How a Government Data Blunder Made the Economy Look Worse
Business + Economy

How a Government Data Blunder Made the Economy Look Worse


Big revisions to construction spending estimates from the government may mean that the economy was chugging along better than originally thought in 2014 and 2015. It could even merit an upward revision to the nation’s gross domestic product for those years.

The Census Bureau on Monday revised 10 years’ worth of construction spending figures after redoing the weighting for residential improvements, which include remodeling, additions and replacement of water heaters and furnaces. The largest revisions came in the last two years and were largely upward.

“The revisions mean that remodeling spending did not take the deep dive in 2014 that the previous estimates suggested,” says David Crowe, chief economist at the National Association of Home Builders. “The revisions re-confirm NAHB’s belief all along that remodeling has been a staple behind the whole housing industry.”

But the new numbers don’t just alter economists’ view of the health of the housing industry. Construction spending is also one component used to derive estimates for the country’s GDP—a measure of the economy’s health.

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How much such spending contributes to GDP varies by year, says Marissa Crawford, an economist at the Bureau of Economic Analysis, which puts out the GDP figures. But in the third quarter of 2015—the most recent estimates available—construction spending made up 6.1 percent of GDP, with residential spending accounting for 3.4 percent.

“We will incorporate the revisions, but will also incorporate revisions of other numbers,” Crawford says. “So I don’t know if the upward revisions will necessarily have an upward revision to GDP. It depends on other pieces of the puzzle.”

But Patrick Newport, a U.S. economist at IHS Global Insight, said GDP could be increased by two-tenths of a point for both years. He expects about $40 billion to be added to 2014 GDP, showing a growth rate of 2.6 percent rather than 2.4 percent. Similarly, he expects 2015 to come in at 2.6 percent, versus 2.4 percent that he previously estimated based on three quarters of data. First estimates for 2015 GDP will be released on Jan. 29 by BEA.

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“Because the revision was so big, it will affect growth rates in 2014 and 2015,” he says. “This shows economy was healthier than previously thought and improving.”

NAHB’s Crowe also estimated that the revisions could boost GDP by a decimal point or two, without taking into account any revisions to other numbers. “It will at least add a positive,” he says.

James Gaines, the chief economist at the Real Estate Center at Texas A&M University, also said the GDP would probably be revised upward, but did not venture to say how much. “The overall picture for both housing and the economy is that they may have been better than originally estimated,” he wrote in an email.

Census told the NAHB a couple of months ago that revisions were coming, Crowe says. The bureau and the trade group had been looking at the residential improvement figure for several years, largely because the NAHB’s data from remodelers differed from the bureau’s spending figures.

The bureau obtains its estimate from the Consumer Expenditure Survey, which primarily shows how Americans spend their money. It is not purposefully designed to capture improvement spending and depends on the ability of individual consumers to accurately remember and categorize their spending, he says. The Census survey also leaves out remodeling expenditures on rental properties. As a result, the estimate is volatile and not included as an explicit line item on the bureau’s releases.

“It’s a classic case of making do,” Crowe says. “For decades the bureau has had to do their best with limited budgets and cuts in even those slim allocations.”