A billion-dollar mistake that the U.S. Commerce Department made Thursday in reporting February’s trade figures could be a warning of even greater problems with the nation’s economic statistics, government officials said.
Hours after reporting the February trade deficit was a larger-than-expected $11.6 billion, Commerce officials reversed themselves and said the shortfall was $10.4 billion.
They blamed the error on bad information from the Treasury Department’s Customs Service about the amount of imported oil and petroleum products.
The correction came after U.S. markets had closed for the day, and by Friday morning, investors had moved on to other concerns.
Still, while Commerce Secretary William Daley told CNBC Friday, “It won’t happen again,” the official who runs the department’s statistical collections said a market-altering error is becoming increasingly possible.
“Our economy is changing very rapidly and the system isn’t keeping up with it,” said Everett Ehrlich, the department’s undersecretary for economic affairs. “There is the possibility of a crash.”
In fact, the agencies that track and report on the U.S. economy have been plagued by a series of problems. On Feb. 3, after discovering a data error, the Commerce Department abruptly announced it was delaying release of the December new-home sales report.
In March 1995, the Federal Reserve owned up to a $4 billion “miscalculation” in its report on January consumer credit, though it refused to say how the error happened.
And the accuracy of the Labor Department’s consumer price index has become a subject of political controversy because of assertions by private economists and Federal Reserve Chairman Alan Greenspan that it overstates the nation’s true rate of inflation.
Any of those errors theoretically could cost investors millions. “It’s an absolute farce,” said Martin Armstrong, chairman of Princeton Economics International Ltd., an international economic and capital market research and consulting firm. “The statistics situation is absolutely appalling.”
So far, however, traders have mostly taken the errors in stride.
“Investors are more concerned about where interest rates are going,” said Robert Stein, president of Astor Financial Inc., a Chicago-based currency adviser. “The markets have been moving on fears the economy may be overheating.”
A March 31 mistake by the Agriculture Department did move markets. The department mistakenly overstated stockpiles of soybeans by 22 million bushels. When the number was corrected a day later, soybean prices rose more than 2 percent.
The error prompted sharp criticism from Senate Agriculture Committee Chairman Richard Lugar (R-Ind.).
“It’s critical, particularly in times of tight stockpiles and high volatility in the markets, that USDA statistics, a key foundation of (traders’) positions, be reliable,” Lugar said in a letter to Agriculture Secretary Dan Glickman seeking an explanation.
The Agriculture Department blamed human error for the soybean mistake. The problem with Thursday’s trade report was a system failure, according to the Commerce Department.
The oil records are collected by Customs from hand-written shipper declarations, and forwarded to the Census Bureau for processing. This past month, Customs officials forwarded old reports of crude oil shipments from as far back as November 1995, which were then counted as part of February’s report. The Customs Service is trying to figure out why, said Bill Anthony, the agency’s director of public affairs. “I don’t have the answer yet,” Anthony said.
Concerned about the potential for a market disaster, Sen. Daniel Patrick Moynihan (D-N.Y.) has been campaigning for a fundamental overhaul of the nation’s statistical agencies. Along with fellow Democratic Sen. Robert Kerrey of Nebraska, he’s introduced legislation establishing a commission to study the country’s unwieldy data infrastructure.
In the U.S., several governmental agencies compile economic data. That contrasts to a single federal agency, Statistics Canada, for America’s neighbor to the north.
