Tim Duy steps in to defend the BEA on autos
The blogosphere has been ablaze since the release of the Q3 GDP report on the subject of autos, and how the Bureau of Economic Analysis could possibly have found a 26% jump in auto production when everybody else sees auto sales falling. Nouriel Roubini has placed himself first in line among the critics, seeing all manner of nefarious possibilities:
This mismeasurement of motor vehicle production in Q3 is highly suspicious coming about ten days before the US mid-term elections. It is also highly suspicious as it is not clear how the Bureau of Economic Analysis (BEA) at the Department of Commerce could have made such a gross mistake when seeing an alleged 26% increase in auto production that was patently at odds with many facts…
Statistical measurement is always an art rather than a science but this is such a gross and obvious mismeasurement that BEA owes the public a clear and open answer. The fudged answer that Brent Moulton of BEA gave to Bloomberg for this first estimate will frankly not do.
So far, there’s been relatively little out of the BEA on the subject, but now we can see the other side of the story from Tim Duy, channeled, as ever, by Mark Thoma:
In converting from nominal to real, a decline in prices yields a positive increase in real sales, even if nominal sales stay constant (or even fell). As a demand side concept, this is not a problem. If the price of automobiles falls relative to other goods in my basket, I am unambiguously better off as my budget constraint increased. The real quantity of aggregate goods and services I can consume is greater. No mismeasurement. One, however, has to be careful of the supply side interpretations.
In practice, I tend to think of GDP as a demand side indicator, particularly when examining quarterly data. In any event, I find it disingenuous to accuse the BEA of manipulating the data for political purposes – the confusion is readily cleared up once you understand how the data are constructed.
I’m not even going to try to adjudicate this particular debate, but I’m happy that at least now there is a debate, rather than just one side of the story.
No Responses to “Tim Duy steps in to defend the BEA on autos”
Surely Nouriel is right; what the BEA is doing is using a marginal price as if it was an average price.
The easiest assumption (especially given the data) is that the BEA model assumes that people (and, especially, rental car companies) will buy more of the “new” model (or the “old” model at
marketinventory-clearance prices), which would occur in Q3.
Malice is possible, but not likely. When the same gaffe occurs over several years, it’s more likely a change in buying patterns.
Sorry; the strikeout of ‘market” above didn’t carryforward from the preview to the posting.
Fixed. Try using “strike” rather than just “s”.