Economic numbers can be confusing and they are more often than not revised over time. They are still good indicators of the trends in economic growth which is far more important to the equity market than a static snapshot of a single time period. The higher the economic number, whether it’s Gross Domestic Product, manufacturing, unemployment, etc., the better the economy. Markets only care about where we are headed next. This article is about an amazing economic piece that will get brushed under the rug and forgotten. It should be shouted from the roof tops!
The Bureau of Economic Activity (BEA) tracks what you and I do with our money. They attempt to determine how much we earn and then they deduce how much we saved. The numbers lately frankly haven’t been fantastic and the politicians mutter that the middle class is going nowhere and simply cannot save.
Fortunately, the BEA looks at its way of performing calculations every five years and realized they had made a major mistake. (You can According to the BEA, this massive review used numbers from 1929 up to May of 2018. Personal income was revised up $173.6 billion, or 1.2% in 2014; $166.6 billion, or 1.1% in 2015; $196.4 billion, or 1.2% in 2016; and $401.9 billion, or 2.4% in 2017.
Once the dollars have been spent you can’t go backwards in time to spend more. Thus, the additional earnings all went to consumer savings! What this means for the average household is doing well. They are making more and saving more and that is good for both the economy and possibly helps to explain why the market has done so well.
I can hear the questions coming now, “Joe, won’t there just be revisions to the revisions to reduce the rosy picture? Or isn’t this just political maneuvering to make one political party look good?” There can be revisions but the numbers match what we witness in restaurants that are full, historically low unemployment levels and airplanes with few empty seats.
There are clearly people in the world suffering. We get that but this is a strong indication that the middle class is not being left behind. As technology improves so that a middle class family today are far better off financially than in the 1980s according to a survey conducted in 2015 by the University of Chicago’s Booth business school. It is hard to argue things aren’t moving in the right direction for American households overall.
Be careful with the assumption that more income means more spending. As the Federal Reserve learned with quantitative easing, people won’t buy another microwave just because they have more money but they will go out to eat, pay down debt or save for retirement.
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