Want to know what an economic statistic means? Get the context

When it comes to economic issues and economic data, what seems obvious or logical often turns out to be neither. The failure to understand context gets people and especially politicians into trouble when they use economic arguments or numbers to make a political point.

Consider Pa. State Rep. Seth Grove (R., York) and his drive to limit the ability of localities to "regulate employer policies or practices or enforce any mandate regarding employer policies or practices." Grove, as detailed in a recent Inquirer column article, is worried that certain municipalities are piling on employer mandates, slowing growth.

Now that sounds totally logical. The more the mandates, the slower the growth. The data show that, right? Let's see.

Since the target of the legislation is largely Philadelphia, which seems to impose new mandates or taxes on businesses every other week, it would be nice to know whether the logic used by Grove holds up under scrutiny. On the surface, it doesn't.

Consider job growth. If the mandates are killing the city's economy, job gains should be limited. Well, between July 2017 and July 2018, payrolls in Philadelphia rose by 3.2 percent. In comparison, they were up by about 1.7 percent in both the state and the nation. Philadelphia is creating jobs faster than many areas outside the city.

Even worse for Grove is that Philadelphia is carrying the state on its back. Philadelphia has only 12 percent of the state's total employment.  But in the year ending in July, it created nearly 23 percent of the total number of jobs added in Pennsylvania.

So, if you just look at the job numbers — and the concern is that all those mandates kill job creation — at least on the surface you might conclude that mandates might even be good for the economy.  Or, if you were a Philadelphia politician, you might tell Grove to focus on fixing the economic problems outside Philadelphia before changing something that is working.

Unfortunately, the reality is not that simple.

Using the recent economic data, it looks as if  mandates don't restrain growth. But that conclusion brings up the biggest problem economists face when trying to explain data: showing what would have been the case if other circumstances existed. In this situation, it is knowing what growth would have been without the employer mandates.

If some of the regulations and taxes that Philadelphia imposes on the business community were repealed, it is logical to assume that business operating costs would have been lower and corporate expansion, attraction, and creation greater.

But by how much?  That is the critical question and it is often difficult to measure.  Research has shown that taxes such as the city's wage tax slow growth.  But the complexity of the city's tax and regulatory regime makes it almost impossible to determine the extent these policies restrict growth.

Grove may have a point, but he has no data to support what on the surface looks like a reasonable argument.

We see the same problem with understanding the true meaning of data when we hear about how great the national growth was in the spring.

The economy expanded in the second at a strong 4.2 percent pace. It is trumpeted as the fastest increase in nearly four years. Of course, that means it was slower than the best growth rate posted during the Obama years. And it is rarely, if ever, pointed out that in the third and fourth quarters of 2014, growth was 4.9 percent and 5 percent, significantly faster than the latest increase.

But those are political comments. Instead, looking at the context, the 2014 expansion occurred in an environment of federal budget restraint. Remember when budget deficits actually mattered and additional spending or tax cuts had to be paid for? There were no spending increases or tax cuts hyping the economy in 2014.

Indeed, during the second half of 2014, federal government spending reduced growth, which it generally did from mid-2010 until mid-2016. In contrast, it has generally been adding to growth for the past two years. In spring 2018, the enhancement was nearly one-quarter percentage point.

Let me be clear: Second-quarter growth was really good. But should this one good quarter be celebrated? When you consider the massive fiscal stimulus that increased government, consumer, and business spending, you have to wonder whether it was really that great, given the 2014 growth rates.

The point of all this is that an economic number is meaningless unless it is placed into context. Everyone needs to remember that because when economics meets politics, context disappears.