Comments on: Bizzy’s AM Coffee Biz-Econ Links (013106) http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/ The Business End of the Blogosphere Tue, 14 Oct 2008 01:22:57 +0000 http://wordpress.org/?v=2.5 By: TBlumer http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-91680 TBlumer Sun, 04 Feb 2007 04:13:44 +0000 http://www.bizzyblog.com/?p=1361#comment-91680 #9, No, go see what I said at your post. #9, No, go see what I said at your post.

]]> By: don surber http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-91659 don surber Sun, 04 Feb 2007 03:58:01 +0000 http://www.bizzyblog.com/?p=1361#comment-91659 Re-reading your No. 4 comment, re-reading the charts, re-reading the long-term, I can only conclude 401K is NOT considered savings under this report. We have $3 trillion tied up in 401K, IRA, etc., and yet the government is telling us we have a negative savings rate. BEA screwed up Royal Re-reading your No. 4 comment, re-reading the charts, re-reading the long-term, I can only conclude 401K is NOT considered savings under this report. We have $3 trillion tied up in 401K, IRA, etc., and yet the government is telling us we have a negative savings rate.

BEA screwed up

Royal

]]> By: TBlumer http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-91650 TBlumer Sun, 04 Feb 2007 03:52:53 +0000 http://www.bizzyblog.com/?p=1361#comment-91650 #7 Don, "personal income" is AFTER employee contributions to 401(k) have been made (they are withheld from paychecks), but before taxes. It is very clumsy, but the walkthrough in comment 4 is dead on, and was confirmed with BEA at the time. #7 Don, “personal income” is AFTER employee contributions to 401(k) have been made (they are withheld from paychecks), but before taxes. It is very clumsy, but the walkthrough in comment 4 is dead on, and was confirmed with BEA at the time.

]]> By: don surber http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-91644 don surber Sun, 04 Feb 2007 03:46:53 +0000 http://www.bizzyblog.com/?p=1361#comment-91644 Tom: You misread the BEA press release http://bea.gov/bea/newsrel/pinewsrelease.htm It shows personal income minus personal current taxes to come up with disposable income. Its personal outlays are consumption, interest, taxes and charities. The difference is then expressed as a "savings rate." Very clumsy. No line in there covering employee contributions to pension plans. Please re-read it. Tom:

You misread the BEA press release
http://bea.gov/bea/newsrel/pinewsrelease.htm

It shows personal income minus personal current taxes to come up with disposable income. Its personal outlays are consumption, interest, taxes and charities. The difference is then expressed as a “savings rate.” Very clumsy. No line in there covering employee contributions to pension plans.

Please re-read it.

]]> By: TBlumer http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-4260 TBlumer Wed, 01 Feb 2006 14:30:04 +0000 http://www.bizzyblog.com/?p=1361#comment-4260 The whole calculation is real screwy and has long been considered one of the least credible numbers coming out of the government. I think it gets revised up and down significantly pretty often. The whole calculation is real screwy and has long been considered one of the least credible numbers coming out of the government. I think it gets revised up and down significantly pretty often.

]]> By: Bill http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-4256 Bill Wed, 01 Feb 2006 13:31:33 +0000 http://www.bizzyblog.com/?p=1361#comment-4256 Thanks, you would think that in the last 10 years they could have included that information in the FAQ's. Well at least I can consider myself a big saver again. :) Thanks, you would think that in the last 10 years they could have included that information in the FAQ’s. Well at least I can consider myself a big saver again. :)

]]> By: TBlumer http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-4239 TBlumer Tue, 31 Jan 2006 19:58:34 +0000 http://www.bizzyblog.com/?p=1361#comment-4239 <p align="left">#3, Bill, I called BEA at about 1:30 PM and confirmed that the reported savings rate effectively includes EMPLOYEE contributions to retirement accounts (401k, IRA, etc.) as positives. </p><p align="left">The link to the latest report is here: </p><p align="left">http://bea.gov/bea/newsrel/pinewsrelease.htm </p><p align="left">The thing to note is that there is NOT a line item deduction from income for personal contributions to retirement accounts. </p><p align="left">Therefore, the following one-person scenario (simplified, and obviously not in the same format as the BEA report), would lead to a 0% reported savings rate: </p><p align="left">Gross pay -- $500 Taxes -- - $75 401k -- - $ 50 </p><p align="left">Take-home pay -- $375 </p><p align="left">All Consumption spending -- -$425 </p><p align="left">Net cash flow for month -- -$50 </p><p align="left">This person, according to how the government calculates the savings rate, had a 0% savings rate. $50 went into 401(k), but $50 had to be obtained from elsewhere (by reducing existing other savings or borrowing), which is considered negative savings, netting out to a savings rate of 0%. </p><p align="left">If the BEA issued their report for just this person, it would read (again, simplifying) $500 Gross Pay; $75 taxes, Disposable Income $425; Consumption $425; Saving $0. </p><p align="left">The person I spoke to at the BEA, a Curt Coonsey (not sure on spelling), was familiar with the MSNBC article and specifically told me that it was, and is, wrong. </p><p align="left">This confirms what I learned about 10 years ago. I'm glad I cleared that up. It's good to recheck once every decade or so. :--> </p><p align="left">It also indicates that my take on the big picture is correct. Yes, people are putting hundreds of billions into 401(k) and the like every year, but they are borrowing so much in the rest of their lives that it's offsetting (actually last year more than offsetting) the positive impact of 401(k), etc. </p><p align="left">The fact that the savings rate is zero or a small negative actually masks the seriousness of the problem a bit, because 401(k) is (supposed to be) long-term money. And while borrowing against home equity can be seen as long-term, a lot of other borrowing (credit cards, cars, etc.) is short-term.</p> #3, Bill, I called BEA at about 1:30 PM and confirmed that the reported savings rate effectively includes EMPLOYEE contributions to retirement accounts (401k, IRA, etc.) as positives.

The link to the latest report is here:

http://bea.gov/bea/newsrel/pinewsrelease.htm

The thing to note is that there is NOT a line item deduction from income for personal contributions to retirement accounts.

Therefore, the following one-person scenario (simplified, and obviously not in the same format as the BEA report), would lead to a 0% reported savings rate:

Gross pay — $500
Taxes — - $75
401k — - $ 50

Take-home pay — $375

All Consumption spending — -$425

Net cash flow for month — -$50

This person, according to how the government calculates the savings rate, had a 0% savings rate. $50 went into 401(k), but $50 had to be obtained from elsewhere (by reducing existing other savings or borrowing), which is considered negative savings, netting out to a savings rate of 0%.

If the BEA issued their report for just this person, it would read (again, simplifying) $500 Gross Pay; $75 taxes, Disposable Income $425; Consumption $425; Saving $0.

The person I spoke to at the BEA, a Curt Coonsey (not sure on spelling), was familiar with the MSNBC article and specifically told me that it was, and is, wrong.

This confirms what I learned about 10 years ago. I’m glad I cleared that up. It’s good to recheck once every decade or so. :–>

It also indicates that my take on the big picture is correct. Yes, people are putting hundreds of billions into 401(k) and the like every year, but they are borrowing so much in the rest of their lives that it’s offsetting (actually last year more than offsetting) the positive impact of 401(k), etc.

The fact that the savings rate is zero or a small negative actually masks the seriousness of the problem a bit, because 401(k) is (supposed to be) long-term money. And while borrowing against home equity can be seen as long-term, a lot of other borrowing (credit cards, cars, etc.) is short-term.

]]> By: Bill http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-4236 Bill Tue, 31 Jan 2006 17:43:30 +0000 http://www.bizzyblog.com/?p=1361#comment-4236 Your welcome, I would love to hear what the BEA says and why. Your welcome, I would love to hear what the BEA says and why.

]]> By: TBlumer http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-4233 TBlumer Tue, 31 Jan 2006 15:22:13 +0000 http://www.bizzyblog.com/?p=1361#comment-4233 <p align="left">Bill, thanks for the link. I'm going to CALL someone at the BEA who puts out the report to confirm. I actually called BEA about 10 years ago on this, and got the "as I understand it" answer that I documented above. </p><p align="left">Assuming the MSNBC writer is correct, the personal savings number is nearly worthless, and surely not an indicator of financial distress as it's usually portrayed.</p> Bill, thanks for the link. I’m going to CALL someone at the BEA who puts out the report to confirm. I actually called BEA about 10 years ago on this, and got the “as I understand it” answer that I documented above.

Assuming the MSNBC writer is correct, the personal savings number is nearly worthless, and surely not an indicator of financial distress as it’s usually portrayed.

]]> By: Bill http://www.bizzyblog.com/2006/01/31/bizzys-am-coffee-biz-econ-links-013106/#comment-4230 Bill Tue, 31 Jan 2006 14:22:58 +0000 http://www.bizzyblog.com/?p=1361#comment-4230 <p align="left">http://www.bea.doc.gov/bea/DYK/personal_saving_dyk.htm ********************************************** Personal saving is the amount of current after-tax income that is not used for consumption expenditures. ********************************************** </p><p align="left">http://msnbc.msn.com/id/7421288/ ********************************************** </p><p align="left">How can savings be falling and net worth rising? Because this widely quoted savings rate overlooks some major sources of American wealth. For one thing, gains on stocks don’t count. Neither does the increase in the value of your house which for many Americans represents a major portion of their net worth. </p><p align="left">When it comes to pension plans, the savings numbers get even screwier. For example, money set aside in a 401(k) plan at work doesn’t count as savings because those are pre-tax dollars and not considered part of your disposable income. ***********************************************</p> http://www.bea.doc.gov/bea/DYK/personal_saving_dyk.htm
**********************************************
Personal saving is the amount of current after-tax income that is not used for consumption expenditures.
**********************************************

http://msnbc.msn.com/id/7421288/
**********************************************

How can savings be falling and net worth rising? Because this widely quoted savings rate overlooks some major sources of American wealth. For one thing, gains on stocks don’t count. Neither does the increase in the value of your house which for many Americans represents a major portion of their net worth.

When it comes to pension plans, the savings numbers get even screwier. For example, money set aside in a 401(k) plan at work doesn’t count as savings because those are pre-tax dollars and not considered part of your disposable income.
***********************************************

]]>