Annual revisions or updates of data usually involve small adjustments. But the latest update of the National Income and Product Accounts massively moved the sticks and changed trend lines. In brief, there was correction for a significant underestimation of personal income from small businesses and dividends.
Comprehensive updates of the National Income and Product Accounts (NIPAs) are conducted about every five years by the BEA. The major update this year was to income - with relatively little adjustment to expenditures. This update affects the Bureau of Economic Analysis' (BEA) GDP and Personal Income and Expenditures. From the BEA:
Just to get a feel of the outrageous change in income - here are before and after graphs. Pay special attention to the changes after 2016.
before revision
Current
In summary the new "reality" is:
- the savings rate for individuals is no longer at historic lows and is about average to the levels seen since 1990.
- the relationship between personal spending and income is no longer at historic highs (meaning the consumer formerly was spending too much against historical norms) and now is about average to the levels seen since 1990.
What is the use of producing data if you cannot get it right? Would we be better off if data were published every five years when it would presumably be more accurate?
One very important takeaway from the new data is that the current eonomic expansion may have more room to run. For almost two years now we have been saying that consumers spending more than they were making in income was unsustainable. Turns out that they have been living more within their means than we thought and sustainability is less of a concern.
Other Economic News this Week:
The Econintersect Economic Index for August 2018 improvement cycle continues and remains well into territory associated with normal expansions. Our index is now at the highest level since December 2014. There are continuing warning signs of consumer over-consumption.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
