Why Not to Use a Single Piece of Data

Investors recently were given another good reason why not to rely on one piece of data to make decisions.

For years, we’ve been told that Americans weren’t saving enough money and that the savings rate was declining, even after incomes and asset prices recovered from the financial crisis.

As it turns out, that was all wrong.

Every five years, the Bureau of Economic Analysis (BEA) of the Department of Commerce performs a comprehensive review and update of gross domestic product (GDP) data, examining all the inputs that go into GDP.

The most recent revision was released in late July and had some significant changes.

One major update was in the savings rate. It had increased for 10 of the last 11 years, and the revisions for the most recent years were substantial. The analysts said they had new IRS data showing proprietors’ income was much higher than previously reported. Interest and dividend income also was higher.

Before the revisions, the savings rate was around 3.4%. After the revisions, the savings rate was reported as 6.7%. For the most recent period, the first quarter of 2018, the savings rate was revised from 3.3% to 7.2%. Annualized, that’s over $600 billion in additional savings.

Instead of declining, as previous data showed, the savings rate has been very stable since 2013.

Also, total savings is now about $1 trillion, which is about twice the previous number. That and other new data caused GDP to be revised higher, so it’s now about $1 trillion more than previously reported.

The revisions, however, probably don’t mean that Americans overall have saved more than we previously thought. The changes were the result of new data about proprietors and investment income. So, the data likely mean that self-employed people, and those who already had money saved, ended up having a lot more money than the government realized. The rest of the country probably hasn’t saved as much as self-employed people.

Some economists and analysts are revising their projections a bit based on these updates. Others, though, believe the concentration of the additional savings among a relatively small part of the population doesn’t change the overall economic outlook.

The important lesson to take away from all this is that, in economics, there isn’t much you can consider hard data. Most of the data we see are mere estimates and extrapolations — subject to revisions and corrections.

To protect yourself, you need to look at an array of data before making big financial decisions.

The Data

The big news of the week probably is the NFIB Small Business Optimism Index. It jumped to 108.8, the highest level in its 45-year history. The previous record was in July 1983.

Business owners reported that their biggest problem right now is filling jobs. Job openings also were at a 45-year high, and a high percentage of owners said their biggest problem was they couldn’t find enough qualified workers to fill their job openings.

The labor market remains strong, according to the JOLTS (Job Openings and Labor Turnover Survey) report. Job openings continue to increase and now are up 12% over 12 months. Hiring is not keeping pace with job openings because employers can’t find the workers they want. For the fourth consecutive month, job openings exceeded the number of unemployed people.

The so-called “quits rate” also is gradually increasing, up 1% over 12 months.

Consumers apparently are spending cautiously. Consumer credit increased a hefty 5.1% for the latest month, but most of that was concentrated in auto and student loans. Revolving credit, which is mostly credit cards, increased only 1.5% for the month. That’s an improvement from last month’s 1.4% decline.

Inflation still appears to be restrained, as measured by the Producer Price Index. For August, the PPI declined 0.1%. Excluding food and energy, the PPI increased 0.1% in August, following jumps of 0.3% in each of the two previous months. PPI is up 2.9% over 12 months.

The Consumer Price Index tells the same story. It increased 0.2% for the month and 2.7% over 12 months. Excluding food and energy, the CPI increased 0.1% for the month and 2.2% over 12 months.

New unemployment claims declined another 1,000 to 204,000. That’s a 50-year low for the second consecutive week. The four-week average at 208,000 also is a second consecutive 50-year low.

The Markets

The S&P 500 edged 0.03% higher for the week ended with Wednesday’s close. The Dow Jones Industrial Average rose 0.13%. The Russell 2000 declined 0.68%. The All-Country World Index fell 0.11%. Emerging market equities lost 0.67%.

Long-term treasuries fell 0.64% for the week. Investment-grade bonds rose 0.17%. Treasury Inflation-Protected Securities (TIPS) lost 0.29%. High-yield bonds increased 0.43%.

On the currency front, the U.S. dollar lost 0.20%.

Energy-based commodities rose 1.45% for the week. Broader-based commodities returned 1.13%, while gold gained 0.70%.

Bob’s News & Updates

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