Their Accuracy Can Be Improved

ECONOMIC INDICATORS Their Accuracy Can Be Improved

THE fall-off in business is emphasizing a question that has long bothered economists: How accurate are the dozen or more key statistics generally used to show the health of the U.S. economy? Last week the steel industry decided that its closely watched production measure (i.e. the operating rate compared to overall capacity) is an unreliable guide for the unwary because 1) capacity is constantly increasing, and 2) the capacity total is arbitrarily set each January instead of being increased as capacity grows. Thus last week's estimated production of 1,538,000 tons is rated at only 56.9% of the new capacity whereas it is actually more than 60% of capacity by the yardstick used only three weeks ago. From now on the steel industry will emphasize actual weekly productions in tons.

No one denies that, taken together the economic indicators have correctly mirrored the downturn in the economy. But just as the main indicators exaggerated the rise by failing to note price hikes and ignoring some slumping areas, so now they are apt to give an exaggerated picture of the drop since they ignore segments of the economy that are steady or rising. So great is the latitude for individual interpretation that last week three of the nation's top economists, looking at the same set of indexes, made three different conclusions. One saw an upturn coming "during the year" another hazarded only "not in the first half, and yet a third guessed "maybe by spring."

One of the most frequently quoted indexes, the Federal Reserve's monthly industrial-production index is widely regarded as a measure of total economic activity. Actually it measures current activity only in mining and manufacturing, which have been declining and ignores both construction and public-utilities output, which have been rising steadily, as well as the service industries, which employ the majority of workers and change very little during boom or recession. Thus the production index has dropped 7-4% in the past year, even though there has been nothing like a 7% drop in all economic activity. Says a Government economist, "People take a 1point drop in the industrial index as being more serious than it is."

The gross national product, one of the most often-quoted indexes, is also open to criticism. Designed to wrap up all the statistics in one package it comes out only every quarter, "thus ' often reflects where the U.S. economy has been instead of where it is. Says a Chicago banker: "It's a sluggish graph line. When you get a rapidly developing situation, as we have now a lag can be murderous."

Even so basic an economic statistic as employment is not accurately gauged on a month-to-month basis; the Census Bureau merely takes a sampling of 35,000 households uses it to estimate national figures. The only figure based on an actual count is the one showing how many have applied lor unemployment compensation. But that errs on the bright side. It shows unemployment to be 2,360,400, about 17% less than what many believe it actually is.

Economists are particularly aware of the need for improvement in inventory figures, think that they can be misleading because methods of reporting differ widely, and some companies do not report fully for competitive reasons. Inventories are now dropping but the figures give no solid indication of how close manufacturers are to the bottom of their supplies and when they will have to start buying again--both vitally needed facts on which to judge an upswing in the economy.

Another factor is retail sales, on which there is no comprehensive up-to-date statistic. The most current is the Federal Reserve's weekly index of department-store sales, which shows that sales are on the rise. But since it covers, only 6.7% of all retail sales and does not include many important items, e.g., autos, economists are not sure whether overall spending is still on the rise or has dropped.

Many Government officials are aware that statistics could be improved by wider coverage and the speeding-up of reporting. But improvements have been blocked to date by congressional reluctance to grant the necessary funds, even though they amount to only a few million dollars

What is needed even more than an improvement in basic indexes is the integration of all the indexes into one overall, up-to-date index that could tell economists at a glance where the economy stands. Last fall the Joint Economic Committee recommended such an index, but Congress must first appropriate money to improve existing indexes. Until some overall measure of the economy's health is worked out, the Government will find the job of managing the economy by credit and other fiscal tools harder than it should be, for present indicators do not give enough facts on where the economy is--and where it is going.

This file is automatically generated by a robot program, so reader's discretion is required.