Garbage In, Gospel Out;

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When it comes to calculating tourism and travel expenditures, a huge component of service trade, the methodology is largely guesswork. The government regularly hands out questionnaires on airliners to Americans returning to the States and foreigners leaving here. How much did you spend on hotels, car rentals, tickets to Disneyland? Then it estimates how many Americans visited which foreign countries, and how many foreigners came here. "You can't include all the tourists. It's just too big a job," says Obie Whichard, an international economist at the BEA. "So you collect the information from samples. And a lot depends on whether people agree to fill out the forms."

Immense gaps exist in the BEA database. The BEA is largely in the dark about the burgeoning banking and financial services industry. "The Treasury Department and the Federal Reserve Bank of New York have a system of tracking capital flows," says Whichard. "But in truth, in banking and financial services, we don't have much information."

The BEA has no information at all about some of the most dynamic segments of the service economy, having only recently initiated a new survey for them. Completely invisible to the government are exports in data processing, direct insurance, legal services, accounting, advertising, management consulting, and agricultural services.

But even with the new survey, small and midsize companies are unlikely to appear on the BEA's radar screen. It tracks only firms with at least one foreign transaction last year exceeding $250,000. Whichard expects the survey to show about 1,000 service companies reporting business deals of that magnitude, and believes that to be no problem. "We think it's true that a very large share of the transactions are accounted for by the larger service firms," he says, "because that tends to be true of international transactions generally."

That bias causes the BEA to overlook a lot of service exports. "A great many small outfits that are exporting highly valued services are made up of experts -- engineers, architects, lawyers, expediters, you name it," says SBA economist Gray. "Certainly it would be good for the whole economy to recognize that flow explicitly."

Whatever the flaws of its surveys, the BEA regularly attaches a dollar figure to U.S. trade in services. In 1984, it reported that direct exports of private services (excluding investment income) totaled $44.3 billion. It also calculated imported services (again excluding investment income) at $42.3 billion. That gave the United States a small surplus, $2 billion.

But the BEA's calculation seemed so flawed that the Office of Technology Assessment (OTA), a congressional research agency, decided to take a look. It found the statistics to be wildly inaccurate. "As much as half of U.S. service exports may escape the official statistics," the OTA reported. While the government maintained 10,000 categories for trade in goods, it had only 40 for trade in services. "Many of the gaps, conceptual flaws, and uncertainties in the data are carryovers from an era when manufacturing and agriculture overshadowed the service sector," it reported.

By the OTA's reckoning, the 1984 service exports, excluding banking, were in the range of $69 billion to $91 billion, while imports ranged from $57 billion to $74 billion. The U.S. surplus that year, the OTA suggested, was more like $14 billion. It estimated that trade in services ran a surplus of $51 billion for the years 1982 to 1984, three times the official government figure. Because the service sector has grown so rapidly over the past four years, the service trade surplus is now probably much more than $14 billion a year.

A surplus in service trade of $20 billion or more would put a significant dent in the merchandise deficit, which came in last year at some $171 billion. But despite the importance of these figures, the government isn't likely to pin them down anytime soon.

Improving the statistics would be a costly and complicated job, and the money isn't there to do it. Unlike the Pentagon or the Social Security Administration, the numbers bureaucracy lacks a strong constituency, and so when the Reagan Administration chopped government spending, the ax fell particularly hard on such data-collecting agencies as the Bureau of Labor Statistics, the Bureau of the Census, and the Bureau of Economic Analysis.

But the cuts may have turned out to be counterproductive. In 1986, a report of the Joint Economic Committee of Congress warned that the country's faulty economic statistics were impeding economic growth. To confirm that, you don't have to look much further than the reaction of the financial markets to the monthly trade figures. Or to the difficulty encountered by Bernard Ascher, who as part of the U.S. team is helping to negotiate the dismantling of more than 500 protectionist barriers that hinder the selling of U.S. services abroad. "It took six years to convince our major trading partners to even put services on the negotiating table," says Ascher, director of service industry affairs at the office of the U.S. trade representative. "But with our lack of data, people ask, 'How can we negotiate a code for trade in services when you Americans don't have the statistics to know what you're talking about?' When you don't have a basis for estimates, it can really impede progress."

There's a saying in Washington that a shabby product is "close enough for government work." It usually brings a laugh. This time, nobody's even cracking a smile.

HOT NUMBERS FROM THE PAST

The trade figures are only the latest in a parade of statistics the financial markets have used to check the nation's economic well-being. In the booming 1960s, traders studied the volume of commercial and industrial loans. Commodity prices held sway in the "oil crisis" days of the early 1970s. During the Carter Administration, with inflation at a gallop, the market pondered the money supply. Now that we are operating in a full-blown international economy, it is the trade figures that seem to overshadow all else.

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