Why No One Knows Where the Economy Really Stands

Without solid numbers we can trust, no accurate picture of the economy is possible, writes Ed Wallace

By Ed Wallace

In the corporate world the first and most critical item for anyone taking over a troubled institution is determining where that company stands financially. Identifying and assessing cash on hand against negative cash flow, sorting out divisions that are hemorrhaging badly from those making a profit, and items such as outdated inventories that need to be written off against the costs of the products that are still selling—all of that is crucial information, needed immediately if not sooner. What the educated executive is looking for is where the company really stands on that given day. Only then can a baseline for performance be drawn and a way established to return the company to long-term profits.

In fact, it is widely known that the bigger a corporation's financial crisis, the greater the need to determine all of the facts quickly and in many cases ruthlessly. Obfuscation in a time of dire financial straits is always a critical mistake; it serves only to prolong the crisis, assuming it doesn't spell the end of the company.

America, the corporation, should follow this same rigid emergency business procedure. If we want to save the economy, we must start by knowing exactly where it stands now.

Real, Misguided, or Hype?

The lack of real numbers and transparency became more than apparent last week, when the consumer spending numbers for September were released showing a 0.5% drop. Wall Street's reaction was predictably negative, while numerous pundits added their multiple opinions about whether this meant the recession had truly ended. But the newly released numbers simply added confusion to the irony of it all: The day before September's retail results came out, the most recent GDP numbers had shown a strong rebound—a 3.5% annualized growth rate.

In the housing market, new studies showed home prices stabilizing and even increasing slightly, but sales of new homes still fell by 3.6%. (Existing homes were up nearly 10% from the previous month.) As for employment, many have written that there is finally a slowing of the new weekly jobless claims, followed by the net loss of jobs in any given month. But even here, one of the most shocking stories about the nation's overall employment picture came out a month ago and was widely ignored by most news media. This brings into question how the Bureau of Labor Statistics determines the employment numbers.

The lack of a full and honest accounting of the economy often leaves the media, and therefore the public, in the dark as to where the nation currently stands in this downturn. And that makes it nearly impossible to gauge if and when a solid, broad-based recovery will start. After all, it is the unknown that breeds fear.

Transparency Through Technology

The first place to start is with the accounting for consumer spending data. There is no reason whatsoever that America should be hamstrung by the outdated and often incomplete consumer spending data collected by the Census Bureau and released 30 days after the fact—not when we can get more accurate data almost instantly. States have computers now, and their quick publication of sales tax revenues reflect Americans' spending on discretionary purchases far more accurately than the numbers we're getting.

As an example, on Oct. 5 the Arizona Department of Revenue reported that its taxable retail sales had contracted 12.5% in July from the same period a year ago, and a few days later Nevada reported a 24.1% fall in sales tax revenue for the same month. In between the release of those two reports, Texas reported a 12.5% drop in sales tax revenue, and Georgia posted a 16% drop in retail sales taxes—for September. The point should not be lost: If America needs to know the true status of discretionary retail sales in America (whether the consumer economy is expanding or contracting), then we could force states to report their monthly sales tax revenues promptly and post all of the data publicly. As it is now, one has to read a lot of state newspapers to find the data.

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