The issuing last week of the All Indicators Index by the Australian Bureau of Statistics showed a weak economy and that the Government would have to get the election over before the next quarter’s figure on March 20. But I know differently, and I’ll tell you why later.
One would have thought the markets would have taken a much greater dive once the All Inds figure was published, but the markets had “”factored in” a bad result. The real test of these sorts of figures is not their actual level, but whether or not they are greater or lower than market expectations. Last week’s 5.4 figure, for example, was within market expectations of, say, 5.2 to 5.8. The bureau was thinking of putting out an All Inds Market Expectation Index, but abandoned the idea after having trouble getting raw data.
The All Inds, like most indicators, has been seasonally adjusted to take account of Christmas spending, school-leavers, end-of-financial-year hiatuses and the like. But the bureau is now worried that some of the seasonal factors change with intensity from year to year and so from next quarter the seasonal adjustment is to be adjusted.
It must be said that a lot of academic economists think the All Inds too erratic, but the less the financial markets swear by it.
The trouble with a lot of these indexes (OK, indices) and indicators is that they often include additional government-induced factors and so do not give a true picture. So the raw figure is, what the Prime Minister calls, just a headline rate _ the one that goes into the newspaper headlines. The important rate is the underlying rate. For example, last week’s 5.5 headline rate was misleading. Market commentators were suggesting the underlying rate was really something like 5.7 or even 5.8, which would put the Government in real trouble. The Government asserted the underlying rate was a more respectable 5.2.
The bureau used to add its own comment about the effect of underlying liquidity on the index and whether that could explain some of the more erratic swirls, but economists found the comments too baffling, so after a time the bureau dropped them.
In any event, I’m with the academic economists. Like most of these indicators, too much can be read into the All Inds, or the “”Bushell” as the bureau mysteriously calls it internally. In fact, the bureau almost abandoned the index altogether. It was some years ago, after the bureau moved to its shiny new offices in Belconnen. I was there at the time doing an interview with the head of the All Inds section about some ACT statistics.
She was staring into an empty cup, shaking her head saying: “”How am I going to work out the All Inds this month? Just look at this”
I looked at the papers on her desk and said, “”I don’t follow.” She said, “”Not the papers. But THIS!” And she pushed the empty cup under my nose. I said politely, “”I don’t understand.”
Her: “”Of course not, you’re a journalist. But how can I be expected to come up with an All Inds figure with an empty cup? There’s no underlying liquidity. There’s no surge indicators.” I wondered whether she was losing her marbles, so I said: “”Can you explain it all to me slowly.”
She sighed. “”Well we have now been in this building two weeks, and we no longer have a tea lady with a teapot. We only have these bloody tea bags. And you are left with an empty cup. It is impossible to produce an index from that.”
I interrupted hesitatingly: “”You mean you . . . . You produce the All Inds from tea leaves.” “Shhhh!” she said. “”Don’t tell the economists or the markets. Or your mates on the finance desk, it could cost me my job.” “”And theirs,” I added wryly.
“”I just don’t know what to do,” she said with despair. “”Can’t you cobble something together from all these papers,” I suggested. “”Don’t be silly.” And we both stared at the papers. Suddenly she began to smile. And I saw that she was looking at the piece of paper on which she had placed her used tea-bag.
Then she looked up and said, “”Look at the interesting pattern the tea stain makes on this paper. . . . Will you excuse me, I’ve got an All Inds Index to put out.”