There's an old story about Charles Darwin, which may or may not be true but seems appropriate to our current economic moment. According to the tale, two boys glued together pieces of various insects - a centipede's body, a butterfly's wings, a beetle's head and so on - then, as a gag, presented their creation to the great naturalist for identification. "Did it hum when you caught it?" he asked. When they said yes, he declared that it was a humbug.
That's kind of where we are in the economy right now. I'm not suggesting anyone is faking the data, but the different pieces of information we have don't seem to line up - they almost seem to come from different countries. Some data suggest a weakening economy, maybe even on the verge of recession. Some suggest an economy still going strong. Some data suggest very tight labor markets; others, not so much.
Let's talk about the numbers, and how they don't add up.
The number we usually use to assess where the economy is going is real gross domestic product - and according to the official estimate, real GDP shrank in this year's first quarter. We won't have an official (advance) estimate of second-quarter GDP until later this month, but "nowcasts" that try to estimate GDP based on partial information - like the Atlanta Fed's widely cited GDPNow - suggest slow growth or even an additional period of shrinkage.
Among other things, another widely used number - job creation - is telling quite a different story. The official estimate of growth in nonfarm employment in June came in quite strong - 372,000 jobs added - which doesn't look at all like what you'd expect in a recession.
So do we have a conflict between data on output and data on employment? If only it were that simple. We also have alternative measures of both output and employment - and in each case these are telling different stories than the more widely cited numbers.
We usually track economic growth using gross domestic product - the total value of stuff produced. But the government creates a separate estimate of gross domestic income, the money people get from selling stuff . The basic accounting says these numbers must be the same. But they're estimated using different data, so the estimates never agree exactly. And right now the estimates are diverging a lot: GDP shows a shrinking economy, but GDI, well, doesn't.
What about employment? The Bureau of Labor Statistics carries out two surveys, one of employers and one of households.
And right now the two surveys are telling different stories. I use quarterly rather than monthly data to smooth out some of the noise; the household data points to a much bigger slowdown than the payroll data.
But wait, there's one more puzzle. Everyone says we have an extremely tight labor market, and when you combine that with high rates of consumer price inflation, there are widespread fears that we're on the verge of entering the dreaded wage-price spiral. But wage growth isn't accelerating. In fact, it's falling fast.
Are you confused? You should be. I can't remember any period when economic numbers were telling such different stories. My guess about what's really happening is that the economy is indeed slowing, but probably not into a recession, at least so far.
Overall, the picture appears consistent with a "soft landing" - a slowdown that falls short of a full-on recession, or involves a mild recession at worst, together with stabilizing inflation.
But, of course, we don't know that. In fact, given the wide discrepancies in economic data, economic pundits (including me) have unusual freedom to believe whatever they want to believe. Just pick and choose the numbers that tell you what you want to hear and glue them together.
The New York Times