The Covid-19 pandemic’s impact on the economy has presented significant measurement challenges. These include challenges to measuring gross domestic product (GDP), which create difficulties for agencies that produce these data, including in the US the Bureau of Economic Analysis (BEA).
Unlike most recessions, where growth slowed in the quarters preceding the recession, the economic impact of the coronavirus occurred suddenly in the last two weeks of the third month of the first quarter of 2020. There are only limited source data available for a number of GDP components for the third month of any quarter. Use of standard extrapolation procedures for these sectors, including consumer spending on services most affected by Covid-19, would not have been able to catch the rapid downturn at the end of March. Also, Covid-19 and associated shutdowns lowered response rates to surveys, and thus possibly introduced biases to the regular monthly survey-based estimates. Finally, BEA had to review and classify newly enacted and complex Federal programs to ensure that they were accurately captured and properly classified in the GDP accounts.
In response to these challenges, BEA:
1. Incorporated alternative new data sources and methods. As part of its ongoing research work, after careful testing and vetting, BEA had been introducing credit card, scanner, and other high frequency, “real-time” data in selected series to supplement its existing survey and administrative source data. Confronted with the first quarter need for more granular and more timely data, BEA quickly expanded its use of high frequency credit card data to help estimate the late period decline in consumer spending, and it used weekly unemployment claims data to estimate business production and compensation.
2. Worked with other agencies to understand the quality and coverage of regular source data. This exchange of information with the Bureau of Labor Statistics and Bureau of the Census, along with discussions with the Federal Reserve and other data producers and users, helped BEA in better understanding the accuracy of its regular survey-based data and any needed adjustments.
3. Reviewed recovery legislation to ensure accurate and reliable classification. Different types of government programs have different impacts on the economy. As a result, BEA had to examine, classify, and measure the various types of expenditures authorized in multiple major new recovery laws passed in the month of March.
4. Developed a transparent communications strategy. BEA provided data users with timely and transparent information to help assess the Bureau’s new and existing data sources and methods.
Correctly measuring and classifying the effects of the Covid-19 pandemic are important inputs into the economic policy response. For example, measuring incomes losses caused by Covid-19 helps assess the adequacy of transfer payments designed to assist those affected by the shutdowns and to formulate any follow-on legislation.
Correctly classifying the types of spending in the GDP accounts is also important in assessing the fiscal stimulus needed to restore growth. According to the Congressional Budget Office’s and the Council of Economic Advisers’ estimates of “multipliers,” public investment outlays through multiple rounds of spending and re-spending raise real GDP by 1.5 times the amount of the increase in real government spending. State and local fiscal relief and income and support payments have a multiplier impact greater than one. Tax cuts have a multiplier of just less than one and business tax incentives have an estimated multiplier near zero.
There is much still to be learned in measuring the impact of Covid-19, but some of the lessons thus far are: (i) The importance of an ongoing R&D program to keep up with changes in the economy, openness to the use of mixed data, and the flexibility to respond quickly to changes to keep economic data accurate, timely, and relevant; (ii) The need for coordination with statistical partners and data users; and (iii) The importance of timely and transparent communications with the public.
© J. Steven Landefeld
J. Steven Landefeld is Retired Director of the Bureau of Economic Analysis in the Department of Commerce, USA
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