Figures Can Lie

For 17 years, the Federal Reserve Board's index has been the authoritative barometer of U.S. industrial production. In peacetime, many a U.S. businessman eagerly scanned the index's monthly rise--or fall--shifted his financial position accordingly. Many a financial house bases its carefully computed private index on that of FRB. Last week, FRB admitted, with tremendous dignity, that for two years its index has been inaccurate.

FRB had a simple explanation. Skyrocketing war production knocked peacetime measuring sticks into the statistical ashcan. Example: the chemical industry. In peacetime, chemical production weighs little in FRB's scales. Thus, when the industry mushroomed under astronomical orders for explosives, the FRB index failed to show it. To rectify this, FRB boosted the statistical importance of this industry, added some 20 others to the index and found new yardsticks, e.g., in the converted rubber industry, man-hours worked replaced the former measure of activity--rubber consumption. All this forced FRB to boost the index 36 points to 243 (1935-39 average equals 100). The present statistical results: 1) U.S. industrial volume is 2.4 times, instead of merely twice, that of peace years; 2) more than 70% of U.S. industrial production, instead of some 65%, is in war goods. (This was a shocker to some experts who had figured the civilian rock-bottom as 35% of all production.)

When the index was given its last major overhauling, in the campaign year of 1940, there were cries from many a bigwig statistician, including Cleveland's Brigadier General Leonard P. Ayres, that the updating was for political purposes. This time, outside of the necessary slide-rule juggling to bring related indexes into line, there was no commotion. Most businessmen, ear-deep in war work, now have only an academic regard for FRB's index. They gauge their business prospects by the communiques.

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