Thursday, May 04, 2006

(0.8 - 0.6)=>(0.5-0.6) All ahead full??

by Ken Houghton

Part D Screws Up Personal Income - A Lot
Pull Quote:
Personal income, which includes government payments as well as wages, rose by 0.5 percent in March from the previous month, the department's Bureau of Economic Analysis now says. On Monday, the government put the increase at 0.8 percent.

The mistake involved the treatment of payments related to the new Medicare prescription drug plan.

There follow several paragraphs explaining how this is not bad news, won't affect Q1 Actual or Q2 forecast GDP. So why am I less than sanguine about the result of the change?

The answer lies in the next two paragraphs:
"A 0.5 percent increase in incomes is still a strong pace and should fuel spending down the road," said Richard Yamarone, economist at Argus Research.

In March, consumer spending rose by 0.6 percent, the government reported Monday. That marked an improvement from February's 0.2 percent increase. The bureau's mistake did not affect its estimates on spending.

In short, the average person earned $1.005 and spent $1.006. If this is also supposed to "fuel spending down the road," that road appears even bumpier.
Quite. The measured Q1 (dis)savings rate was already ugly, and this just made it uglier. Fortunately, as a non-macroeconomist, I don't have to try to figure out how (near) zero real income growth could be good for future spending or how negative real wages could stoke inflation.
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