Economic data can be used in a variety of ways to prove a variety of standpoints; just like you might learn in a statistics class, data can be provided in different ways that seem to show opposite trends, leading to differing conclusions. This skewing of the presentation of data also relates to economics; it is very easy to through a statistic about a drop in unemployment and use that to justify predictions for growth. However, when people read these articles without having an understanding of macroeconomics, they won’t keep in mind the business cycle and how it will always shift.
The business cycle is a series of periods of economic increases and decreases; economies will naturally fluctuate as they expand and contract. After a long period of expansion, the economy will naturally flex back towards a contraction, and after a period of contraction, the economy will trend towards a recovery. This is important to keep in mind when analyzing economic trends; it is very intuitive to think that if economic growth in increasing then it will continue to increase, but there will always be contractions between periods of growth.
Economist Paul Krugman addresses this concept in his article “What the Economic Data Don’t Tell us” on the New York Times. His main argument is that the “wildly optimistic growth projections” made by the Trump administration are not consistent with this basic concept of macroeconomics, but rather are simply a means of boasting about the administration's success at helping the economy. In reality, the current expansion is just a continuation of the expansion that began in 2010. Additionally, Krugman emphasizes that “quarter-to-quarter and even year-to-year growth rates are very variable” with the following graph:
He explains that while the economy’s production possibilities curve expands at a fairly steady rate, the business cycle causes “recessions [that] leave some of that capacity idle, and the economy can temporarily grow fast as that capacity is put back to use.” This “idle capacity” can be described by Okun’s Law: a relationship between changes in unemployment and changes in GDP. The following is a graph of Okun’s Law for the United States economy from 2007 to 2017:
This graph predicts GDP growth based on the way unemployment is changing. This is possible because in the business cycle, whenever GDP decreases, unemployment increases, so there is a direct relationship that can be used to predict each other. Therefore, at the United States’ current unchanged unemployment rate, GDP should only be able to grow around 1.5%, not the 3% that the Trump administration claims.
Krugman, Paul. “What the Economic Data Don't Tell Us.” Nytimes.com, The New York Times, 28 Jan. 2018, www.nytimes.com/2018/01/28/opinion/what-the-economic-data-dont-tell- us.html?rref=collection%2Fsectioncollection%2Fopinion-columnists.