Fraser Forum

Blip or trend? When does the short run become the long run?

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The worst job in journalism is to be the person who has to explain why the stock market went up or down today. The working journalists who show up at the Fraser Institute’s program for journalists invariably agree.

The easiest way to do it is personification: the market was moody today, or nervous, or confident, or restless and unsettled.

Or it didn’t react well to this or that piece of news, or, if nothing much happened, it was waiting for this or that new statistic due out later in the week.

In reality, of course, the market moved for millions of reasons having to do with the calculations of the millions of people who make it up. Sometimes they’re all thinking and reacting the same way to something that has happened. Other days they’ve all got their different reasons, the sum of which comes out positive or negative or pretty much zero because of no great underlying cause.

The other thing we tell our journalist classes is not to pay too much attention to monthly or even quarterly data. “Economists have predicted five of the last three recessions,” is how we sum that up. All data series are subject to blips, both up and down, that don’t end up being long-term trends, however promising or ominous they look at the time. It’s best to wait a while to see if the change persists. Depending on your business, you can lose a lot by waiting. But if you’re an academic, as I am, you can afford the luxury of patience. (If you’re that poor headline writer, you’ve got to say something now.)

All this came to mind when Canada’s international trade numbers came out today. Our imports were up fully 2.4 per cent in May, which marked the sixth month of increase. It might be a trend. On the other hand, StatCan’s story writer added that “The import of five new airliners in May contributed the most to the growth.”

Of course, it’s always difficult to attribute changes in a sum to any component of that sum. The purchase of the five airliners increased the total only because other imports didn’t go down. So, logically, their not going down was as important a part of the story as airline imports going up. But “Purchases hold up” isn’t as dramatic a story as shiny new airliners being delivered.

But that’s mainly quibbling. The point here is that imports—and exports and many other economic time series—are lumpy in the short run. Important components can be subject to almost random change. Another influence in May was scheduled maintenance at some Canadian oil refineries, which led to temporarily greater imports of foreign fuel. That influence on the data presumably won’t be repeated until the next need for maintenance.

That all short-run changes are the result of individual actions doesn’t mean they don’t end up in trends. But trends do only make themselves apparent over a longer run—that’s almost definitional. If you’re in journalism, unfortunately, “The numbers have just gone up but no one can tell yet whether it’s a blip or the start of a trend” isn’t a very compelling story.  

 

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