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Sailing in the Fog: Real GDP at the MSA Level
Photo Credit:Tom Wahlin
T
hink of the role of a policy maker as that of the captain of a large oil tanker. The captain is trying to achieve certain targets such as reaching a particular port. The captain has instruments available to move the ship in a certain direction and at a desirable speed. Real GDP growth is one such target for the policy maker and his instruments are fiscal and monetary policy. Of course the captain would prefer to see the iceberg ahead of time, perhaps using radar, since it takes quite some time to turn an oil tanker. The same holds true for the U.S. economy due to time lags between changing the policy instruments and the effects they have on the economy. The equivalent of the radar is economic forecasting. Real Gross Domestic Product (GDP) is available quarterly at the national level. As a result, we receive a fairly comprehensive picture of the state of the economy, albeit with a short lag of about a month. That data is subsequently revised and changes can sometime be surprisingly large. Still, this economic statistic is central to businesses and policy makers: it provides the best measure of the overall current state of the economy. However, real GDP rates for U.S. states and their Metropolitan Statistical Areas (MSAs) are not available quarterly and suffer from far longer lags than the national figures. In some cases, the lag is over a year. How are policy makers supposed to judge the state of the economy without these figures? The latest real GDP growth data available for the U.S. is for the second quarter of 2012. Real GDP increased at a rate of 1.7%, which is better than no growth at all but below the historical average GDP growth of roughly 3%. While we are no longer in a recession (the Great Recession officially ended in June 2009), annual growth of below 3% is not sufficient to lower the unemployment rate due to a growing labor force and improvements in productivity. Hence with a paltry growth rate of 1.7%, we seem to have been stuck at an unemployment rate of slightly above 8% nationwide for quite some time now.
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