[Congressional Record Volume 144, Number 100 (Thursday, July 23, 1998)]
[Senate]
[Pages S8948-S8949]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               IMPORTANCE OF ACCURATE ECONOMIC STATISTICS

 Mr. DOMENICI. Mr. President, I want to discuss a very 
important issue today that often does not get the attention that it 
deserves--the need for accurate economic statistics.
  Policymakers rely on statistics to guide them in their decision-
making process. For instance, the Federal Reserve sets interest rates 
based on the reported level of economic activity and inflation; 
Congress and the Administration craft multi-year budget proposals using 
an economic baseline that is built upon current data; we examine the 
effectiveness of different tax and fiscal reforms by their effect on 
measured savings rates.
  In all cases, we take for granted that these building block 
statistics give us a reliable portrayal of current economic conditions. 
We seldom consider just how difficult it is to construct them nor 
realize that it is getting harder to do so as our economy continues to 
evolve.
  We can no longer hope to measure overall economic activity by 
counting how many widgets roll off an assembly line. We have to put a 
value on financial and high-tech services. Increasingly, we will also 
need to be tracking

[[Page S8949]]

internet commerce. It is imperative that our data collection methods 
keep pace with our rapidly changing economy. Our statistical agencies 
employ exceptionally talented people who are working hard to ensure 
that this happens.
  In the last several years, one can point to many notable data 
enhancements from our statistical agencies. For instance, BLS has 
worked hard to improve the accuracy of the Consumer Price Index; BEA 
has implemented ``chain-type'' measures for GDP which provide a more up 
to date reading of the economy.
  Despite such progress, more needs to be done. Growth is booming in 
the service sector, where we have the least amount of source data. We 
need to increase our coverage of this important part of our economy. It 
is imperative that we do so immediately, because there are already 
signs that our statistics are lagging behind the economy's advances. 
There has been a growing discrepancy between economic activity measured 
on a product basis and an income basis. In recent years, Gross Domestic 
Product (GDP) has been growing 0.5 percentage points slower than Gross 
Domestic Income on an annual basis. In theory, these two items should 
grow at the same rate since they are technically measuring the same 
thing.
  Economists speculate that GDP growth is being understated because 
much of our recent economic growth has been concentrated in the hard to 
measure service sector. While a 0.5 percentage point difference in GDP 
growth might not seem like a lot, it has an enormous effect on our 
budget projections. Over a five year period, this difference could 
yield up to a cumulative $140 billion swing in our surplus estimates. 
Indeed, many believe that an understatement of GDP is a major reason 
why CBO, OMB and major private economic forecasters have been 
underestimating revenues as of late.
  Thus, if we want to ensure that we have more accurate budget 
forecasts going forward, we should be directing our energies at 
improving the accuracy of the data used to build these forecasts. The 
Bureau of Economic Analysis (BEA) which compiles the GDP series has 
laid out an ambitious agenda to make just such improvements to its data 
collection procedures. Amongst other things, they are seeking to step 
up their coverage of the information sector in order to ensure that 
comprehensive data is available for the computer industry.
  This is just part of their initiative to improve the GDP accounts. In 
order to do so, they have requested an additional $4.5 million. While 
this money is hard to come by given our tight budget caps, I think it 
is fair to say that this investment might have one of the highest rates 
of return within this bill. Indeed, in recent testimony to the JEC, 
Federal Reserve Chairman Greenspan said that statistics are ``one of 
the areas where I believe the payoff is of sufficiently large magnitude 
where very small amounts of money can have very large potential 
rewards.''
  I hope that we take heed of Chairman Greenspan's words and that we 
will be able to find the funds to allow our statistical agencies to 
improve their data collection processes. I believe that this is the 
most effective way to improve the accuracy of our budget forecasts and 
enhance the countless other policy decisions yet to be made.

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