President

Monetary and fiscal policymakers also rely on high-quality, publiclyavailable data for understanding the changing state of the economy, forformulating sound policy on a wide range of macro- and microeconomicissues, and for economic forecasting. For example, monetary policy dependson accurate measures of resource utilization, current employment and unemploymenttrends, productivity trends, inflation trends (including unit laborcosts), and housing market developments. If inflation estimates are overstated,monetary policy might be unnecessarily restrictive. Similarly, if productivityis overstated, policymakers may think that the economy’s productive capacityis expanding quickly enough to accommodate rising output without beinginflationary, and the resulting monetary policy may not be restrictive enoughto limit the risk of inflation. Fiscal policy depends on accurate measures ofGDP growth, potential GDP growth, labor markets, and demographic changeto forecast future government outlays and revenues. If productivity is growingmore slowly than believed, then revenue projections may be too high, and asa result, policymakers may adopt spending plans that are inconsistent withoverall budget goals. Thus, a clear understanding of the true trends in thesevariables is critical to making sound budget projections.Keeping Up with a Changing EconomyThere are many ongoing efforts to update the statistical infrastructureto better reflect the changing economy and to more accurately reflect theeconomy as it stands now. These efforts include maintaining the relevanceof statistical classification systems, better measuring the changing population,improving the measurement of the service-sector output, and measuring thecontribution of investment in intangible assets (such as research and development)to economic growth.Statistical systems rely heavily on the classification of activities, and overtime classification structures are changed to better reflect the economy.Sometimes the changes are incremental, such as when an industry is split intotwo more detailed industries. Other changes are more substantial, such as thetransition from the Standard Industrial Classification (SIC) system to theNorth American Industry Classification System (NAICS). Despite the benefitsof NAICS—such as better coverage of advanced technology industries,as well as better international comparability—the transition was nonethelessdisruptive to statistical agencies and data users. In particular, the transitionto NAICS broke the historical continuity of many data series. Further, theofficial use of NAICS began in 1997 but not all data series incorporatedNAICS classification in the same year. Statistical agencies have extendedChapter 8 | 193