Why does government data need to be revised so often?  Is it conspiracy, as some claim, or is it methodology?  If it is methodology that leads to faulty data, why not change the methodology?  Is unemployment a lagging indicator, as conventional wisdom suggests?  We look again at the underlying assumptions to suggest that things are not always the same.  And finally, we look at unsustainable trends, fiscal deficits, and health care – there is a connection.

“Many market-watchers claim that U.S. economic statistics are increasingly being revised downward in subsequent periods, suggesting that the figures initially being reported by Washington are “puffed up,” so to speak, most likely for political purposes.”

"Well, I went back and had a look at the differences between the reported and revised data for various series, including monthly retail sales, non-farm payrolls, industrial production, and durable goods orders, to try and figure out if the cynics are right.”

“Using data from Bloomberg, I calculated whether the revised data for each month was lower than the first-cut estimate.  Then, I tabulated 12-month running totals for each series to see if there has been some sort of systematic bias (in other words, whether the pattern of monthly downward revisions was trending higher instead of undulating up and down).”
“To make the comparisons easier, I subtracted the 12-month tally as of May 2002 (an arbitrarily chosen date) from the monthly totals for all four economic series so that the starting point for each would be the same ... zero.”
“Based on a quick read of a graph of the data (see below), it does seem as though the pattern of negative revisions has been trending higher lately, especially during the past year or so, suggesting that the cynics may be on to something.”

This is an excerpt from May 2009 issue of Trader's Journal.