Economics & Research Blog
Digging Into the Commerce Department's Major Revisions to Commercial Printing Shipments Data
By Dr. Joe Webb
Published: May 29, 2007
Every year, the U.S. Department of Commerce revises its data for manufacturing industries, including the very series that we use at the WTT Economics and Research Center. Sometimes these data significantly alter trends reported in past years. This year, a major revision to 2005 creates is a night-and-day change, moving it from a negative year (-3.6%) to a positive one (+3.7%). After our inflation adjustment using the Consumer Price Index, the year changes from -6.8% in real shipments to +0.3%, essentially flat with 2004. The changes ripple through all of our prior forecasts, short and long term, and we are in the process of updating them. We will be reporting about the effect of these changes in upcoming notes for the next two weeks and my “Mondays with Dr. Joe” columns that will appear on June 11 and 18. A comprehensive overview will be part of the June 20 economic webinar. The press release announcing the Commerce Department's revisions can be found at their site. The press release highlighted the reasons for their reasons for their changes to all of their manufacturing industries data. There is a larger benchmark report that can be downloaded as well. It is important to recognize that the Commerce Department creates its most current estimates of economic activity based on the reporting of a statistically reliable sample of manufacturing firms and then projects them to the full marketplace. Many times, employment data from the Bureau of Labor Statistics are part of their process. Over time, they make revisions based on a larger survey, especially the Annual Survey of Manufactures. In this case, the ASM for 2005 obviously changed the statistics underlying the original reports. The primary manner in which they collect, analyze, and create their estimates of economic activity are from the Economic Census, conducted every five years. The Commerce Department also uses tax records to enhance their reports. This is the second time that 2005 has been revised; the first time was down, and now it is up. Each revision is based on the reporting of more and more establishments. Our economy has changed significantly over the past ten or so years, as small and mid-size firms have become more important in employment and their overall activities. Most government data collection efforts are still oriented toward the collection of data from large firms. Therefore, they tend to be subject to wider revisions. Many of those smaller and mid-size firms are not reported in a manner that the Commerce Department can integrate until tax records become available. In Census years, small firm data are better represented from the outset. When they do make revisions, they go back several years. In this case, their changes went back all the way to 2001. This drives researchers and analysts rather crazy, but one cannot fault the Commerce Department's desire to get things right... eventually... and to do it so publicly. It must be noted that I am not aware of any consulting firm, economist, or institution that revises its past data and calls such attention to it. One of the reasons is that the Commerce Department's job is solely the creation of data. They are not in the business of analyzing data, forecasting it, or interpreting it. Those other institutions depend on analysis and prognostication for their livelihood, as do their executive clients. We have mentioned at various times that this annual revision was on its way and also discussed the effects of last year's. Last year some months were revised down; now they've been revised up. Some of the revisions test one's patience. Last year, 2004 was revised up by $1 billion and 2005 was revised down by -$3 billion. This time, they've raised 2004 by yet another $400 million, and upped 2005 by $7 billion. Yes, that's seven billion, making the net change of the two revisions +$4 billion. That's almost like adding an entire month's shipments to the year. This played out in a revision of 2006 as well, since the change in 2005 created a new baseline of industry activity. While these changes do not affect the long-range outlook for the industry, they certainly moderate the nature of that outlook. We have re-run our GDP and print data series and will discuss that soon. The statistical relationship is still negative, but less so. We've created a summary spreadsheet that can be viewed online. We'll be updating it often over the next weeks.