.... for what I believe is a painfully obvious reason.
It is reports like the one written up by Shobhana Chandra at Bloomberg yesterday on household net worth that make you wonder if everyday US citizens will ever get the information needed to accurately evaluate what's going on in the economy without doing more digging than they have time for -- or that they should even have to do.
Chandra's writeup seemed to deliberately omit any and all context readers could have used to understand the significance of the information presented. She (based on this source, I'm assuming that Chandra is female -- if I'm wrong, please let me know) also sought out an "expert" to support a specious case that the reported results were masking a greater deterioration.
Here's how her report began:
U.S. Household Worth Fell for First Time Since 2002 (Update2)U.S. household wealth fell in the fourth quarter for the first time in five years and borrowing slowed as home values plunged and lenders restricted credit, Federal Reserve figures show.
Net worth for households decreased by $532.9 billion from the previous three months, the first decline since the third quarter of 2002, according to the Fed's quarterly Flow of Funds report today. Housing-related net worth dropped by $176.4 billion.
Lower home and stock prices and reduced access to loans are prompting Americans to spend less and are driving up foreclosures. A slowdown in consumer spending, which accounts for two-thirds of the economy, threatens to push the U.S. into a recession.
Incredibly, Chandra never told us what total US household net worth is, only supplying the amount of the decrease. Of course, many readers will see the $532.9 billion decline, a very big number, and think the worst -- that our portfolios are disappearing, that our homes are becoming worthless, and that the economy is irretrievably going into the tank (Was that the point, Ms. Chandra?).
Additionally, Chandra never told us what has happened to household net worth between the third quarter of 2002, the last time it declined, and the most recently reported quarter.
Here are the key numbers Chandra failed to report, including what has happened to household net worth in the past five years:
- Household net worth at the end of 2007 was $57.7 trillion.
- The $532.9 billion decline during the fourth quarter was a "whopping" 0.91% drop from the third-quarter peak of $58.25 trillion. It's a little difficult to make the case for a "threatened recession" based on such a small decline.
- Here is how household net worth grew from 2002 to 2007:
(Sources: 2003-2007 -- The Fed's "Flow of Funds" report, a large PDF that can be accessed at this HTML page [go to Page 110 of the PDF]; 2002 -- the 1995 to 2004 PDF that can be found at this HTML page [go to Page 109 of the PDF])
Household net worth has increased over 47% since 2002 (about 27% after inflation during those years) -- and we're supposed to be breaking into a cold sweat because of a one-quarter decline of less than 1%?
Omitting the three items just noted borders on journalistic malpractice -- on the wrong side of the border.
I should also note that when household net worth grew by leaps and bounds during 2003-2006, coverage in the business press ranged from muted to non-existent. This December 2005 BizzyBlog post noted that third quarter 2005 household net worth went up 2.6%; that it had increased over $10 trillion since the Bush tax cuts of 2003 ("a 24% increase in roughly 2-1/2 years"); and that Old Media, to the limited extent it covered the story at all, focused on the increase in debt levels and not the more important net worth figure. A March 2007 post (at NewsBusters; at BizzyBlog) caught the Associated Press's Jeannine Aversa claiming that the 7.4% rise in household net worth in 2006 was "slower" than the 7.9% in 2005 -- even though, after inflation, 2006 was clearly better.
By contrast, I heard reports about the decline in home equity yesterday on a couple of the top-of-hour network radio broadcasts. So it's clear that the story of declining household net worth this year has gained more Old Media traction than did its spectacular growth in previous years.
Chandra also tried to make the Fed's report look worse by engaging a clearly uninformed economist to question the Fed's home-equity estimates:
The Fed based its (home-equity) calculations on a gauge of home prices published by the Office of Federal Housing Enterprise Oversight (OFHEO -- Ed.). Had the central bank used a measure of home prices developed by S&P/Case-Shiller instead, the loss of net worth would have been almost three times as much, according to Michael Feroli, an economist at JPMorgan Chase & Co. in New York.
Doing what Feroli suggests would be a truly bizarre error. As discussed earlier this week (at NewsBusters; at BizzyBlog), the S&P/Case-Shiller index looks at prices in 20 of the largest metro areas. The OFHEO report, while it has a minor weakness in ignoring some higher-end home sales, looks at 291 metro areas in all 50 states and DC. How could Feroli, or Chandra, possibly believe that using Case-Shiller would result in a more accurate or relevant answer?
Chandra and her bosses at Bloomberg need to tell us why, other than breathtaking negligence or a desire to keep readers deliberately uninformed and/or underinformed, they chose to omit any mention of total household net worth in the entire report. Since they chose to mention the last decline that occurred in 2002, they also need to explain why they failed to report what happened in the intervening five years. Finally, am I supposed to buy into the idea that everyone involved in this report -- Chandra, her editors and Bloomberg, and the JP Morgan Chase economist -- all really believe that the narrow Case-Shiller index is a better indicator of what is happening with nationwide home values than OFHEO's clearly more comprehensive Housing Price index? Heaven help us if that's really true.
I'll end how I started: It's reports like the one just discussed that make you wonder if everyday US citizens will ever get the information needed to accurately evaluate what's going on in the economy without doing more digging than they have time for -- or that they should even have to do.
Cross-posted at BizzyBlog.com.
