Will the real “real economy” please stand up!

[FRED]

Will the real “real economy” please stand up!

We will be publishing the latest analysis this week that resolves a mystery that we encountered in Asylum Markets of the post FIRE Economy – Part II: Breaking the Rules. The Personal Consumption Expenditures (PCE) data indicate that expenditures in our "consumer economy" have made a full recovery to pre-crisis levels, yet we see retail businesses closing in droves. How can this be?

As often happens when we head down some dark, unlit path looking for answers, we find out more about our economy, and how its measured and reported on, than we expected. To get a sense of whether readers will be as surprised as we were, we are conducting this poll while we finish the article and before we publish it. Thanks for voting!

[cindykimlisa]

Re: Will the real “real economy” please stand up!

Will the real “real economy” please stand up!

We will be publishing the latest analysis this week that resolves a mystery that we encountered in Asylum Markets of the post FIRE Economy – Part II: Breaking the Rules. The Personal Consumption Expenditures (PCE) data indicate that expenditures in our "consumer economy" have made a full recovery to pre-crisis levels, yet we see retail businesses closing in droves. How can this be?

As often happens when we head down some dark, unlit path looking for answers, we find out more about our economy, and how its measured and reported on, than we expected. To get a sense of whether readers will be as surprised as we were, we are conducting this poll while we finish the article and before we publish it. Thanks for voting!

It would be helpful to understand how personal consumption is defined and to add 50% to the list of choices. And is this a macro or micro question - it seems to be macro, but I am not certain.

Thanks Cindy

[FRED]

Re: Will the real “real economy” please stand up!

It would be helpful to understand how personal consumption is defined and to add 50% to the list of choices. And is this a macro or micro question - it seems to be macro, but I am not certain.

Thanks Cindy

PCE is defined by Investorwords.com as:

Personal Consumption Expenditures (PCE)

Those funds spent on goods and services targeted for individual consumption. PCE is the basis for an inflation index, the Personal Consumption Expenditures Price Index, which is similar to the Consumer Price Index.

It's a macro question. The choices are intended to provide a reasonable range of "pick the one closest to" options. Thanks!

[cindykimlisa]

Re: Will the real “real economy” please stand up!

It would be helpful to understand how personal consumption is defined and to add 50% to the list of choices. And is this a macro or micro question - it seems to be macro, but I am not certain.

Thanks Cindy

Are one of these what your are asking about?


1. In addition to the price indexes for personal consumption expenditures (PCE) and for “core” PCE, which excludes the volatile components of food and energy, BEA prepares supplemental PCE price indexes that are based primarily on observed market transactions for which there are corresponding price measures. Specifically, these “market-based” price indexes are composed of PCE components that are deflated by either a detailed consumer price index (CPI) or a producer price index (PPI).
Two supplemental price indexes are prepared: An overall market-based PCE measure and a core market-based PCE measure that excludes food and energy. These indexes are shown in the GDP and personal income news releases, in NIPA tables 2.3.4, 2.3.7, 2.8.4, and 2.8.7, and as addenda items in the underlying detail PCE tables on BEA’s Web site.
The PCE market-based price index excludes most imputed expenditures, such as “financial services furnished without payment,” for which deflators are implicit, based on independent current dollar and chained-dollar estimates. However, it includes “imputed rental of owner-occupied nonfarm housing,” which is deflated by the CPI for owner’s equivalent rent, so that the index will be comparable with the overall CPI. (Owner's equivalent rent within the CPI is measured by reweighting the renter sample of market transactions.) The PCE market-based index also excludes most insurance purchases, gambling, margins on used light motor vehicles, and expenditures by U.S. residents working and traveling abroad. Household insurance premiums and normal losses, which are deflated separately by CPIs, are included in the market-based PCE index, but medical and hospitalization insurance, income-loss insurance, life insurance, motor vehicle insurance, and workers’ compensation insurance are excluded. The following tables, which show the full list of the market-based PCE categories and the other-than-market-based PCE categories, are available on BEA’s Web site.
With the introduction of the reclassified PCE categories in the 2009 comprehensive revision of the national income and product accounts (NIPAs), the market-based PCE price index has been expanded to include the sales of primary services to households by nonprofit institutions serving households. These sales, such as those from nonprofit hospitals and from higher education, are primarily deflated by either a PPI or a CPI.

2.
PCE Deflator, (Personal Consumption Expenditure Deflator) - United Statesfficeffice" />

A measure of inflation based on changes in personal consumption. Unlike the CPI, which is based on a fixed basket of goods, the Personal Consumption Expenditures (PCE) Deflator finds the average increase in prices for all domestic personal consumption. PCE Deflator has been shown to be a more comprehensive and consistent gauge of inflation in the US.[/font]

Cindy

[Rajiv]

Re: Will the real “real economy” please stand up!

From the Hoover Institute

Figure 1
Breakdown of Personal Consumption Expenditures by Major Category

[ggirod]

Re: Will the real “real economy” please stand up!

Not as thorough as Rajiv, I gave up and decided to take an educated guess after a bit of research. Food, I figured was a good part of PCE and the source I found (which is interesting in its own right) quoted about 10% in 2008, so Rajiv's 13% value seems pretty good.

So I tossed in everything else with a wild guess and chose 35%. I wanted to leave plenty of PCE bucks in there for FIRE. It is rather distressing that such information is not readily available, but I guess cross-validating data used to guide the economy is not for the peons.

[c1ue]

Re: Will the real “real economy” please stand up!

According to this article - none of the above (23% or so)

http://www.reuters.com/article/idUSN1554831920090915

Consumer spending normally accounts for about 70 percent of U.S. economic activity, with retail sales making up a third of that. Excluding motor vehicles and parts, sales jumped 1.1 percent in August after falling 0.5 percent in July.

[Rajiv]

Re: Will the real “real economy” please stand up!

That would be "In the Ballpark" with the information in the hoover Institution pie chart.

[touchring]

Re: Will the real “real economy” please stand up!

The Personal Consumption Expenditures (PCE) data indicate that expenditures in our "consumer economy" have made a full recovery to pre-crisis levels, yet we see retail businesses closing in droves. How can this be?

Not surprising, China is buying up everything, prices (in dollars) are rising, more than enough to offset the lost sales from bankrupt US retail businesses.

[FRED]

Re: Will the real “real economy” please stand up!

Sorry, folks. We're starting over. Cindy is right. We needed to add a category.