Recent concerns have emerged about the accuracy of critical economic data, which plays a significant role in shaping market expectations and monetary policy decisions. Key surveys that track vital statistics like the consumer price index and job openings are reportedly capturing a narrower segment of the population than before.
According to the Bureau of Labor Statistics, the response rate for surveys monitoring the consumer price index has dropped from 67% in 2016 to 53% this year. Similarly, the response rate for job openings has fallen from 66% to 31%.
This decline in response rates is particularly troubling for markets that are keenly attuned to the Federal Reserve's data-driven maneuvers. The increasing volatility and sensitivity of markets to economic reports have raised questions about the precision of these statistics.
Claudia Sahm, a former Fed economist, voiced her concerns to Business Insider: "They're not giving us as accurate a picture...you get movements from month to month that aren't reality."
Implications for Investors and Policymakers
The deterioration in the quality of these surveys not only affects their reliability but also amplifies market volatility.
Sahm pointed out that as variability in data increases, markets may react more dramatically to fluctuations that may not accurately reflect economic realities. Goldman Sachs, in a report last month, noted the rising uncertainty due to larger-than-usual data revisions, such as job openings being revised by an average of 180,000 over the last few years - more than triple the typical revision six years ago.
Moreover, individual data releases have become increasingly influential in recent years, significantly impacting Federal Reserve policy decisions and, consequently, market behaviors. For instance, the stock market experienced significant swings following a cooler-than-expected inflation report last month, as well as after other data releases in September and July.
In light of these developments, Sahm advises investors to exercise caution, though not suspicion, in their reactions to the latest economic figures. She suggests a balanced approach: "Don't overreact to some sharp turn, because it might not be real or it could turn back really fast."