Deflation Nation

If you want to get a sense of how deflation is slowly transforming the world's second-largest economy, take a stroll through central Tokyo.

At first glance, the Ginza, the city's glittery equivalent of Fifth Avenue, Rodeo Drive, or Rue du Faubourg St. Honoré, doesn't appear any different from a decade ago, when the Japanese could still pretend that recovery was just around the corner. But look a little closer, and you can see the change. Take the site of the Sogo Department Store, a high-end emporium that once sold everything from elegant kimonos to shockingly expensive packets of dried seaweed. No more. The Sogo store has gone bust, a victim of one of the biggest contractions in retail-industry revenues in the world. In its place is Bic Camera, which specializes in deeply discounted consumer electronics. Half of Bic's wares are imported from the low-cost factories of China and Southeast Asia.

Now cross into the tiny backstreets off the Ginza's main drag, a warren once packed with hostess bars where a salaryman's evening out could easily set his company back $300. Today, many of those bars are gone, replaced by fast-food outlets, inexpensive beer pubs, and kaiten sushi joints -- the ones where you pluck your raw fish from a revolving conveyor belt. "There's nothing good about deflation," says Kennosuke Arata, owner of the Ecoro hostess bar in the Ginza. His building, 24 Marugen, used to house 40 such bars. Now there are fewer than half that many. Since Arata's customers come by less frequently, he is pressing the building's owner to lower his rent from the $5,000 he now pays every month. Otherwise, says Arata, "I may have to move."

Feeling depressed? Maybe a promenade around the Imperial Palace will revive your spirits. The four-meter-thick walls are as solid as ever, and swans still glide over the moat's limpid waters. Good thing the Emperor doesn't have a mortgage to pay off. In 1990, the Imperial Palace plot was said to be worth as much as all the land in California. Now, experts say it's worth about half of Los Angeles.

Alan Greenspan is warning that deflation could hit the U.S. The European Central Bank is watching for telltale signs of price collapse in Germany. But in Japan, such warnings would be old news. Japan is already Deflation Nation and will be for years to come. Ordinary Japanese -- workers, teachers, small-business owners -- are learning how to live in this new world. How they fare will determine whether Japan sinks into economic irrelevance or emerges from deflation a stronger, more vibrant country.

The chances of deflation strengthening Japan may well seem remote. After all, the macro numbers measuring deflation's impact on Japan are ugly. Since the bursting of the country's real estate bubble in 1991, the winds of deflation have been gathering force. Economists are familiar with the chain of events. Bad real estate loans started piling up at the banks, which slowly stopped making new loans yet kept propping up sick developers, contractors, and retailers with fresh infusions of capital. Overcapacity in buildings, factories, and companies never cleared up, and prices slowly but steadily headed south. To reignite demand, the Bank of Japan slashed rates and boosted the money supply, but with banks refusing to lend, it didn't matter. Small companies dropped like flies, and major manufacturers embarked on massive restructurings. Unemployment started rising -- to 5.4% today from 2.1% in 1990 -- and strapped consumers began dipping into savings. A bargain mentality, once rare in Japan, took hold. While there's lots of interest in Nintendo Co.'s new GameCube console, for instance, sales are soft. "Japanese are waiting for the price to come down," says Nintendo President Satoru Iwata. "Spending more than 20,000 yen ($170) is a heavy outlay for a Japanese family today." Imagine a Japanese exec saying that in 1989.

Japanese know how grim the numbers are. Stocks trade at 20-year lows, real estate prices are down 80% from their value a dozen years ago, consumer prices are falling for the fourth straight year, and wages dropped in 2002 by 2.1%. For a key demographic, men aged 50-54, unemployment and income numbers look even scarier than the average. In blue-collar parts of Osaka, joblessness is past 7%. "If prices and wages really drop at the same time for a long time, then it is a very big problem," says Mamoru Yamazaki, chief economist at Barclay's Capital in Tokyo.

That's the nightmare scenario: Japan's deflationary spiral accelerates and never really reverses. At some point, Japan's government can no longer manage the decline. Major bankruptcies spike, investment evaporates, and ordinary folk rapidly deplete their savings. You have to go back to the Great Depression to find anything comparable. Deflation was a big factor in that crisis, too: It helped cripple industrial production around the world and drive unemployment sky-high. In the 1930s, the price of everyday goods fell by 10% a year in both the U.S. and Japan, which devastated corporate earnings and undermined the financial system. The planet sank into an economic funk that it took a world war to break.

Is Japan really headed for such a deflationary scenario? Perhaps, but consider this. The country has been living with deflation in one form or another for a decade now, and while there's definitely a slow-motion crisis playing out, there's no sign yet of a Depression-level blowout. Wages and prices have been declining slowly, giving individuals and the larger economy time to adjust.

In fact, the process is conferring some real benefits. Japanese now buy lower-priced Chinese and other Asian goods and supplies, reducing the cost of living. Many Japanese manufacturers are shifting production to China and elsewhere in Asia, which helps them keep prices down. That makes it easier for consumers to live with their scantier wages. "Japan is moving to a low-cost structure," says Hiroshi Okuda, chairman of Toyota ( ) ( ) Motor Corp. Although the process is painful, he and other industry captains concede, it is forcing companies to trim down, tackle excess capacity, and become much more efficient -- and profitable.

For now, Japan's adoption of a low-cost economic model is hurting plenty of Japanese -- and helping many as well. An example: Kindergarten teacher Sayo Ohuchi, 37, earns $30,000 a year, but she is buying a $280,000 condo that five years ago might have fetched $340,000. Because of Japan's rock-bottom loan rates, she's paying just 3% a year for her mortgage. "I wasn't planning seriously on buying an apartment," Ohuchi says, "but everything worked out just right."

For first-time home buyers with steady jobs, such as Ohuchi, deflation has made life sweet. She still lives with her parents -- not unusual in Japan -- so she pays no rent. And as an employee of a public school, her job security is about as good as it gets. Even though her salary is modest, Ohuchi feels confident enough in her future to spend much of her income on discount travel packages that have emerged in deflationary Japan. "I usually go abroad once a year, sometimes twice," she says. She has blitzed around Europe with friends, taken safari tours in Africa, explored Egypt and Morocco, and even made it to Alaska to see the Northern Lights. Back in Japan, she fills her free time with English lessons and computer courses or shopping at Tokyo Bay Lalaport, a shopping mall full of European luxury goods. "Sometimes I say to myself, looking at bills at the end of the month: 'Oh, did I spend so much?"'

While Ohuchi is learning the pleasures of property ownership, for many Japa-nese in their 40s and 50s, it has become a misery. Anyone who paid the going price -- about $1.5 million -- in the late 1980s for a house in the upscale suburban Tokyo enclave of Setagaya-ku, for instance, knows the pain: The house is likely worth no more than $900,000 today, often less than what the owner owes on the mortgage. Michiko Kanai thought the three-story apartment building she put up 15 years ago on a plot of land her father owned would see her through to retirement and allow her to leave something for her children as well. Instead, her debts on the building likely exceed its value by a half-million dollars because of the fall in property prices. "When I was growing up, I never worried about money," she says. "Those days are gone forever."

Hidemi Matsuhashi's situation isn't quite as dire, but he's worried. His 92-square-meter condo has lost 30% of its value since he bought it in 1995. Although he paid only $282,000 for the apartment, half what it would have cost at the market peak in 1990, he still has to dish out $900 in monthly payments for the next 22 years. Matsuhashi, 52, a consultant who helps small companies devise marketing and business-development plans, is starting to feel the pinch. His income has been steady at about $72,000 annually in recent years, but with small businesses cutting back on spending, he's not certain about the future. "It hasn't been easy these last several years," he admits, "and it doesn't look like things will improve soon."

His wife, Naoko, brings in some extra cash by teaching private physical-education classes. But she's having trouble finding new clients, even though her fee is only $25 for four sessions, exactly what she charged a decade ago. Meanwhile, they have just finished putting their daughter through college, at $8,500 a year, and their son entered Chuo University in Tokyo in April (when the school year begins in Japan).

One consolation for Matsuhashi is that unlike most of his contemporaries, he's not a salaryman. Many of these fiftysomething men have been forced out of their jobs. That's when the real pain begins. Personal bankruptcies hit a record 214,600 last year, a 30% jump over 2001 and nearly double the level in 1999. And far more families may be in financial distress than are willing to admit it -- perhaps hundreds of thousands more, by some estimates. "Bankruptcy is regarded as close to a crime in Japan," says Seiichi Yoshikawa, an attorney at Tokyo law firm Koga & Partners.

That phenomenon has led to record-high suicide rates. Over the last two years, more than 60,000 people have taken their own lives -- 50% more than in the mid-1990s. "The present economic situation breeds weak, vulnerable people," says Sumiko Kitagawa, a counselor at a Tokyo suicide hotline.

Corporate bankruptcies have nearly doubled -- to 19,000 -- since 1990. That obviously hurts those companies' workers, who are forced into unemployment or early retirement. With thousands more companies not far from going under, workers throughout the economy fear what the future may hold. Even at healthy companies, many employees have seen their workloads increase as attrition and layoffs cull the ranks of workers. Worse, wages at many large companies have been falling. Overall pay has dropped for four of the last five years, according to government statistics.

With all of the social stress, companies providing mental-health services are doing a brisk business. Nearly 90% of companies have employees taking sick leave because of mental-health problems, and three-fifths say the number of employees with mental-health issues is rising, according to a survey by the Mental Health Research Institute, a private research group in Tokyo.

To cope with growing stress in the workplace, many companies have hired outfits such as Japan EAP Systems, which counsels employees at multinationals such as Dow Chemical, Dupont, and Taisei Construction. "Employees have serious anxiety about their future," says Keiko Matsumoto, a clinical psychologist at EAP. Although many want to quit, "with such a bad economy, they feel they have no choice but to keep working, despite the pressure and stress."

Still, the paradox of Japan's experience with deflation is that for one segment of Japanese -- retirees -- life has never been better. People over 50 control 80% of Japan's $11.4 trillion in household savings, according to a report by Goldman, Sachs & Co. And if they bought a home in the 1960s or 1970s, they have realized substantial gains on their property even if they have suffered enormous paper losses over the past decade. "All in all, I am very lucky," says 64-year-old Uichi Kudo, who made his last payment on his suburban Tokyo home in 1991. "I bought a house before the bubble." If Kudo were 20 years younger, he would probably be sweating out the next mortgage payment or worrying about layoffs. Instead, he spends his free time attending wine tastings and cooking courses. And because of deflation, his income goes a lot farther than it used to.

Deflation has brought economic benefits for every class of Japanese. Just a decade ago, Japan was one of the world's most highly regulated, closed economies. A web of regulations effectively banning rice and beef imports meant that Japanese consumers had to pay much more for domestically raised products. Japanese conglomerates such as Sony ( ), Sharp, and Matsushita Electric Industrial ruled the electronics industry and could keep their prices high. And arcane rules about the size, location, and operating hours of stores meant the retail sector was dominated by mom-and-pop shops that charged sky-high prices for ordinary goods.

Today, the price of everyday existence in Tokyo remains a great deal higher than in most other major world cities. But deregulation is starting to give Japanese consumers some relief -- while fueling deflation. With more competition in telecommunications, cell-phone rates have fallen by half. Under pressure from U.S. trade officials, Japan has moved to a tariff system on rice. That still keeps out much foreign grain, but the tariffs are falling, and gaijin rice today is available for about 10% less than the local stuff. And controls on beef have been loosened, so imported meat is readily available everywhere, from supermarkets to fast-food outlets. That means restaurants such as the wildly popular Yoshinoya chain can sell a bowl of marinated beef with rice (both imported) for just $2.40 -- $1.01 less than its cost five years ago.

It's not just imported food that nudges prices down. With the explosion of electronics manufacturing in Southeast Asia and China, Japanese consumers pay far less for televisions, stereos, and computers. Sony, Panasonic, and Sharp TV sets, stereos, and DVD players are imported from China as well. Japan's imports from China -- $66 billion in 2002 -- surpassed imports from the U.S. for the first time in the latest fiscal year.

The stores where Japanese buy those goods are changing, too. Entirely new retail categories -- 100-yen discount shops, clothing chains selling low-cost imported goods, and warehouse-style department stores -- have become the norm. Sales at discount stores grew by 78% from 1995 to 2000, while sales at department stores grew by 25%, according to the Japanese External Trade Organization.

Today, 14% of men's clothing, 8% of liquor, and 9% of shoes are sold in discount stores, the trade group says. Foreign retailers such as Gap, Virgin Group, and Eddie Bauer have taken advantage of both deregulation and falling real estate prices to expand in Japan in recent years, creating greater competition and driving down prices further. The average cost of a man's suit has fallen to $353 from $425 since 1999. Kids' sneakers have dropped to $17.75 from $23, according to government data.

Discounting is the way to prosper in Japan, which again helps fuel deflation. Hiroshi Ono's Hanamasa Co. has thrived by offering cheap beef in its 30 supermarkets and bargain meals at its 60 steakhouses. And because deflation has brought property prices down, the company has been able to expand quickly. In 1968, when Ono, Hanamasa's president, took over the company his father founded, the only beef available was Japanese, at astronomical prices. A bit of a maverick, Ono built his business early on by importing beef from the U.S. and Australia, even though it was considered grossly inferior. Then, in 1996, Hanamasa opened its first wholesale meat market, where both individuals and restaurants could buy huge cuts of beef at discounts of 15% to 20%.

Ono had a tough time finding affordable leases in the heart of Tokyo, where he desperately wanted to expand. In 1996 and 1997, he started contacting banks that were slashing their branch networks to see if he could take over their space. But they were demanding about $423 per tsubo (3.3 square meters), twice what Ono was willing to pay. Now, the bad-debt crisis has softened the banks' demands: They're very happy to lease closed branches to Ono at a reasonable price, and he is expanding rapidly into the city center.

In Ono's view, Japan's economic troubles and falling prices have subverted the whole power relationship between small businesses and Japan's once-mighty banks, and he heartily approves. Big corporations gorged themselves on debt. Now, deflation is killing their balance sheets. "Small companies like us couldn't spend and borrow a lot during the bubble years," Ono recalls. "Now, everything is upside-down."

In fact, the nimblest of the small companies have been among the primary beneficiaries of deflation. True, many of them, starved of capital and overwhelmed by Chinese imports, have gone under. Yet the survivors are learning to swim in the deflationary sea. Once overlooked by the best young workers, who flocked to large companies upon graduation, small businesses are able to find top talent at bargain prices as unemployment rises.

Chisaki Corp. is a 16-employee maker of industrial furnaces and pollution-control equipment with $10 million in sales. The company once had to hire older specialists who had retired from large corporations because "younger engineers would never consider joining a small operation like mine," says founder Tatsu Chisaki. Today, Chisaki has a dozen younger engineers -- and he doesn't have to pay them top dollar, either. Thanks to the swoon in real estate prices, Chisaki is a landowner. Three years ago, he built a three-story headquarters in Tokyo's Ikebukuro business district on a 230-square-meter plot he purchased for $1.3 million, a third of what it would have cost in 1990. "This is the most difficult period since the war," says Chisaki. "But it has been good for my business."

Of course, if you lose your job, can't afford your mortgage payments, and don't get to send your children to good schools, cheap DVD players, falling property prices, and inexpensive beef bowls are small comfort indeed. Japan needs economic growth, a banking sector that's not wallowing in bad debt, and more efficient companies that can stay on top of their markets in the face of increasing competition from abroad. On May 9, the International Monetary Fund again urged the Bank of Japan to do everything it possibly can to increase liquidity and give a little inflationary kick to the economy. But investors made it clear they figure the BOJ either cannot or will not do anything. In mid-May, they bid the price of 10-year Japanese government bonds so high that yields dipped below 1% -- a first.

That's a sure sign the markets are convinced that deflation in Japan is here to stay. Of course, ordinary Japanese don't need a bond trader to tell them that. They see deflation at work every day, in every shop and office. It's a force that is both damaging and beneficial -- and it will define Japan for years to come.

I would submit to you that the catastrophic injustices envisioned by you will not come to pass should such a reform be carried out. Entrepreneurs today are far more responsible than the left gives them credit for.

It's important also to consider that those injustices could not have been maintained without (1) a steady flow of immigrants, and (2) a government willing to let companies violate existing laws by doing things like bodily assault people attempting to unionize.

The proper balance of power between unions and management is when unions have the right to organize, but management has the right to fire the lot if the costs of training new workers (including the oportunity cost of the time the factory is unproductive) would exceed the cost of going along with union demands.

In such an environment, unions could command a small price premium from management if they could also provide added value, but unions would not have the ability to make the extortionate demands they can make today.

I think I'll be renting for awhile, until the bubble bursts.

That's precisely what I'm doing. I owned a wonderful 1400-square foot condo down in Raleigh, but I sold it when my job moved up to the Boston area. I could afford to buy something up here, but I just don't see reasonable value offered for one's money. Don't really know how long I'll be up here, and my rent is reasonable enough, so I don't care to pay hundreds of thousands for something that could suddenly end up being worth far less.

I think everyone now is buying on the "greater fool" theory. Prices have gone up so fast for so long that folks have it cemented into their heads that real estate is bound to keep appreciating that way in the future. That's silly. When real estate keeps appreciating faster than wages and prices in general, at some point, it outruns fundamentals (such as rental incomes and the cost of building new structures), and real estate prices collapse.

I think that most of the discussion on deflation is overblown. If you look at the CPI, the only categories that are showing falling prices are apparel, automobiles, and technology items like telecommunications equipment and computer equipment. I will conced that apparel prices are down but they are almost all imported goods from low-cost countries. Automobiles and high-tech both have a quality component to them. This is the source of much of the "deflation" in these categories. If cars this year tend to have for example, side air bags and those last year did not, then BLS considers that a greater quality good and adjusts the price accordingly. Now, if you have to pay an addtional, say $500 for that feature whether you wanted it or not, the cost of the automobile went up by $500 to you but BLS might more than offset that price increase with their quality component of the index yielding a decrease in the index. In high tech those quality components are even greater. There you see double-digit percent decreases in their indexes year over year.

They do the same thing when they measure capacity used in the capacity utilization rates. Most of the increases in capacity took place in the high tech sectors and most of that was simply adjustments for quality. If a company makes processors that are 1ghz and then uses the same plant to produce 2ghz processors instead, their capacity just doubled. (Well, probably not doubled but increased significantly). In the government data it would show a sharp decrease in capacity utilization for that plant. This would occcur even if they had the same size factory, running the same number of machines, putting out the same number of chips, and having the same number of workers. Aggregate that out to the whole economy and you have some serious errors in the data.

My own limited observations show nothing but price increases in my day to day purchases. I wish that what I pay for gas, utilities, food, health care, etc. were not constantly going up.

Regarding real estate, most of the significant increases in real estate prices are occuring in metropolitan areas where demand far exceeds supply. I live in the DC area and all the new housing construction is taking place farther and farther out. I can choose between a two hour plus commute each way and pay a nominal (relatively) amount or pay a significant premium to shorten that commute.

Also, when people make home purchases they look at what their monthly payment will be and if they don't their lender sure does. A lower interest rate means they can afford to pay a higher price for a home and vice-versa. Right now interest rates are very low so people are either buying more home or are offering more to beat out a competing bidder.

Combine these two factors - demand greater than supply and the ability to pay more and prices will rise. I believe that there will be some correction when interest rates rise again, but it certainly won't be a collapse in the market.

So, again, I am not very concerned about deflation. What I am worried about is us allowing China to be the world's manufacturer. Almost all of their growth in GDP is coming from investment. But very little of this investment is turning a profit, but that doesn't seem to bother them. In turn, they are flooding the world with cheap goods. If we end up relying too much on China (or any one country for that matter) it puts us at considerable risk due to potential hold up costs thus conceding a disproportionate amount of market power to them by making them potentially the sole provider of most of our finished or intermediate goods. It is analagous to having your entire portfolio in one stock.

Here's the moral - high taxes and too much Gov't social freebies don't work !!

Here's why:

Two major facts are left out of this article:

Japanese Gov't spending was way out of control in the late 80's and they kept raising taxes so high that people stopped spending money because they got taxed to death on their income and then again when they bought something. They even added a national sales tax on top of a sales tax. They limited cheaper importets to protect their own businesses. Interest rates were still high and money lending was hard to come by. To buy a house you has to have a 50% down payment for a 40 year loan.

Social services were at an all time high and Gov't spending couldn't keep up.

They tried lowering taxes to jump start spending and they even gave away free money but people just Banked it. Too little too late !

Is that an example you made up to illustrate your point about BLS cap util stats, or does the BLS really think capacity increases when making a faster chip? Would GM's cap util increase by making faster cars? Larger cars?

Yes they do. I was not aware of it until I began digging into some of the numbers and confirmed it with both BLS and the Fed. Regarding the cars, They do definitely factor in things like reliability (this would be factored over time), features (like climate control or power windows even if there is no added labor or cost to the builder), and fuel economy, among others. I would assume that horsepower or torque would also be a factor. My example about processors is better because it is more easily quantified and they told me so specifically. But I have had conversations with and read papers by someone who has been very influential in the implementation of this with BLS and automobiles and appliances were both cited as strong examples. I am not privy to all of the factors but I think what is important is the fact that they do use this in their calculations so it has to be considered when looking at the data.

Stunning.

I knew they did this with GDP, CPI, PPI (for which I can see a small argument in their favor), but I see no basis to adjust capacity utilization for product features.

As an example, the wafer fab process to make processor chips is the same regardless of speed. The chips are built to run at max speed, and the clocks are retarded (post manufacture) on chips sold at slower ratings as per marketing plans. Obviously the fab line didn't run at half capacity because at the last step the CPU clocks are backed down.

I've also been digging deeper into BLS and BEA stats. Might you have a link to any BLS explanations about this stuff?

I've also wondered recently what our stats and reports would look like if they just reported the unadulterated numbers - maybe inflation adjusted, maybe constant dollars - but this philosophy of converting non-monetary aspects into some kind of 'cash-equivalent' is highly subjective, hidden, and they lack the judgement and background to do so (even if warranted) in all categories.

I would think GM, Intel, Phelps Dodge, etc would know their capacities better than BLS.

I'm no economist but if someone was living on their savings (I wish) which were mostly cash or near cash and had little or no debt, seems to me they'd be sitting pretty - in principle at least. A rather general scenario I know, but am I missing something ?

"Sitting Pretty"..., possibly but the facts are that most folks with little or no debt are retired and, unless they "locked in" high interest rate bonds (which haven't been redeemed yet), the return on their savings is not positive after taxes. I know folks whose entire retirement nest egg was in stocks which are down 60-70% due to their fallen for "expert advice".

Other folks who were very conservative, had their nest egg in money market accounts (now yielding 1-1.2%) and short term CDs (now yielding 2-3%) as opposed to 5-8% when they retired. Needless to say, with state/local taxes going up and all manner of services going up at annual rates of 4-7%, even these very conservative retirees are well behind the curve!

0% financing on autos and furniture and plummeting prices on ever more sophisticated electronic gizmos does nothing to help you when your monthly "net" keeps decreasing!

Reducing or eliminating one's debt is certainly good but it won't leave you sitting pretty, it will only leave you relatively better off than facing "official deflation" in a real inflationary situation while struggling to pay debts!

I've also been digging deeper into BLS and BEA stats. Might you have a link to any BLS explanations about this stuff? Scroll down towards the bottom of this page and there is a series of articles on "hedonic quality adjustments" and "hedonic regressions."

Here is a brief excerpt from one of the article:
"Of the three different approaches or methods that use the results from hedonic regression models to quality adjust price indexes, BLS employs the 'matched model' method in its official indexes.2 This method controls for quality changes based on the difference in product specifications or characteristics between two items when a substitute observation, or quote, occurs in the price index sample. It is important to note that under the 'matched model' approach only substitution price changes, or quotes, are eligible for hedonic quality adjustments."

"As previously announced, the Bureau of Labor Statistics (BLS) is extending the use of quality adjustments derived from hedonic models in the CPI. A hedonic model decomposes the price of a consumer product into implicit prices for each of its important features and components, thereby providing an estimate of the value for each price influencing feature and component."

Link to CPI homepage is here

Regarding the Federal Reserve's use of quality to adjust capacity, I was unable to locate anything quickly, but I was doing some analysis on recent changes in capacity and the numbers just did not make sense based on my observations of recent trends in capital equipment. I contacted the analyst that assembles the industry indices and he informed me that most of the growth in capacity had occurred in high tech and most of that growth was based on quality improvements of the output rather than investment in physical capital.

Since capacity utilization is simply the IP index divided by the capacity index, the utilization rate gets impacted indirectly. Also, the capacity index is derived by different methods depending on the industry and its data availability. Their benchmark is the Survey of Plant Capacity, for which data has a two year lag. Then they attempt to make adjustments to that data to make it current. So you are really using a denominator based on today's output over a numerator that is based on capacity that existed two years ago.

I work with all types of government and private data every day and when I start looking into how the data is constructed, it can be a little unsettling. It is useful for analyzing trends if one asumes that in the long run and in the aggregate the errors cancel each other out. But to draw specific conclusions based on a snapshot can cause problems. Some data is better than others. The trade data is horrible. I have had more than one official tell me that anyone that uses it to obtain any detailed information is a fool. Pretty encouraging, huh? NABE (National Associaton of Business Economics) has been lobbying extensively to make the data more accurate but it is not easy. The People who put the data together are all very capable and serious about their work but the data they put out can only be as good as what goes in. I guess the main problem is a lack of funding.

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