Government Conspiracy: Are Economic Numbers Cooked?

This is a question raised by politicians and individuals alike both on the left and right of the political spectrum.  I actually like when I receive questions or assertions from clients and investors regarding the validity of economic numbers as I believe being  a skeptic and questioning data makes for sounder long-term investment decisions.  I’m certainly one myself, in addition to being a contrarian (a necessary trait for a value investor); however, though questioning economic numbers and their sources is important, it is also vital to look at all of the pieces of the economic puzzle in their entirety when developing an economic and investment outlook and strategy.
 
One should certainly understand the methodology of economic numbers and that the science is a social science which is not as exacting as the discipline of Physics or Chemistry as economics is subject to the whims of human emotion.  I would concur with those skeptics who may argue that economists are not immune to their own prejudices and/or political viewpoints which could skew their outlook and results. 
 
That said, the over 300 Ph.D. economists who work for the Federal Reserve and thousands who work for the government in the Departments of Labor, Agriculture, Treasury, Commerce, Defense, Energy, EPA, Transportation, Interior, etc. are intelligent and ethical individuals in which a conspiracy involving all would be more than difficult to pull off when determining the unemployment number or the price of a gallon of milk in formulating the inflation rate.  I would say the same about the hundreds of patriotic and honorable Marines with whom I served in the federal government who would be hard pressed to drive a major cover-up in which none would have the courage to speak out about a fabricated number should he or she be pushed to do so by a superior.
 
Economics is the dismal science as it rarely gives a clear signal as some economic indicators may display a recovery while others a recession.  Thus, when formulating an investment strategy one must take a multitude of factors into account when attempting to determine where the economy is heading.  One may find contradictory information from affiliated and non-affiliated entities such as the Chicago Purchasing Managers Indexes (owned by Deutsche Borse), University of Michigan Consumer Sentiment Index, ADP, Federal Reserve and separate governmental agencies such as the Department of Labor, Department of Housing, et al.
 
As a top-down, then bottom-up money management firm, our economic outlook is an important part in directing an allocation to particular asset classes, sectors and industries.  This information may of course be gleaned from both government and non-government sources.  As an example, one may find useful information in not only the Department of Labor’s unemployment numbers, but also in the private ADP jobs report – which generally run in similar numeric “themes”.
 
Therefore, though I would agree that one should maintain a healthy skepticism when investing (though cautious optimism may be better due to historical precedent); one should not ignore economic numbers in total as the data may be able to help identify both risks and opportunities going forward.
 

Download Our Free White Paper To Learn More About the Importance of Dividends for your Portfolio!

The Merits of Dividend Investing Free Download
Back to Blog