PGL directs us to Kevin Drum. They are both hot under the collar about this from the Washington Post.
New data from the Department of Commerce showed that consumer spending increased 1.1 percent in November compared with the month before on a seasonally adjusted basis -- more than analysts expected and a sign that consumers had not yet been discouraged by rising energy prices and a slumping real estate market.
Incomes also rose in November, by 0.4 percent, double the rate of increase in October, although that was more than offset by increased prices, the department reported. Discounting for inflation, disposable personal income -- the money left to spend after taxes -- fell 0.3 percent.
PGL suggests a shorter version.
Real consumer spending rose by 0.5 percent in November despite a 0.3 percent decline in disposable personal income. With consumption increasing despite the drop in income, personal savings declined.
Yep. Much better.
Drum comments:
What possible excuse can there be for leaving the initial impression that incomes rose in November? Real income is the only income that matters, and real income was down. That's the number that should get the attention.
Indeed. Mark my words. If inflation makes a resurgence in 2008, we are going to have to really be on the lookout for this sort of thing. Inflation makes it all too easy to point to rising nominal spending and miss the fact that real spending (or income) is barely moving.
UPDATE: It's not just the Washington Post. This article on MSNBC (which comes from the Associated Press) does the same thing. It's not any one writer. It's just the fact that these stories follow a formula the reflects the government press release.
That's the problem.
The average of the Oct & Nov real PCE data generates 4th Q real PCE growth rate of 2.4%. I suspect we'll see a lot of people revising up their estimates of 4th Q growth.
The big increase in the deflator was energy and probably will mostly reverse over the next month or two if oil stays below $100. The core PCE deflator is still not showing clear signs of accelerating.
Over the past year spending outpaced income by 1 percentage point. But isn't that the norm in the current economy? Consumers have been financing
spending through debt for years. One major source of debt, withdrawing home equity has already weakened sharply but this is still just generating a slowing of debt use, not a reversal.
Is there something on the horizon that will cause the American consumer to increase savings? If you do not have a reason to expect an increase in savings why build it in to a forecast?
Right now the thing that troubles me most in the press release is that real DPI growth is decreasing steadily.
July 0.6%
August 0.5%
Sept. 0.2%
Oct. -0.2%
Nov. -0.3%
I'm generally not an alarmist, but that's not good, and it doesn't help me sleep any better to know that in the last month at least current dollar income rose due to inflation.
Nominal income growth has a great correlation with interest rates and the stock market PE.
Actually, nominal income growth has a stronger correlation with the stock market PE then bond yields and its' correlation improves if you use a three month lag for nominal income growth.
I like the Post's original better than PGL's revision. I agree that it's important to report things in real terms, but reporting *only* in real terms is presumptuous. I have more confidence in the nominal statistics than I do in the price index. The nominal quantities, though they may not be measured perfectly, are conceptually well-defined. The price measurements involve necessarily arbitrary assumptions relating to things like quality improvement. Moreover, as Spencer suggests, the nominal quantities may be more useful for predicting behavior in the immediate future, since most people do their own budgets in nominal terms.