The Paradox of Macroeconomic Announcements

Statistical agencies collect, aggregate and release information about various aspects of the macro economy, providing a seemingly invaluable service to investors. It would be too costly for an individual to calculate inflation, new residential constructions, consumer confidence, or crop production. This aggregate information can in turn help market participants estimate the systematic risk faced by their portfolios. As a result, there is substantial media coverage when this information is released—the unemployment rate and GDP often make the front page of major newspapers. However, most initial announcements of macroeconomic data are highly inaccurate. They undergo significant revisions, sometimes by up to 200 percent, in subsequent months and years. Given this state of affairs, why does anyone pay attention to the release of inaccurate macroeconomic information? What information, if any, do these indicators provide to investors? What role do they play in the formation of investor expectations about economic conditions and the business cycle?