When the government says the the nation added 117,000 jobs last month, or the economy grew at an annual rate of 1.3 percent last quarter, it doesn't mean that the nation actually added that many jobs, or that the economy actually grew at that rate. It means those are the best estimates from the people who are trying to figure out what's really going on.
The thing is, those estimates are often off by a wide margin. We know this because the people who are trying to figure out what's really going on revise their estimates as more data come in. The later revisions, based on more and better data, are closer to what actually happened than the initial estimates.
We were reminded of this uncertainty by the recent massive revision in economic growth numbers, which showed the U.S. economy grew much more slowly than was previously thought in the first quarter of this year.
This morning's New York Times has a useful explainer on that revision — and a broader look at estimates of economic growth. Here's the key big-picture paragraph:
The growth rate that the government announces roughly one month after the end of each quarter ... has been off the mark over the period from 1983 to 2009 by an average of 1.3 percentage points, compared with more fully analyzed figures released years later, according to federal data.
That 1.3 percentage points is a big deal, given that economic growth is typically around 3 percent per year.
The NYT piece also has a detailed look at why the first-quarter estimate was so far off. Quick summary:
The answer in this case is surprisingly simple: the Bureau of Economic Analysis, charged with crunching the numbers, concluded that it had underestimated the value of vehicles sitting at dealerships and the nation's spending on imported oil.
We, like lots of journalists, economists and investors, pay close attention to a handful of these key indicators, including economic growth. It's worth paying more attention to the revisions — and keeping in mind that the initial estimates may be way off.