big problem is that there’s no adequate data – either pre- or post-inflation – for the Philadelphia-Camden (New Jersey)-Wilmington (Delaware) metropolitan area, which is by far the biggest in the Philly Fed district. Nonetheless, the few numbers that are provided suggest that its manufacturing sector has fallen on hard times. Specifically, between 2008 and 2012 (the only post-2005 numbers available), its manufacturing production shrank by 18.63 percent adjusting for inflation.

So it seems fair to conclude that, if you’re looking for a reasonably accurate portrait of those domestic American manufacturers who are still standing after decades of offshoring-happy trade policies, other officially created challenges, the economy’s inevitable ups and downs, and frequently changing product markets and technologies, by all means rely on the monthly ISM and the regional Fed surveys. If you’re interested in knowing about manufacturing recently aside from these survivors – including about whether their ranks have grown or shrunk – you’ll need to look someplace else.

(What’s Left of) Our Economy: Economic Data Journalism That’s Missing Key Data

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border security, Central America, child migrants, China, furniture, Hickory North Carolina, Honduras, illegal immigrants, Immigration, manufacturing, migrants, Obama, Reuters, Sonia Nazario, statistics, The New York Times, The Wall Street Journal, The Washington Times, Trade, U.S. Customs and Border Patrol, {What's Left of) Our Economy

“Data journalism” is supposed to have been all the rage in the press recently. Why, then, do so many reporters keep ignoring crucial statistics when covering economic and other trends? Several major news organizations have combined to provide two examples of how much needless confusion these oversights can create.

The first instance concerns illegal immigration, and specifically the ongoing heart-breaking story of children fleeing rampant gang-related violence in Central America. Last week, The New York Times carried an article by a Pulitzer Prize-winning author that described a promising ray of light in this grim picture. According to author Sonia Nazario, new U.S. government programs have been largely responsible for “a remarkable reduction in violence” in the neighborhoods in Honduras in which they’ve been introduced. And as a result, even though the situation in the rest of the country remains dire, “fewer children are coming to the United States from Honduras.”

Further, Nazario writes, this success “offers a striking rebuke to the rising isolationists in American politics. A Pew Research Center poll in April found that most Americans think the United States should ‘deal with its own problems’ while others deal with theirs “as best they can,” a sentiment that’s at the core of Donald J. Trump’s ‘America First’ slogan and ‘build a wall’ campaign. Many seem to have lost their faith in American power.”

To her credit, Nazario has done extensive local reporting on the issue, and the encouraging developments she has apparently found on the ground deserve to be taken seriously. At the same time, the sources she cites for the numbers she presents all have a strong stake in portraying the aid programs as a success – specifically, America’s ambassador to this forlorn country, U.S. aid and narcotics control officials along with contractors administering these programs, and local Honduran recipients of the funds and other resources.

This possibility alone should have tipped her or her editors off to that some independent verification was needed. And it was all the more essential because the U.S. government data has just reported that, over the past fiscal year, the number of child migrants and entire families from Honduras caught trying to enter the United States illegally is up, not down. (Hat tip to The Washington Times for breaking this story.)

The U.S. Customs and Border Patrol, a division of the Department of Homeland Security, has stated that for the entirety of fiscal 2015, a total of 16,080 Honduran illegal border crossers were apprehended – 10,671 “family units” and 5,409 unaccompanied children. Through this July – two months before the end of the current fiscal year – the total jumped to 23,270, or by a total of 44.71 percent. The number of family units hit 15,142 (41.90 percent higher) and the number of unaccompanied children reached 8,128 (50.27 percent higher).

It’s possible that the total number of Honduran leavers is down, and that most aren’t caught. But the burden of proof is on Nazario and The Times to make this case.

Another recent development undercutting Nazario’s thesis: Late last month, the Obama administration announced (as reported in The New York Times) “a substantial expansion of a program to admit Central American refugees to the United States, conceding that its efforts to protect migrants fleeing dangerous conditions had left too many people with no recourse.”

Nazario could claim both that the administration is simply bowing to the continuing humanitarian tragedies in El Salvador and Guatemala, where the programs she touts haven’t been introduced. But the president’s decision certainly doesn’t seem to reflect much optimism concerning their potential. She could also point to her observation that the Honduran programs have run into opposition in Congress, and contend that the president decided to take the path of least resistance. Yet lawmakers are even less likely to support more admissions.

What is clear is that she either chose not to seek out statistics that undercut her hopeful narrative, or that she didn’t know they exist. Neither possibility should inspire confidence in her credibility.

The second example of failing to consult the data was provided by The Wall Street Journal and Reuters, which recently published dueling articles on the state of American manufacturing and its recent record of coping with Chinese competition. Their special focus was the same, too – Hickory, North Carolina, a supposedly typical long-time American manufacturing center.

The Journal piece seemed to focus more on Hickory’s continuing challenges; the Reuters article “accentuated the positive.” Both articles provided plenty of numbers about manufacturing job loss and recent recovery, too. But neither publication told readers anything about the most important Hickory- and manufacturing-related figures of all – those on production. For without healthy levels of production, healthy levels of employment (however you define that term) are impossible to sustain over any length of time. And the figures show that, in Hickory, both in manufacturing overall and in furniture production (the area’s signature sector), activity remains severely depressed.

A good baseline year is 2002. That was the first full year of Chinese membership in the World Trade Organization, and therefore the first full year in which it enjoyed substantial immunity from U.S. laws and other policies aimed at combating its still widespread predatory trade practices.

In 2002, furniture and related industries comprised fully 30 percent of the Hickory metropolitan area’s total manufacturing output (after adjusting for inflation), with a total output of $1.339 billion. The latest furniture-specific figures available for Hickory only go up to 2013, but they show a sharp inflation-adjusted production decline – to just $816 million. In fact, the hit to Hickory’s real furniture output (39.10 percent) was greater than for total furniture production in American metropolitan areas (31.03 percent).

Hickory’s furniture performance looks better since 2009. From that recession year through 2013, the sector’s real production rose by 26.71 percent. That’s more than three times faster than the rate for all of America’s metro areas (7.73 percent).

But contrary to the Reuters piece, this achievement hasn’t translated into a notable broader manufacturing upswing in the region. From 2009 to 2014, overall U.S. Metro area manufacturing output advanced by 10.69 percent in real terms. For Hickory and environs, the real growth was only 9.45 percent.

Like Nazario in Honduras, the reporters who worked on these Hickory manufacturing stories clearly spent considerable time in the area surveying the manufacturing scene. And since the data is a little dated, no one should rule out the chance that Hickory’s manufacturing output has experienced a true surge since then. But that would mean that industry in Hickory has escaped the fate of industry nation-wide. Because around that time, after-inflation production growth in America began slowing dramatically. Indeed, for most of this period, it’s been in recession.

Reality certainly is too complicated to be reduced to numbers alone, and data itself can be methodologically flawed, incomplete, out of date – and intentionally distorted. But used properly and with integrity, data can be a useful check that can prevent simple anecdotes from being confused with genuine trends. So although journalists shouldn’t be slaves even to the very best numbers available, there’s no reason or excuse to ignore them.

(What’s Left of) Our Economy: More Problematic Data from the ISM

Tags

Census Bureau, ISM, manufacturing, new orders, statistics, survivorship bias, {What's Left of) Our Economy

To hear it from The Wall Street Journal, the Institute for Supply Management’s (ISM) monthly reports on American manufacturing activity have been at “rarified” levels lately; therefore, domestic industry must be thriving. Regular RealityChek readers know better. But with the Supply Managers’ next set of results coming out this morning, and with their reports still often taken as gospel on manufacturing’s health, I thought I’d look into the accuracy of yet another one of their sub-indices – the reading on new orders in the sector.

The orders data are crucial both because they often signal the future direction of production and employment, and because, as with other ISM sub-indices, these results can be measured against official U.S. government data. And as with my research on the ISM’s headline figure, and its job sub-index, the Supply Managers’ new orders sub-index appears to suffer significantly from survivorship bias.

Its methodology only measures the activity of manufacturing facilities that exist at a given moment in time. The ISM reports are completely incapable of measuring how the entire sector’s output or employment or any other indicator has changed over any significant stretch of time, because they don’t take into account increases or decreases in the total number of manufacturing facilities.

The discrepancy between the survivorship-distorted ISM new orders figures and the Census Bureau’s efforts to measure actual new orders has been apparent since the beginning of this year. The harsh winter plainly depressed all manufacturing activity in the nation, and Census data shows that new orders sank from December to January by a very steep 1.64 percent. The ISM showed a dropoff, too, but its results showed that orders still expanded modestly in absolute terms.

February saw a big order bounceback, to the tune of 1.68 percent. But the ISM only reported a slight acceleration in such new business. According to the Census Bureau, new manufacturing orders grew robustly in March, too – by 1.47 percent. According to the ISM, however, March’s order growth rate increased only marginally.

Manufacturing’s health normalized as spring continued, but that trend was hard to glean from the spring ISM surveys. Census’ data showed that new orders expansion roughly halved in April, but the ISM new orders index stayed unchanged. In May, Census reported an order decrease of 0.56 percent, but the ISM reported faster growth – from the 55.1 level to 56.9. (ISM readings over 50 indicate expansion.) Census figures showed another strong (1.54 percent) rebound in June, but the ISM index rose only modestly, to 58.9.

The Census and ISM figures matched up best in July. The former reported a 10.48 percent jump in new manufacturing orders, and the latter showed that they accelerated from a good 58.9 reading to an excellent 63.4. But whereas Census reported a 10.03 percent nosedive in orders in August, ISM showed even faster expansion – from 63.4 to 66.7. And in September, the two data sets were completely at odds again, with Census reporting a monthly 0.55 percent decline in new orders but ISM showing new business still in strong (60) expansion territory.

Moreover, the ISM’s results look even stranger when some recent full year results are examined. So far this year, for example, the ISM new orders index is averaging 58.02 – indicating healthy growth. And cumulatively, new orders are up 2.09 percent during this period. But in 2013, the ISM new orders average was just a little lower – 57.15. Yet new orders growth for the full year – 0.62 percent – was less than a third of the nine-month 2014 figure.

More unusual still: 2010 was another year in which ISM new orders averaged around 58 each month – in this case, 58.53. But new manufacturing orders that year jumped by 16.07 percent – nearly eight times as much as in 2014 so far and more than 25 times the increase in 2013.

It can legitimately be argued that 2009-10 was an unusual year – manufacturing’s first recovery year after an historic downturn during the Great Recession. Yet 2005 was entirely normal by recent standards for manufacturing. The ISM new orders readings averaged 57.48 per month – just below 2010’s level and just about that of 2013. Census’ new orders growth in 2005 was just below 2010’s, too – at 13.08 percent. But that’s also much higher than the 2014 figure so far – let alone 2013’s negligible increase.

The ISM reports arguably are useful for investors and others who are interested in the performance of and outlook for America’s existing manufacturing base – although the monthly discrepancies between the survey and government data reported above reveal the need for caution. But those interested in assessing manufacturing’s true health, role in generating growth and jobs, and prospects for leading the production-led recovery needed by the nation, should look elsewhere for information.

(What’s Left of) Our Economy: Whose Manufacturing Data Should You Trust?

Tags

Bureau of Labor Statistics, Federal Reserve, ISM, Jobs, manufacturing, production, statistics, survivorship bias, {What's Left of) Our Economy

Back in February, I threw cold water all over the idea that the Institute for Supply Management’s closely watched monthly surveys of U.S. manufacturing are worth closely watching. Today the ISM’s latest report (for October) came out, so it’s a good occasion to see if the organization’s performance has gotten any better.

The short answer is “No.” But let’s refine the question in two ways. First, since it’s not reasonable to assume prima facie that government manufacturing data is always or usually the reality check, let’s change the question to “How well do the ISM results match up with Washington’s official data?” Second, rather than simply measure the ISM’s headline figure with the Federal Reserve’s statistics on manufacturing production, let’s compare the ISM’s specific output figure with those Fed output figures, and the ISM’s employment numbers with their counterparts from the Bureau of Labor Statistics.

Unfortunately, however, the ISM’s more specific gauges of manufacturing’s health stack up just as badly with federal government output and payrolls numbers as the headline – which incorporates many measures – stacks up with Washington’s production numbers.

My Marketwatch.com article looked at the data all the way back to 1993, but to get this post up sooner rather than later, I’m restricting my analysis to the current calendar year. Still, the results should worry anyone concerned with domestic manufacturing’s future – which should include everyone concerned with the U.S. economy’s future.

The gap between ISM data and U.S. government data is especially wide for production, and the problem began at the very beginning of the year.

Most everyone now agrees that the last harsh winter played some role in depressing overall economic activity in America, including in the manufacturing sector. The Federal Reserve production figures conform with this assessment, showing a 1.03 percent drop in inflation-adjusted manufacturing output between December and January. But the ISM January output number showed solid expansion that month, with a 54.8 reading. (Any ISM number above 50 indicates expansion, a below-50 reading indicates contraction.)

Most everyone also agrees that, once the worst of winter was over, overall economic activity, including in manufacturing, began recovering. Again, the Fed figures compare well with this assessment, showing a sharp 1.34 percent monthly growth rate for February. But the ISM output figure reported a significant manufacturing production drop – with a 48.2 result.

The divergence continued in March, though not so dramatically. The Fed figures showed manufacturing’s monthly real growth remained strong, but the expansion slowed to 0.89 percent. But the ISM showed a huge bounce-back from contraction to a 55.9 reading.

In April, May, June, and July both gauges reported roughly comparable results, both in the direction of the basic trend and in the magnitude of change. But problems reemerged in August. According the Fed, after-inflation manufacturing production shrank that month for the first time since January – by 0.46 percent. But according to the ISM, manufacturing output clocked in at 64.5 – its best monthly reading of the year.

In September, the Fed said manufacturing production recovered, growing by 0.47 percent in real terms. (This figure is still preliminary and will be revised.) The ISM reading improved as well – but only to 64.6. We won’t get the October Fed figure (along with that September revision) until November 17. For the record, the ISM manufacturing output figure released this morning was 64.8 – yet another 2014 record.

The ISM employment readings correlate better with the Bureau of Labor Statistics data on manufacturing job gain and loss, but questions still arise. And firm conclusions are a little harder to draw because, at least according to the BLS, the actual job changes month to month have been so small lately. But you be the judge.

In January and February, the ISM payrolls numbers were identical – 52.3 results that indicate so-so growth. The BLS showed that manufacturing employment in those months increased by 9,000 and 20,000, respectively – a strong acceleration in percentage terms but not in absolute terms.

The March and April comparisons between the two were good, but weakened some in May and June. For both months, the ISM reading was 52.8 – again, in the so-so-growth neighborhood. But the BLS figures showed quickening growth – from 15,000 to 21,000. More encouragingly, the BLS’ absolute job gain levels correlated decently with the absolute levels of the ISM labor indicator.

July’s match-up wasn’t nearly as good. The ISM payrolls indicator jumped all the way from 52.8 to 58.2. The BLS July job gain rate increased, too – but only from 21,000 to 24,000.

The August and September BLS figures are still preliminary, but so far, they differ significantly from the ISM results. For August, the ISM jobs figure fell, but only from 58.2 to a still strongly expansionary 58.1. But BLS claims that 4,000 manufacturing jobs were actually lost that month. For September, ISM reported somewhat weaker manufacturing job growth, as its reading dropped to 54.6. Yet the BLS reported that August’s 4,000 job loss had turned into a 4,000 job gain in September.

I still prefer the government data for several reasons. Mainly, they try to measure actual performance rather than reports of perceptions. And largely as a result, they’re not so distorted by the survivorship bias I’ve discussed in previous posts. But there’s no doubt that the above numbers make at least one conclusion clearer than ever: Over any serious length of time, you can reasonably trust either the federal government’s manufacturing data or the ISM’s. But you can’t trust both.

(What’s Left of) Our Economy: New Manufacturing Data Need an “Interpret with Care” Warning

Tags

ISM, manufacturing, manufacturing renaissance, Markit, statistics, surveys, survivorship bias, {What's Left of) Our Economy

As usual, the latest two big monthly surveys of U.S. manufacturing activity – for August – came out within 15 minutes of each other this morning and, as usual of late, they contained almost nothing but excellent news for American industry and for anyone recognizing that its success is central to restoring genuine national prosperity.

As usual, also, however, both the manufacturing reports from Markit.com and from the Institute for Supply Management come with a big caveat. In line with what I explained in an August 21 post, both present results that are strongly influenced by what statisticians call “survivorship bias.” That is, they only serve up data based on the performance of manufacturing firms still in existence. Therefore, in principle, they shed only limited light on how current U.S. manufacturing performance indicators compare with past indicators.

Think of it this way: If the U.S. manufacturing sector had shrunk by this time to ten factories, and all of them reported strong growth in output and employment and new orders and everything else they measure, both the Markit and ISM reports would generate better results than a report ten years ago covering a domestic manufacturing sector containing 100 factories that reported slower growth and job gains etc.

Remembering survivorship bias is especially important when judging the ISM reports – which link their results to specific changes in overall U.S. economic growth. My research on this subject shows that in fact, the ISM results correlate poorly at best with changes in U.S. manufacturing output as measured by the Federal Reserve. The correlation with overall GDP is undoubtedly much worse.

So keep this record in mind when judging the new ISM report’s claim in particular that its strong headline figure of 59 (any result over 50 signals expansion), if it continued for an entire year, would correspond with economy-wide inflation-adjusted annual growth of 5.2 percent – a jaw-dropping rate. According to ISM, the slightly lower average monthly January-through-August PMI headline of 55 corresponds with real yearly U.S. growth of 3.9 percent – still awfully good, especially compared with a norm for the present recovery that’s about half as fast.

For what it’s worth, the rest of the August ISM report was at least as great as the headline. The Institute’s reading of new manufacturing orders hit 67.1 – its best level in more than ten years! This new order growth was so strong that it shifted the ISM order backlog number from contractionary territory in July back into expansion. Actual output reached 64.5, 3.3 percentage points higher than July’s very good 61.2. Manufacturing payroll growth slowed a tad from July, but at 58.1 still indicated solid growth. In all, 17 of 18 major industry groups tracked by the ISM grew in August, with textile mills the only exception.

The only worrisome aspect of the August ISM report concerned trade. According to the Institute, both the exports and imports of domestic manufacturers in August grew faster than in July, but imports appeared to be growing faster than exports, meaning (if there actually is a correlation with reality), an increase in the already astronomical U.S. overall and manufacturing trade deficits.

Markit’s monthly manufacturing survey is less closely followed than the ISM’s, but its August results looked similar. The headline reading of 57.9 was the highest it’s recorded for U.S. manufacturing since April, 2010 and words like “sharp,” “steep,” and “acceleration” marked its description of new orders and production trends. Manufacturing employment in August, moreover, according to Markit, grew at its fastest rate since March, 2013. And of special interest, Markit found that U.S. manufacturing export orders rose in August at their fastest pace in three years. (Import growth isn’t measured.)

In all, concluded a Markit economist, “The US manufacturing sector has gone from strength to strength this summer….” Of course, the survivorship bias issue suggests he should qualify this remark with a reference to “what’s left of domestic manufacturing.” For data with vital historic context – but still by no means perfect – we’ll have to wait for the Federal Reserve’s next monthly industrial production report, which comes out September 15.