The BEA reported today that Personal Income rose and Consumer spending rose in July. The headline numbers were +0.4% and +0.3% respectively. These are seasonally adjusted month to month % gains. The numbers were also revised up for May and June. Let’s party!
The Wall Street Journal headlined:
U.S. Consumer Spending Rose in July
Domestic consumption could continue to drive economic growth over the second half
WSJ reporters Anna Louie Sussman and Ben Leubsdorf clownishly regurgitated the Establishment line.
Consumer spending rose for the fourth straight month in July, a sign that domestic consumption could continue to drive U.S. economic growth over the second half of the year.
Four consecutive months of solid spending pointed to continued confidence on the part of the consumer, supported by steady job gains and low interest rates and gasoline prices.
The BEA estimates the data on the basis of throwing seasonally adjusted component data into a stewpot, where it mixes and cooks the numbers. The resulting stew is impossible to analyze on a not seasonally adjusted basis, as I like to do.
For most economic data, the actual, not seasonally adjusted data trend is easily visible with a few simple techniques of technical analysis. These include trendlines connecting the highs and the lows of the monthly data. These techniques enable us to easily see trend changes as they happen. We can also use the year to year rate of change as a basis for showing whether the trend is stable, accelerating, or decelerating.
Economists never use these simple techniques. Instead they rely on “sophisticated” econometric modeling of the numbers, like seasonal adjustment. The resulting forecasts are virtually always wrong at major inflection points. Economists never see major turns until months or even years after the fact. Perhaps their models are wrong, and they should stop manipulating data in ways that invariably leads them astray. Financial journalists then slavishly report their opinions, and the investing public is led down the garden path to destruction at least once every generation as a result.
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