What if I told you that the government put out a report today which would lead one to infer that the economy might barely have grown last year, and that it even may have contracted -- and that the reporter who appears to have been the only one who covered it didn't grasp its potential significance (or, conceivably, chose to ignore it)?
Today the Department of Labor's Bureau of Labor Statistics released its annual "Consumer Expenditures Survey" for 2010. As of 8:30 p.m., a Google News search on "consumer expenditures government" (not in quotes, past 24 hours, sorted by date, with duplicates) returned 72 items (the first page says over 2,400, but it's really only 72). All relevant results represent Associated Press reports filed by Marting Crutsinger (Yahoo Finance version here).
Here are the key paragraphs from Crutsinger's report which gave away the problem -- or at least should have, if the AP reporter had made one obvious comparison:
Total spending by consumers fell 2 percent last year, according to the Labor Department's annual survey of consumer behavior. It's only the second decrease since the government began the survey in 1984. The first came in 2009.
Incomes declined 0.6 percent in 2010, after a 1.1 percent drop in 2009.
This year, consumer spending and income have increased only modestly. High unemployment, meager pay increases and a spike in gas prices have slowed both.
Weak consumer spending has held back the overall economy, which barely grew in the first half of the year. Consumer spending accounts for 70 percent of growth.
W-w-w-wait a minute, Marty.
Besides the technical error (Consumer spending accounts for 70% of the economy expressed as gross domestic product [GDP], not 70% of its growth), the significantly negative DOL percentage -- which is before considering last year's inflation of 1.6% -- is the direct opposite of the positive "Personal consumption expenditures" component in reported GDP for 2010, as seen in this graphic from the government's latest related release:
Last year's growth in consumption expenditures per the GDP report was 2%. DOL says the decline in average consumption per household was 2%.
Obviously, this isn't an apples-to-apples comparison, but I believe that I have gotten most if not all the way to making one. The graphic below reflects the results of what I believe are the necessary adjustments for each year from 2005 through 2010, which include:
- Aggregating the average household ("consumer unit") data to arrive at total economywide consumer expenditures. Since the number of consumer units goes up by a bit each year, this would narrow the 2010 difference between the two data sources.
- Subtracting out charitable contributions, which I believe are not considered part of personal consumption expenditures in the GDP report. Since charitable contributions have been trending downward, this adjustment would also narrow the 2010 difference.
- Adjusting for inflation (GDP is expressed in real terms, and BLS's report indicates that it does not adjust for inflation). With 2010 inflation being a positive number, this would significantly widen the 2010 difference.
Here are the results:
Readers can see that in every year from 2005 through 2009, the difference between consumption growth (or contraction) per GDP vs. DOL was within a "tolerable" range, with the biggest differential of 1.3% occurring in 2007. But in 2010, there's a 5.2% difference -- four times larger than the difference in any of the previous five years.
If DOL is right, one would expect that last year's currently reported GDP growth will eventually disappear -- and then some -- in future revisions. If DOL is only half-right, i.e., if GDP has to come down by only half of the 5.2-point difference, overall GDP growth will eventually be darned near zero.
I haven't see any indication that DOL adjusts their consumption numbers after-the-fact. On the other hand, the government adjusts GDP numbers several times before they're considered final. There would appear to be more than a little reason to believe that by the time all of the adjusting is done, last year's alleged "recovery" will officially no longer be one.
One advance indicator that such adjustments might be coming will appear on Thursday, when the Bureau of Labor Statistics, as announced in last month's jobs report, is scheduled to publish the preliminary results of its "comprehensive benchmark adjustment." If it finds that hundreds of thousands of jobs originally thought to have been created in 2010 really weren't -- as has been the case in three of the past four years -- that will indicate that 2010's reported GDP growth may eventually be heading down as well.
There may be perfectly acceptable reasons which explain both data sources are correct, but I don't see what they could be. The amazing thing is how an AP reporter who has supposedly been immersed in business and economics reporting for years on a day-to-day basis could miss -- or ignore -- a discrepancy like this. It's also more than a little surprising that from all appearances no other establishment press news source has dealt with the Labor Department's report at all.
Cross-posted at BizzyBlog.com.
