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The U.S. Economy Demystified: What the Major Economic Statistics Mean and Their Significance for Business.

The US Economy Demystified.- What the Major Economic Statistics Mean and Their Significance for Business. Rev. ed. By Albert T. Sommers with Lucie R. Blau. Lexington, MA, D. C. Heath and Co., 1988. 154 pp. $19.95, cloth; $13.95, paper.

The purpose of this book is to increase the reader's ability to understand the major data series on the U.S. economy and thereby to enable the reader "to develop confidence in his knowledge of current economic events, and to sense the probable range of future developments." According to Albert T. Sommers, the book is intended, not for professional economists, but rather for business decision-makers, financial executives, and private investors "who seek a compact, digestible guide to the evidence on economic conditions." Therefore, this volume presents no ground-breaking analysis (except, by definition, for the author's discussion of housing-start data). What it does present is a lucid, edifying, and very readable explanation of the major macroeconomic data series. A large number of charts clarify the discussion, and a unique-and very useful-feature of the book is a set of calendars showing the approximate release dates of the important economic indicators. Another unique feature of the book is a list of the addresses and telephone numbers of the agencies that publish the major economic statistics.

Sommers reports in his preface that the book has been adopted as a supplementary text in many economics courses. I heartily recommend the book for this purpose. While standard macro textbooks do a good job of presenting theory, they generally do not teach the student how to interpret the various statistics relating to the current business environment. Sommers' book fills this void nicely.

I must note one irony in the book. Sommers comments that "in the years since 1984" the U.S. economy has remained sluggish despite stimulative economic policy, but that this paradox "does not reflect defects in the statistical system." However, recently revised GNP data show that the economy has not, in fact, been sluggish. Thus, the growth rate for 1985 has been revised from 3.0 to 3.4 percent and the rate for 1987 from 2.9 to 3.4 percent, largely because sales to consumers, government, and foreigners now appear to have been stronger than was apparent earlier. Thus, despite Sommers' comment, the fault appears to lie not in our sales, but in the stats.

Sommers' introduction says that the book is designed to help the reader understand the issues confronting the U.S. economy "in the remainder of this decade." I infer from that statement that the author plans another revision in the early 1990's. Another revision would be most welcome, not only because any discussion of statistical series and their meaning must be updated periodically, but also because the revision would afford the author an opportunity to correct some flaws that mar an otherwise excellent work.

The flaws are of two types. First, the book shortchanges the reader in its coverage of some important data series. For example, while acknowledging that the index of leading indicators "receives enormous attention from the press," the author does not offer any discussion of the strengths and weaknesses of the index as a forecasting device. Employment data are similarly shortchanged; the discussion of the differences between the household and payroll measures of employment, for example, is confined to a single sentence on page 80. The employment data warrant more attention, because they are the first of the comprehensive monthly indicators to appear, and they provide business analysts with the earliest assessment of the economy's performance in the previous month. Moreover, the differing behavior of the two employment series has been of great interest to businessconditions analysts during the current economic expansion.

The book's second flaw consists of a number of errors of fact and some statements of questionable analytical accuracy. Thus, on page 30, the author writes that "durable goods" in the national-income-and-product accounts are those with an expected life of "more than a year." The standard is actually 3 years. On page 7, Sommers states, "In the automobile market and in the housing market the term of loans stopped rising several years ago." In fact, Federal Reserve Board data show that the average term of a new-car loan at auto finance companies was 56 months in the spring of 1988, up from 50 months in 1986 and 48 months in 1984.

On a more conceptual matter, Sommers implies on pages 92-93 that the Keynesian multiplier applies only to investment goods, and not to consumption goods. In fact, it applies to both. A most puzzling statement appears at the bottom of page 79: "It is often argued (with some justice) that unemployment compensation tends to elevate unemployment, but it is worth noting that on average more than half the unemployed are unemployed because they lost a job." I am mystified by the "but" part of this sentence. Does Sommers mean that the high proportion of job losers among the unemployed shows that unemployment insurance (UI) is not a factor in increasing unemployment? By and large, it is only job losers (as opposed to job leavers and idle labor force entrants and reentrants) who are eligible for UI, and so, if anything, the high proportion of job losers among the unemployed supports the hypothesis that UI increases unemployment. (According to that hypothesis, UI increases unemployment by lengthening the job search of job losers.)

These flaws aside, the quality of Sommers' work is certainly a business conditions economist's best kind of unemployment insurance. -EDWARD I. STEINBERG Economist AT&T
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Author:Steinberg, Edward I.
Publication:Monthly Labor Review
Article Type:Book Review
Date:Apr 1, 1989
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