If you don’t like the message conveyed by economic time series, revise it!

Headline: Consumer spending and personal incomes both weak

Consumers did not boost their spending in June and their incomes failed to increase, further evidence that the economic recovery slowed in the spring. And Americans saved at the highest rate in nearly a year.

At first blush, June’s month over month decline in personal income and consumption in June look weak as presented.

Personal Consumption As A % of Personal Income


Reality alert!

Buried within the U.S. Bureau of Economic Analysis (BEA) economic release, a fact not referenced in the newswire release, are revisions to personal income and outlays time series. Jim and I talked about this a few days ago. I suggested that nearly all government created data series are revised to the point in which historical comparison are completely meaningless. I also suggested that frequency of partial revisions, or revisions dating back only a few years rather than encompassing the entire data series, has been increasing. Before that discussion could go stiff with rigor mortis, the BEA revises the closely tracked personal income and outlay time series. The revision is back date to 2007 rather than 1959.

Compare the two charts. The trend in the personal consumption to income rather has changed noticeably. Unbeknownst to most American, their personal incomes and consumption rose and declined since 2007, respectively. After the alteration of some statistical assumptions/(techniques) and a few clicks of a mouse button, Americans not only saw their income rise but also saving increase as consumption mysteriously declined since 2007.

If you don’t like the message conveyed by economic time series, revise it! This is why we suggest following the economic messages communicated by the capital markets. The alteration of personal income and outlays should serve as all illustration of the growing disconnect between actual and statistical economic reality. The size of the disconnect will only get worse as the sovereign debt crisis worsens.

Personal Consumption As A % of Personal Income:


Previous Commentary: Wednesday, March 3, 2010

Source: news.yahoo.com

Statistical Revision Explained: bea.gov