"Those crazy Canadians are stealing our growth!"
The U.S. calculates their exports to Canada by using data on Canadian imports from the U.S. This procedure usually works well, but in November, apparently due to a computer change-over, Statistics Canada missed one day's worth of import data, and it turned out to be a day that would otherwise have been a big reporting day. The result was that U.S. economic production for the 4th quarter was understated by about 0.5%, giving rise to the quotation in the title of this posting once the error was discovered. (Be sure to check out the comments section of that link [thanks to Phil for e-mailing me the pointer]).
It is fun to ridicule gubmnt bureaucracies and their egregious errors, but this really is not a laughing matter. If U.S. macro policy makers (aka witch doctors) think that U.S. growth was considerably below expectations for the fourth quarter, they would be tempted to over-stimulate the economy, especially if they are into fine-tuning in a big way. The St. Louis Fed understands this problem very well:
Since 1978, two-thirds of the revisions between the advance estimate and the final estimate of real quarterly growth were between -0.6 and 0.9 percentage points. This means that the likely range of the final estimate of fourth-quarter real GDP growth-which we won't see until the end of this quarter-is between minus 0.4 and plus 1.1 percent. To compound the problem, the so-called final estimate isn't the last estimate. Every summer, in July or August, the final estimates are revised and every three years we get major revisions. Since 1978, latest estimates have differed from final estimates by an average of 1.2 percentage points in either direction. Thus, the latest estimate for 1980, say, changes over time. As a consequence, economists like to say that history is never what it used to be! In principle, the estimates keep getting better as the statisticians find improved source data, refine estimation methods, and improve underlying concepts.
When one considers the enormous task of estimating the size of the U.S. economy, these problems might seem small. But, for making monetary policy decisions, they can make a critical difference. In fact, the range of uncertainty over growth rates can imply opposite short-run monetary policy responses. Given the uncertainty, it is often best for policymakers to sit tight, waiting for the uncertainty to be resolved by new information and revised data. What this means, obviously, is that sometimes it is clear in hindsight that policy action should have come sooner, or even in a different direction.
The above quotation is from a speech by Wm. Poole, President of the St. Louis Fed, in February 13, 2002.