One Reason Why Unemployment is Dropping

It’s difficult to reconcile the sharp drop in the unemployment rate with the relatively slow growth in measured real GDP. Some have criticized the unemployment statistics, worrying about an Obama ‘conspiracy’ to cook the unemployment books.

But an alternative explanation is that the government is underestimating the growth rate of real GDP by undercounting the strength of consumer data consumption. A new paper from PPI, Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy, makes the case that consumer consumption of Internet-related activities–email, video, social media, games, maps, and so forth–is rising much faster than the BEA numbers show. Once we correctly adjust for consumer data consumption, real GDP growth goes up about 0.6 percentage points.

So if the official GDP growth for the 3rd quarter is 2%, then the actual growth growth, adjusted for consumer data consumption, may be closer to 2.5%. That may help explain the drop in the unemployment rate.

To see why the BEA is underestimating the strength of consumer data consumption, take a look at the chart below. This chart, drawn directly from BEA data, tracks real consumer purchases of “Internet access”–both mobile and wired.

Please note that according to these BEA figures, Americans are consuming less internet access in real terms than a year ago. That can’t be right. To put it a different way, the official GDP statistics are describing a world in which Americans are retreating from the Internet. That’s not the world we live in.

Because this is “real” consumption, the effect of price changes is already taken out of the statistics. And as we explain in the paper, the “missing” internet access does not show up anywhere else.

Comments

  1. Mike Donnelly says:

    Interesting Mandel article, thanks. But Michael is missing the move from traditional sit in front of computer and use internet to “on the go” computing ala tablets and mobile smart phones. Mobile services rose 2x as much as internet declined. So those 3G and 4G purchases are just offsetting the very small decline in internet consumption. Also I doubt BEA can yet count when I use “free” wifi at a business location

    • Michael Mandel says:

      No. Real cellular services, as measured by the BEA, only goes up at the rate of new subscribers (see chart in my paper). So when you add up BEA’s numbers for mobile, wired, and internet access, you only get a very slow growth rate.

      • Mike Donnelly says:

        Nominal land line usage declines by 36% over 2002 – 2012 (Table 2.4.5U) (47% in inflation adjusted terms) Assuming some of the mobile subscribers are simple replacement, that alone would crash your blue line (mobile subscribers) in Figure 3

  2. Mike Donnelly says:

    Where’s the beef? Looking at Real Consumption data (NIPA, Table 2.4.6U monthly) It’s even worse when we add in the other categories Michael frets about. Yes consumption of Cable and satellite television and radio services, and Internet access have dropped a very small amount, but also the land line telephone usage has fallen. So just how much have these services dropped from June 2011 to August 2012 ? $8.95 Billion, but how about computer hardware including tablets, computer software and mobile cell services ? In that same time frame they are up $34.2 Billion.

    Sounds like mobile services up $5.3 made up for the loss in internet & landline, and tablets even more so.

  3. Mike Donnelly says:

    Lastly, the mobile subscribes line is wrong in Figure 2. Too much of that is simple replacment of landline phones. If you adjusted the subscriber line (blue line) by the loss in landlines (NIPA table Table 2.4.6U again) you would have a dramatically different picture.

Trackbacks

  1. […] Michael Mandel. More here. Share this:EmailPrintLike this:LikeBe the first to like this. This entry was posted in […]

  2. […] is undertaking. If you look at the sample data that Dr. Mandel reported from the GDP statistics, Americans are declining the use of the internet (really?). We are still “stuck” on only looking at tangible products because that […]

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