Spotty Economic Data is Complicating Fed Policy

The Response Rate Crisis

Policymakers need data to inform their decisions. That’s true for lawmakers as much as it is for the Federal Reserve. But what happens when data are flawed?

Response rates for key economic surveys are declining, with the trend worsened by the pandemic. Reports that once captured broad perspectives are now limited to increasingly smaller demographic groups, due to factors like service automation, the rise of remote work, and distrust of institutions.

That means these reports are at risk misrepresenting the economic landscape, which could in turn impact policy-making, as well as investment decisions.

Data Distortions

One such example is the falling response rate of the JOLTS report, or the Job Openings and Labor Turnover Survey conducted by the Bureau of Labor Statistics. The report shows how many open positions there are across the nation, as well as how many workers have quit, or been laid off in a given month.

Responses have halved since the start of the pandemic, from 60% to 30% today. That introduces nonresponse bias and worsens data volatility, which means more need for revisions. The average number of JOLTS revisions has more than tripled in the past six years, according to economists at Goldman Sachs.

Meanwhile, the volatile data swing during the pandemic have made it harder to calculate seasonal adjustments, which are used to smooth out distortions that occur for seasonal reasons. All this is making economic data a little harder to use.

Statistical Storm

Economic reports aren’t only important to the Fed, which never misses a chance to remind us that its policy is data-driven. Investors rely on these statistics to judge how the economy is faring, what the Fed might do down the line, and where to invest. And if data is less reliable, that becomes harder to do.

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