ECONOMIC REPORT OF THE PRESIDENT

Box 2-4: Optimal Weighting for Combining
Measures of Economic Activity
The U.S. economy is large, dynamic, and complex; measuring it in
real time can be extremely difficult at best. Data on the strength of the
economy depend on extensive surveys of households and businesses and
administrative data that are necessarily imperfect and incomplete, and
the Federal statistical agencies—the Bureau of Economic Analysis (BEA),
the Bureau of Labor Statistics (BLS), and the Census Bureau—frequently
revise their estimates as newer and better underlying data become available.
Given both the uncertainty inherent in any statistical measure and
the standard practice of revising estimates, it is often better to look at
multiple sources of data when assessing the state of the U.S. economy
in real time. For example, as noted in Box 2-4 of the 2016 Economic
Report of the President, growth in the average of estimates of real gross
domestic product (GDP) and real gross domestic income (GDI)—which
CEA refers to as real gross domestic output (GDO)—is a better predictor
of one-quarter-ahead real GDP growth than are estimates of real GDP
growth itself.
However, policymakers must often make decisions in real time,
and may not have the ability to wait for multiple rounds of revisions to
assess current economic conditions. (See Box 1-1 for a specific example.)
As such, they may need to rely on early (incomplete) economic data
on employment and output. It is important to note, though, that not
all measures contain the same amount of uncertainty: some firstreported
estimates come from surveys with large sample sizes and tend
to be revised less, while others contain a larger number of statistical
assumptions and consequently may undergo more substantial revisions.
Consequently, when attempting to understand the current position of
the U.S. economy in real time, one should not necessarily weight all
current measures equally.
Each month, the BLS reports two estimates of over-the-month
changes in employment. The first, known as the “household” estimate,
is derived from the Current Population Survey, which samples approximately
60,000 households each month and asks household members
about their employment status in the previous month. The second,
known as the “establishment” or “payroll” estimate, is derived from a
survey of more than 400,000 worksites covering about a third of total
nonfarm employment in the United States. Although the establishment
survey has a much larger sample size, it suffers both from statistical noise
and some systematic errors, especially in recording employment gains at
new firms that come into existence and employment losses at old firms
that have closed. Moreover, monthly jobs estimates are revised multiple
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