What is “Unexpected” Economic Data?

This is something I’ve been puzzling about for awhile: where and from whom do business journalists get their expectations about economic data?

Getting through the entire Wall Street Journal is a time consuming proposition – especially when you let your online subscription lapse. I like to check in and see what the stock markets and commodities are doing, but I generally don’t read a whole lot of economic indicator articles. Skimming the headlines, maybe reading an entire article occasionally is enough for me to know that yup, economy still sucking.

Conservative bloggers, ever alert for the awful liberal bias of those lamestream media lemmings in the news, have been pointing out the frequent use of the word “unexpectedly” when reporters describe negative economic indicators. Glenn Reynolds, a law professor at the University of Tennessee, regularly links on Instapundit to articles with “unexpectedly” in them – usually with an accompanying disparaging comment. Michael Barone at the Washington Examiner has also commented. Jim Geraghty magnanimously suggests that it isn’t all the media’s fault because many bank economists tend to be optimistic about the recovery as well. Geraghty, writing over at the National Review Online, ends with this excellent jab:

If you ever have to get into a fistfight, make sure your opponent is an economist often consulted by the mainstream media, because that way you’ll always have the element of surprise.

Ha! Fistfights! Economists! Man, economics and economists are soooooo abused. Good thing I’m only getting a minor in that.

So, let’s apply a little journalistic strateegery to this problem.

If you’re job is to cover economic data for, say, Bloomberg News, where do you start? You get a schedule going of what economic indicators are coming out – employment data, manufacturing data, consumer confidence surveys, retail sales etc. – then you look for sources more knowledgeable about these indicators and the overall functioning of the economy than you are. After all, journalism is not about being an expert on something – you should know at least enough to ask smart questions and understand the answers. If you don’t understand the answer a source gives, ask for clarification. As my wonderful News professor Karon Speckman said: “It’s better to look stupid in front of one person than to look stupid in print.”

You talk to some economists – maybe they’re previous contacts you’ve had, maybe they’re new ones you’ve made from banks or analyst companies or universities – and get their predictions/instincts/crystal ball readings for these economic indicators. Does this produce some insularity? Probably. Maybe you talk to the same four or five people and maybe they’re wrong a couple of times and you put “unexpectedly” in your nutgraf because of this. Hopefully you try to go and find someone who made the right prediction last time… Lets look at an example of economic coverage from Bloomberg! I was looking for one with “unexpected” in it and sure enough, the headline is “Economy in U.S. Expands at 1% Annual Pace, Less Than Economists Estimated.”

Saying less than estimated is just a clearer, more explicit but less concise way to say “unexpectedly.” The conotation differs in that “unexpectedly lower” sounds worse than “less than estimated.” Although that’s definitely debatable. When a reader sees the phrase “unexpectedly,” they hear something like “they had no idea this was coming” but with “less than estimated” it’s more like “oh, well, it was just a bit lower than they’d estimated.” Or that’s how it strikes me.

Now, this Bloomberg article does a pretty excellent job of backing up this “economists estimated” bit. They did a survey. “The median forecast of 81 economists surveyed by Bloomberg News called for a 1.1 percent increase in GDP. Estimates ranged from 0.3 percent to 1.6 percent.” The article also has some good quotes from those economists consulted by the mainstream media about what the reasons behind the drops are. There’s a thorough examination of the GDP growth forecast cuts by “economists” – really Goldman Sachs and a research firm… Then it ends with this note: “The economy last quarter was also hurt by a drop in government spending as state and local agencies tried to close budget gaps.” Heh.

Next step: looking at some journal articles on economic reporting bias under Republican and Democratic presidents. Found a recent one already.

We investigate whether there is any significant correlation between the endorsement policy of newspapers, and the differential coverage of bad/good economic news as a function of the president’s political affiliation. We find evidence that newspapers with pro-Democratic endorsement pattern systematically give more coverage to high unemployment when the incumbent president is a Republican than when the president is Democratic, compared to newspapers with pro-Republican endorsement pattern. This result is robust to controlling for the partisanship of readers. We find similar but less robust results for the trade deficit. We also find some evidence that newspapers cater to the partisan tastes of readers in the coverage of the budget deficit. We find no evidence of a partisan bias – or at least of a bias that is correlated with the endorsement or reader partisanship – for stories on inflation.

Larcinese, Valentino, Riccardo Puglisiand James M. Snyder Jr. 2011. “Partisan bias in economic news: Evidence on the agenda-setting behavior of U.S. newspapers.” Journal of Public Economics 95: 1178-1189.      <—- Yeah, was doing APSA citations today in PoliSci Research Lab.

More on this to come. Maybe it’ll make a good research topic. That’d be cool.

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