Britain’s Office of National Statistics (ONS) was recently forced to make a change in how it calculates the unemployment level. There were good reasons for doing so, but it sure seems like its gogin to make life hard for policy makers at the Bank of England (BoE,) the United Kingdom’s version of the Federal Reserve.
The reason given was that Millennials and popes in Generation Z weren’t picking up the phone and therefore the ONS couldn’t work out who was out of a job and looking for a new one, according to a recent report from Fortune.
That seems a legit reason. But it raises a whole load of problems.
The key to any data analysis is that it is collected in the same way over vastly long periods. In simple terms, the question is blunt: Is the data I have today comparable to the data I look at from past months and years?
If it isn’t comparable then it is close to useless.
That’s why college grades are near useless as a measure of anything. An A-grade granted half a century a go is likely not as exclusive as one given more recently. That’s not to say that an A-grade isn’t worth having; it is. Its just that the two aren’t necessarily comparable.
The truth is that next to nobody in business cares about college grades. But what they do care about is accurate and useful analysis that is going to get used to solve real world problems.
The real world problem is this instance is the Bank of England’s war on British inflation, which, for whatever reason, it thinks is related to the unemployment rate.
Recent UK inflation registered a hefty 6.7% August, down from 11.1% last November, according to data collated by the Trading Economics website. That’s a lot higher than the recent near 3% level in the U.S. (For some reason which I’ve never truly understood, the UK is especially vulnerable to inflationary surges and has long been that way.)
The BoE policy makers, like many central bankers seem to believe that slowing the economy and raising unemployment levels helps to cool inflation.
But what if you don’t really know what the new inflation measure means? Can you have complete confidence in the new data compared to the old data?
Tough Job At the Top
I am sure the ONS has done a thorough job of rejigging the metric to workaround the younger member software the workforce. However, mistakes and errors happen that only get revealed long after the fact.
So in a sense, the BoE policy makers are trying to find their way not quite in the dark, but also not quite with a clear set of information. They already had a tough job that has been made even harder by the unwillingness of two generations of people to pick up telephones.
Let’s call it working in the twilight with some vision but not at an optimal level. That means the BoE is far more likely to overshoot in its policy efforts by holding interest rates higher for too long. That could result in a deeper recession or slowdown than is absolutely necessary.
