Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers.
Headlines today note a further slowdown in China’s growth. Newly announced GDP data give a preliminary estimate of 6.5 % in the 3rd quarter of 2018, relative to Q3 of 2017. The growth rate had been 6.7% previously.
The change is part of the long-term slowdown that, perhaps inevitably, followed the spectacular 10% average growth rate achieved by China from 1980 to 2010.
One thing that interests me in the reports is a particular (very wonkish) detail. For the US and most other countries, the quarter’s GDP is routinely reported relative to the preceding quarter, not relative to four quarters ago. Why do the media and markets routinely focus on the 1-quarter growth rate for the US but focus on the 4-quarter growth rate for China?
It is not because China’s National Bureau of Statistics fails to make the 1-quarter change available. It’s there in footnote 2 of the NBS press release, as usual. The number for the 3rd quarter relative to the 2nd quarter is 1.6 per cent; to express that in terms comparable to US growth numbers, it is 6.4 % annualized. In other words it is slightly lower this time than the 6.5% number everyone is focusing on.
This puzzle is a case for behavioral finance. When the statistical agency has a practice of putting the 1-quarter or 4-quarter number at the top of the press release, that is the number to which the wire services, the rest of the media, and even the financial markets pay attention.
This phenomenon is not peculiar to China and its GDP statistics. Ayako Saiki and I look at the reports of inflation numbers in “Does it Matter if Statistical Agencies Frame the Month’s CPI on a 1-month or 12-month Basis?” In the United States, the Bureau of Labor Statistics consistently reports the 1-month change in the CPI on its web page and in the first sentence of its press release. The 12-month change is reported in the second sentence of the full press release, but apparently many readers don’t get that far. The wire services Bloomberg/World Process and Reuters tend to give greater emphasis to the most recent month’s number from the US, and somewhat less to the 12-month inflation rate. Most other countries do this differently. Canada, Germany and the UK emphasize CPI changes on a 12-month basis in their official statistical reports. Correspondingly, the 12-month change is what gets the emphasis in the wire service reports.
Surely efficient financial markets see through this, since each national statistical agency makes all its data available at the same time? No. The bond markets tend to react to whichever number, 1-month or 12-month, the statistical agency emphasizes at the top of its press release. In theory such a small detail in government agency reporting practices shouldn’t make a difference. But it does.
This post written by Jeffrey Frankel.