Roundtable on Federal Statistical Programs Charles Steindel Senior Vice President Federal Reserve Bank of New York September 25, 2009 All views expressed are those of the author only and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System

2  The aggregate numbers look to have tracked the broad cyclical contours reasonably well.  The downward revision in 2008 growth not a major event.  If the revised numbers had been in, likely a bit less “Wall Street-Main Street” debate in early  The downward revision in GDP growth did help answer questions about the depth of labor market weakness. Data Flow Over the Cycle

3 Gaps in the Details  Data do not clearly elucidate interactions of finance and real economy.  Measured financial activity in the U.S. is relatively small.  Value-added of finance (plus insurance) only about 8% of GDP.  Final sales of financial products even a bit smaller. Most is imputed consumption and ordinary household transactions and fees.  Gross output share is comparable.  What are the mechanisms by which a disruption to this sector leads to a major macroeconomic event?

4  Macroeconomic models suggest financial/real interactions through channels such as the efficiency of capital allocation, availability of funds to credit constrained sectors, etc.  First-round effects are magnified as asset prices move, with spillovers over to consumer spending, tax receipts, and the like.  These effects not transparent in the usual data, except in large swings in the capital gains/losses part of stock-flow reconciliation tables.

5 Data Gaps in the Current Environment  Many of the FR and Treasury programs are designed to sustain financial market functioning.  Gauges of success are things such as movements in spreads, changes in volumes of issuance.  These are hard to aggregate, and hard to tie back to the programs.  Event studies of financial market reactions to policy announcement and changes have been done, but linkage to real economy goals are much more difficult to make.

6 Paths Forward  Intellectual challenges are major.  Ultimately, one would need a clear understanding of the interactions of financial and nonfinancial activity.  Ongoing work of the statistical agencies can aid this effort.  More timely and detailed information on aspects of industry activities (output, earnings, net interest, capital spending).  More knowledge about intermediate services provided by finance: what does this consist of? What sector is buying what product?