Where would finance, economics and politics be if it weren’t for statistics? These three professional fields use statistics constantly in many different ways to calculate everything from trade probabilities, economic growth and voter turnout. But statistics can be manipulated, and they can also fool you if you don’t know where they come from and don’t understand the full dataset behind the analysis.
China and US statistics are important but can you trust them?
Statistics and their reliability is the subject of a note sent out to clients by Luc Vallée, Chief Strategist at Laurentian Bank Securities.
To get his point across, Luc Vallée considers the fallacy of the average, specifically the average growth rate of China’s economy.
China’s economic growth has averaged almost 10% for the last 35 years, a highly impressive rate of growth that many countries would like to be able to achieve. However, it seems as if analysts believe that this growth rate will continue for eternity, and if it doesn’t, well then that’s a reason to panic. But growing at 10% per annum for the foreseeable future isn’t a realistic expectation. Indeed, Luc Vallée points out that if China continues to grow at 10% while the rest of the world economy continues growing around 2% then by 2050 the Chinese economy will represent 70% of global economic output.
Considering the above forecast, it seems absurd to claim that China’s economic growth should continue at a double-digit rate for the foreseeable future. It just isn’t realistic to expect such growth. A more realistic scenario according to Mr. Vallée is that China’s growth will continue to slow and will fall to around 3.5% per annum within five to ten years. This growth rate is more in line with the developed world average and still gives China scope to accomplish massive economic growth. At a growth rate of 3.5% per annum by 2050, China’s economy would still be four times its current size.
Another statistic Mr. Vallée highlights as being possibly misleading is the US unemployment rate. The latest US unemployment rate figure is 4.7% but most likely underestimates true joblessness as it only accounts for those who are actively looking for a job and excludes discouraged workers and part-timers who would prefer to work full-time. The US Bureau of Labour Statistics calculates an output that includes these people. Known as U6 unemployment the statistic measures underemployment and currently, stands at 9.7%. In other words, if this number were used as the official unemployment rate, the US economy wouldn’t look as healthy as many believe. U6 unemployment is double the official figure.
To end his note, Mr. Vallée looks at the topic of green energy and statistics. While it may seem the renewable energy is rapidly taking over the conventional energy market look at the figures presents an entirely different picture.
BP recently estimated that over the last ten years the share of renewables in the global energy market grew from 0.8% to 2.1%. Over this period renewable energy capacity grew at an annual rate of around 17% while the annual growth of other energy sources was only 1.5%. However, in this calculation, other energy sources started from a much higher base. When you take a step back and look at the consumption figures, it becomes apparent that the world developed and consumed roughly six times more new conventional energy sources than renewable ones during this period. Clearly, the drive for renewables has further room to improve.