Why You Shouldn’t Trust Biased Economic State Infographics

I don’t mind it when people support President Obama if they believe in the things that he’s doing. However, I do have a problem with people quoting economic indicators to people who might not understand them. For example, why would they quote GDP growth when that doesn’t necessarily mean that the economy is doing good? Why show the unemployment rate, but not the rate of those not in the labor force and the labor force participation rate?

The answer is simple: Either the creator of biased infographics like this don’t understand much about economic indicators or they know enough to know better, but they think you don’t. It’s not fair for people like this to mislead the country into support like this. I’m going to show how to analyze data for yourself so that you don’t get misled.

President Obama took office on January 20th, 2009. Thus, any chart that I will display in this article will start from that date unless otherwise noted.

Dow Jones Index

They say that if you want to know how the economy is doing that you should look at the stock market. One problem is that the Dow Jones Industrial Average isn’t usually the index we economists look at. In fact, informed investors that want to know about the health of the economy tend to look at what the economists look at: The S&P 500 Index. It makes one wonder why the Obama supporters quote the Dow.

Just like earlier, the answer is very simple. The S&P 500’s price when Obama took office was 805.22 and today is around 2,050. This is quite impressive for the market to have recovered like this. But the creators of this infographic most likely thought that it would be much more impressive to use the Dow’s nearly 10,000 point jump than a meager 1,200 points.

Unemployment

When it comes to the unemployment rate, we tend to think that lower is always better. While this is usually the case, there is one thing that isn’t as widely known about our unemployment rate: Lower doesn’t always equal higher employment. The Bureau of Labor Statistics (BLS) classified unemployment as unemployed and looking for work. They could be laid off, fired, or had voluntarily quit. The big thing that matters is whether or not they’re looking for work. Otherwise, they’re considered not in the labor force, which includes discouraged workers.

On top of not in the labor force, there is another great indicator called the labor force participation rate. It measures the number of people who are participating in the labor force, or employed. I recommend comparing this rate to the unemployment rate because it shows whether or not the cause of unemployment is good or bad. Here’s what it looks like:

fredgraph-2

The blue line represents unemployment and the red line is the labor force participation rate. When they decline together like in this graph, it suggests that the reason why unemployment is dropping is due to people not looking for work anymore after being laid off or fired. Of course, I’m not saying that the unemployment rate is being miscalculated. I’m just saying that it doesn’t fully represent the full extent of the unemployed. Because of this, people need to understand that there are other indicators that need to be looked at.

Another interesting thing to look at is the average rate of unemployment during each presidency. This isn’t something that you can’t really look up as much as you need to calculate. Luckily, I went to the trouble of doing this already:

Presidential Indicator Comparison_29874_image001

The way that I calculated this was by literally taking the average unemployment rate and rate of those not in the labor force of each of the presidencies. The ideal situation is to have those not in the labor force as low as possible while the unemployment rate decreases. The average unemployment rate for George W. Bush was 5.3 percent and average not in the labor force was 75,990,600 people. While Bush had a lot of issues, Obama’s averages indicate that there is much more going on.

The average unemployment rate for Obama has been 8.2 percent and average not in the labor force has been 87,298,200 people. This would suggest that the Obama administration’s economic policies haven’t been very effective. While the last few months have been great, it still doesn’t fix his 8.2 percent average. We could blame Bush, but his average unemployment rate was 5.3 percent throughout his entire presidency.

GDP Growth

GDP growth is an interesting thing for them to include on this infographic. I say this because GDP that is always growing isn’t exactly a good thing. It’s okay to have a quarter of declined activity. The National Bureau of Economic Research (NBER) stated that “The committee’s determination of the peak date in December 2007 occurred 11 months after that date and the committee’s action in determining the trough date of June 2009 occurred 15 months after that date. Earlier determinations took between 6 and 21 months. There is no fixed timing rule.” In other words, the NBER won’t declare a state of recession after a quarter of decline.

The reason why I tell people that you can’t really compare presidency’s growth of GDP to each other is because it doesn’t accurately reflect the effectiveness of any of their policies. GDP growth can happen from a lot of different things such as a great stimulus package, inflation, or a large increase in the incomes of the rich. Do any of these things actually translate to the benefit of the people? Only the stimulus package helps and only a little bit. Inflation isn’t a good thing to always have in large spikes. And do I really have to get into why increases in the incomes of only the rich isn’t going to help the poor?

Deficit GDP %

There’s an interesting thing about the budget: There’s almost always a deficit. That’s why I find this to be one of the more honest of indicators. However, it still doesn’t do much until you add up all of the surpluses and deficits. The net surplus or deficit will give you a more accurate view as to what the budgets have been like under each presidency. Here’s a chart that I created on Excel using data from FRED by the St. Louis Fed.

Deficit

If we look at the graph above, we can see that there are quite a few fluctuations. Under George H.W. Bush and Reagan, there were wars and other policies that created budget deficits during their presidencies. This is very obvious with George W. Bush’s administration. However, something that’s quite noteworthy is Obama’s net deficit. George W. Bush had a total of nearly $2 trillion in deficits, but Obama has had more than $6 trillion in total deficits to this day. Maybe there were surpluses, right? Well, there were and they were already added. Hence, these are net surpluses and deficits.

Consumer Confidence

Currently, the consumer confidence index is at 96.4, which is great. In case you didn’t know, the consumer confidence index, generated by The Conference Board, is an index that measures consumer outlook and sentiment on the state of the economy. What people don’t really tell you is that this is a good economic indicator to look at if you’re an investor. Something else that you won’t hear, unless you look for yourself, is that you can’t just view the historical data. You have to purchase it, and it’s not cheap.

There is another decent measure of consumer sentiment by the University of Michigan for free on FRED. Looking at this will give us an interesting insight. Here’s a picture of the graph starting from Obama’s first day as President:

fredgraph-3

The interesting insight that I’m referring to is the huge dip in the consumer sentiment. We’re almost never told by the media that supports the president about the large dips like in 2011. 2010, 2011, and 2013 had large dips. But the infographic that this whole article is stemmed from tries to put Obama in an amazingly good light. I would say this is propaganda because, while there’s no slogan, it uses skewed information and half-truths.

The Intent of the Creator

In propaganda, symbolism is important. The stock market is largely symbolized by the Dow Jones Industrial Average. The American labor market is largely symbolized by unemployment. Two large symbols of GDP is growth and deficit. Consumer confidence isn’t really a symbol as much as it’s something that they thought would be good to point out regardless of whether or not people knew it actually existed.

Obviously, the intent of the creator of this infographic wanted to put the Obama administration in a good light. While this is noble of the creator, it wasn’t noble to use these kind of economic indicators.

Educate and Double Check

I am huge in educating oneself and double checking numbers. This is why I have a page of fact checking links and Econ links. The reason why we shouldn’t trust biased infographics about the state of our economy is because there’s usually another side to the story. I’m not saying to throw it out completely. The Dow really did increase by that much from that low. Consumer confidence really was up. These are good things. However, the unemployment rate and GDP indicators were misleading because not a whole lot of people really know what it includes.

I urge everybody who doesn’t know much about economic indicators to learn more about them. Because of things like this, I’m going to create a list of economic indicators with definitions, and how to calculate them, as pages on this blog.

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