Friday, July 29, 2016

More Economic Statistics without Meaningful Context

The linked article here on increased consumer spending, and how it has helped boost GDP as a whole this last quarter, might indeed represent a harbinger of good times to come; even if one quarter doesn't by itself constitute a new long term trend. I would welcome that, if it were the case, as I'm sure everybody else would. And getting this kind of snapshot information now also doesn't hurt Democratic efforts to counter Trump's gloom and doom.

The problem here, as is quite often the case, is that we are given this snap shot without any corresponding context, or contrast, in which to be able to make more cogent judgments on what it might mean in a larger sense for the American economy.

For instance, though increased spending can certainly offer the prospects of better things to come we have to recognise that all spending is not necessarily equal; as in the difference between using disposable income as opposed to simply increasing one's debt load. Debt load now is still of some concern (see here, and here) even though debt, in and of itself is not necessarily a bad thing, but the long term prospects of being able to service it is definitely something to be concerned about.

Certainly in this regard a number of other questions must then be considered. On the one hand, recent statistics have also indicated that the number of households living paycheck (see here, and here) to paycheck is at alarming levels. Should the American population be buying a great deal more if this is still holding true? The article in question here also makes the following statement:

"...That rate of (spending--my edit) growth is probably unsustainable, but economists say a tightening labor market, rising house prices and higher savings should underpin spending for the rest of 2016..."
But why are we to believe any of these assumptions, most especially about savings when interest rates remain so low, or that actual wages for most of us still remain way behind the overall growth in productivity that happened in the last ten to twenty years? Or that other unexpected shocks will not occur?

Of course, other factors are also at play here, as in the significantly lower price for gasoline most of us now enjoying. That fact alone can certainly account for a sudden increase in available disposable income. And, for as long as it lasts, how can we all not only be pleased, but at least a bit more indulgent. But then we also know that, just as what goes up must come down in the physical world, in the world of economics what has been down is quite likely to go back up again; especially if it is a thing existing in finite quantities. As such how sustainable can spending trends be if they were indeed based on the current windfall of lower gas prices?

The real problem here is that putting any number out, whether it's bad or good, usually serves an interest other than actually informing you of what is really going on, and of course, both sides of our current political divide indulge in this kind of thing. Even worse, however, is how the media seldom makes much of an effort to put the numbers into a big picture context that would allow you to make better judgments on them. And then you add in the fact that the emphasis defaults to the narrow time frames of this or that single quarter.

Just remember this one thing. When you are presented with a particular statistic be ready to question how it actually fits within the bigger, ongoing picture.

Who's Powering U.S. Economic Growth? Consumers.


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