Friday, May 27, 2011

"Today, it is Friday"


The latest and greatest star (or victim) from YouTube has some choice words for you:  “Today, it is Friday.  Yesterday it was Thursday.”  Wow.  Rebecca Black sure knows her days of the week.  But she is on point about it (finally) being the weekend.   Even better: it’s a 3-day Holiday weekend!  Time to warm up the grills and take off those pool covers (unless your plan involves traveling in the DC metro area, in which case the only water you’ll be seeing is the Potomac River from your car window).

We deserve a nice weekend outside.  We’ve been working hard, and waited patiently for the summer season to start (plus, all of our shows just ended – including Oprah *gasp* – so there’s certainly nothing on TV).  Data released today shows we are right on track to make our outdoor weekend a good one:  our disposable personal income (spending money) increased by 0.3% in April over March, largely due to a nice 0.4% increase in our wages and salaries.  Year over year our total personal income rose by 4.4%, not too shabby.  Just be careful before you run to the store – while this is good for our wallets (and stomachs, extra cheese on my burger please), we might not see the full benefit since the last year also saw an increase in the prices we pay for the stuff we want.  After adjusting for these price increases, our personal income (money we have to spend – or save if you insist) still went up over the last year but only by about 1%.  

Don’t worry, this hasn’t stopped us from spending money (that would be just wrong).  Data released today also shows our savings were actually flat over last month (congratulations, nobody insisted).  Further, year over year our spending after adjusting for prices (“real personal consumption expenditures”, or PCE) increased by about 2.7%.  And we’ve been treating ourselves well.  Over the last 2 years (Q1 2009 – Q1 2011) our “real” spending (after adjusting for price increases) on recreational goods increased by almost $100 billion, and our real spending on food and drinks enjoyed not at home increased by about $40 billion.  Food and fun are 2 American staples, where would we be if without them?  Sounds like we’re pretty prepared to go all out and enjoy the weekend.  We know exactly what we need to do.

So get out there and get your base suntan on.  As our friend Rebecca Black also points out: “Tomorrow it is Saturday.  Sunday is the day after.”  That sounds like the official start of the weekend to me!  In other words, “Fun. Fun. Fun. Fun.”  Happy Memorial Day!

(Bureau of Economic Analysis)

3 comments:

  1. And what a great weekend it was! It is interesting to see that spending is going up which is an excellent sign for the economy, but I can't help but wonder how 'real' spending is calculated. I've seen many news reports insisting there is no inflation beyond a healthy 2-3%, and yet in my experiences the prices of everything seem to be going up at a higher rate than that. If 'real' spending is being calculated under the assumption of normal inflation, than just looking at these numbers doesn't convince me of growth. Is there alternative data to look at, like quantity of goods purchased or an easy to understand breakdown of 'real' prices?

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  2. Hi Raj, thanks for your comment - great question. To start, there are 2 types of inflation measurements: GDP inflation (and inflation measures for it's components - personal consumption, exports, etc.) and the CPI (consumer price inflation). This blog uses GDP inflation measures which are slightly lower than CPI. Further, the numbers you see on the news are typically national averages and inflation varies by region. Finally, inflation varies by product, depending on the supply and demand dynamics for that good or service at a given time. For example, people often look at "core" inflation (which excludes food and energy) for a "true" gage on prices since food and energy prices are so volatile it is not a reliable indicator of long-term trends.

    Increasingly, GDP inflation measures (specifically, the "personal consumption expenditure deflator") are becoming more widely used - when I refer to "real spending" in my blog, I am adjusting for prices by applying the "PCE deflator" - since I am only talking about our personal spending I would like to adjust for prices using the most compatible price deflator available (I would not apply the export price deflator for example). The Bureau of Economic Analysis kindly does this for us already. If you go to http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=Y and go to table 2.3.7 you can see the price changes for personal consumption expenditures by product. You will see that while nationally prices for the goods & services we consume stay within the "healthy" range you identified, individual products can vary significantly. Gas prices increased by 18% last year while recreational goods prices actually decreased by 6%.

    If you go to table 2.3.3, you will see quantity indexes for our real spending that gets to your question on looking at quantity trends using 2005 as a base comparison year ("base = 100"). Notice how we've actually bought less gas since 2005 but are "spending more" on gas because of the increase in prices. However, overall you will see we are actually buying more stuff over time even after adjusting for prices: the "quantity index" for the first 3 months of 2011 was "107".

    I hope this answers your question!

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  3. Thank you for the response, those charts are very cool. I would have never known where to look to find those two pieces of data (especially with nearly 300 of them on that page!)

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