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The US Federal Reserve Board announced a rate cut of 50 basis points on the 18th, more than many experts expected 25 basis points. The Fed explained the larger-than-expected rate cut by citing falling inflation data and a shrinking job market.

The US economy rebounded quickly after the epidemic, and various official economic data showed bright results. But cutting rates so aggressively before inflation has fallen to its 2 per cent target has left many asking what is wrong with the US economy. Republican presidential candidate Donald Trump told reporters: "The economy must be very bad with such a big rate cut."

This brings back the old question: Are America's statistics accurate?

The downward revision raises questions

The Labor Department recently announced that it was revising down the number of jobs created in the year to the end of March by 818,000, cutting its previous estimate by almost a third, raising questions about whether the government was falsifying the data. Former President Trump, who is in the midst of a heated election campaign, accused the Biden administration of "manipulating the jobs numbers."

Two key figures, employment and price volatility, are compiled and published by the Bureau of Labor Statistics, part of the Labor Department. In addition to the shock caused by the latest sharp downward revision of employment numbers, the department has made three recent errors in a row, giving some investors early access to key data and raising public doubts about its credibility.

People are skeptical of the statistics for good reason. Households in the middle class and below don't feel that their incomes are matching the growth in gross domestic product, and the price increases for daily necessities lead them to believe that the consumer price Index is not real. At a time when the "beautiful" jobs numbers are being released, many people are losing their jobs due to mass layoffs at large companies.

The latest University of Michigan consumer survey shows a general disconnect between the overall economic situation and how people feel about the economy. While inflation has moderated, unemployment is at record lows and the stock market remains in a bull market, consumer confidence remains below pre-pandemic levels.

Most economists agree that the recent errors could undermine confidence in official US statistics. "A statistical agency lives and dies by trust," said Erika Groshen, who served as director of the Bureau of Labor Statistics during the Obama administration, and once that trust is lost, "it's very hard to get it back."

There are ways to generate data

In the United States, where laws regulate the generation and release of government data, blatant manipulation of statistics is theoretically impossible, but there are tricks to how to generate them. For example, different data can be generated by adjusting the share of different industries in GDP and the weight of different consumer products in the consumer price index.

The U.S. CPI is made up of eight main components, each of which includes goods and services: food and beverages, housing, clothing, transportation, health care, entertainment, education and communication, and other goods and services, but excludes items such as life insurance, financing costs, and securities.

The United States uses four main components to calculate GDP: personal consumption expenditures, business investment, government spending, and net exports. Personal consumption expenditures typically account for nearly 70 percent of GDP, and retail and services are important components of the U.S. economy.

Service-based industries, including professional and business services, real estate, finance, and health care, account for more than two-thirds of U.S. GDP. In 2023, the United States will spend $4.8 trillion on health care, an increase of 7.5 percent from the previous year, a growth rate that is higher than the expected annual GDP growth rate. The financial sector contributes about 20.7 percent to U.S. GDP, the largest contribution to overall GDP, indicating that the financial services sector, including banking, insurance, and real estate, plays an important role in the U.S. economy, while manufacturing contributes only 10 percent to GDP.

Nominal GDP growth is real GDP growth after accounting for inflation. So if CPI is wrong, then real GDP growth is also inaccurate. The accuracy of the US CPI is frequently questioned precisely because of its weighting.

The US "Investment Encyclopedia" website article said that over the years, the US CPI statistical method has undergone several revisions, constantly changing the weight of goods in the basket to "eliminate the bias of exaggerating inflation", and the overall result is often a lower CPI. Critics argue that this is a purposeful manipulation that enables the U.S. government to report a lower CPI. For example, the Bureau of Labor Statistics put the CPI for the first 11 months of 2006 at 2.2%, while two other economists used different methods to come up with figures as high as 5.3% and 8.2%, respectively.

Jason Forman, a Harvard Kennedy School professor and former top economic adviser to President Obama, said the current economic situation in the United States is strange because the data on GDP, consumption and business investment are all showing strong momentum, with real GDP growing at an impressive 3 percent annual rate in the second quarter. But the contrast between the poor outlook for manufacturing and worries about consumer balance sheets gave "a sense of foreboding".

The risk of a recession should not be underestimated

The economic community is divided on the current state of the U.S. economy, but most experts believe it is at risk of a recession.

The US economist Claudia Sam coined the "Sam rule" in 2019, arguing that a rise of 0.5 percentage points or more in the three-month moving average of the unemployment rate relative to the lowest three-month average for the previous 12 months signals a recession. By this rule, the U.S. economy is entering or is already in a recession. Looking back at every recession since 1949, applying Sam's rule to the relevant data shows that the forecast has been accurate.

Sam himself believes that the U.S. economy is not yet in a recession, but "the rise in unemployment and the weakness in the labor market is a concern... We could be in a recession in three months or six months."

Prominent economist David Rosenberg recently expressed strong concerns to the media about an imminent recession. He believes there is a clear disconnect between stock market performance and economic fundamentals. While stock indexes keep hitting record highs, the gains aren't primarily driven by strong earnings growth. Consumer spending exceeded expectations, he said, but that spending was driven not by rising incomes but by a worrying decline in the personal savings rate. Currently, the personal savings rate in the United States has fallen to an all-time low of 2.9 percent, which is extremely rare.

Danielle Booth, CEO of Quill Wisdom and a former adviser to the Federal Reserve Bank of Dallas, believes that the weak job market and the growing number of bankruptcy filings indicate that the United States is already in a recession, and it has been since last October.

BCA Research, a prominent investment research firm, believes the US economy is on the brink of recession and expects the Fed's rate cut will not be enough to avoid a recession. Gary Evans, the firm's chief global asset allocation strategist, said he believes the economy is already in recession.

In recent months, Goldman Sachs and other US investment banks have warned clients to prepare for a crucial shift in the economy. They believe that some changes in the macroeconomic landscape indicate that the probability of a recession has increased significantly, and the impact could be felt around the world.

Another notable signal is that the "god of stocks" Buffett accelerated the reduction of stocks. Over the past two years, he has sold several core stocks he held for years, sending the company's cash pile soaring 161% to $276.9 billion, and selling continued in the third quarter.

Historically, when Buffett's Berkshire Hathaway has significantly increased its cash position, it has also foreshadowed turbulence ahead. The last time the company's cash reserves were this high as a percentage of total assets was before the financial crisis.