March 7, 2008

Bloomberg’s ‘Household Net Worth’ Report Doesn’t Even Tell Us What It Is — For an Obvious Reason

It is reports like the one written up by Shobhana Chandra at Bloomberg yesterday on household net worth that make you wonder if everyday US citizens will ever get the information needed to accurately evaluate what’s going on in the economy without doing more digging than they have time for — or that they should even have to do.

Chandra’s writeup seemed to deliberately omit any and all context readers could have used to understand the significance of the information presented. She (based on this source, I’m assuming that Chandra is female — if I’m wrong, please let me know) also sought out an “expert” to support a specious case that the reported results were masking a greater deterioration.

Here’s how her report began:

U.S. Household Worth Fell for First Time Since 2002 (Update2)

U.S. household wealth fell in the fourth quarter for the first time in five years and borrowing slowed as home values plunged and lenders restricted credit, Federal Reserve figures show.

Net worth for households decreased by $532.9 billion from the previous three months, the first decline since the third quarter of 2002, according to the Fed’s quarterly Flow of Funds report today. Housing-related net worth dropped by $176.4 billion.

Lower home and stock prices and reduced access to loans are prompting Americans to spend less and are driving up foreclosures. A slowdown in consumer spending, which accounts for two-thirds of the economy, threatens to push the U.S. into a recession.

Incredibly, Chandra never told us what total US household net worth is, only supplying the amount of the decrease. Of course, many readers will see the $532.9 billion decline, a very big number, and think the worst — that our portfolios are disappearing, that our homes are becoming worthless, and that the economy is irretrievably going into the tank (Was that the point, Ms. Chandra?).

Additionally, Chandra never told us what has happened to household net worth between the third quarter of 2002, the last time it declined, and the most recently reported quarter.

Here are the key numbers Chandra failed to report, including what has happened to household net worth in the past five years:

  • Household net worth at the end of 2007 was $57.7 trillion.
  • The $532.9 billion decline during the fourth quarter was a “whopping” 0.91% drop from the third-quarter peak of $58.25 trillion. It’s a little difficult to make the case for a “threatened recession” based on such a small decline.
  • Here is how household net worth grew from 2002 to 2007:

    HouseholdNetWorth2002to2007

    (Sources: 2003-2007 — The Fed’s “Flow of Funds” report, a large PDF that can be accessed at this HTML page [go to Page 110 of the PDF]; 2002 — the 1995 to 2004 PDF that can be found at this HTML page [go to Page 109 of the PDF])

Household net worth has increased over 47% since 2002 (about 27% after inflation during those years) – and we’re supposed to be breaking into a cold sweat because of a one-quarter decline of less than 1%?

Omitting the three items just noted borders on journalistic malpractice — on the wrong side of the border.

I should also note that when household net worth grew by leaps and bounds during 2003-2006, coverage in the business press ranged from muted to non-existent. This December 2005 BizzyBlog post noted that third quarter 2005 household net worth went up 2.6%; that it had increased over $10 trillion since the Bush tax cuts of 2003 (“a 24% increase in roughly 2-1/2 years”); and that Old Media, to the limited extent it covered the story at all, focused on the increase in debt levels and not the more important net worth figure. A March 2007 post (at NewsBusters; at BizzyBlog) caught the Associated Press’s Jeannine Aversa claiming that the 7.4% rise in household net worth in 2006 was “slower” than the 7.9% in 2005 — even though, after inflation, 2006 was clearly better.

By contrast, I heard reports about the decline in home equity yesterday on a couple of the top-of-hour network radio broadcasts. So it’s clear that the story of declining household net worth this year has gained more Old Media traction than did its spectacular growth in previous years.

Chandra also tried to make the Fed’s report look worse by engaging a clearly uninformed economist to question the Fed’s home-equity estimates:

The Fed based its (home-equity) calculations on a gauge of home prices published by the Office of Federal Housing Enterprise Oversight (OFHEO — Ed.). Had the central bank used a measure of home prices developed by S&P/Case-Shiller instead, the loss of net worth would have been almost three times as much, according to Michael Feroli, an economist at JPMorgan Chase & Co. in New York.

Doing what Feroli suggests would be a truly bizarre error. As discussed earlier this week (at NewsBusters; at BizzyBlog), the S&P/Case-Shiller index looks at prices in 20 of the largest metro areas. The OFHEO report, while it has a minor weakness in ignoring some higher-end home sales, looks at 291 metro areas in all 50 states and DC. How could Feroli, or Chandra, possibly believe that using Case-Shiller would result in a more accurate or relevant answer?

Chandra and her bosses at Bloomberg need to tell us why, other than breathtaking negligence or a desire to keep readers deliberately uninformed and/or underinformed, they chose to omit any mention of total household net worth in the entire report. Since they chose to mention the last decline that occurred in 2002, they also need to explain why they failed to report what happened in the intervening five years. Finally, am I supposed to buy into the idea that everyone involved in this report — Chandra, her editors and Bloomberg, and the JP Morgan Chase economist — all really believe that the narrow Case-Shiller index is a better indicator of what is happening with nationwide home values than OFHEO’s clearly more comprehensive Housing Price index? Heaven help us if that’s really true.

I’ll end how I started: It’s reports like the one just discussed that make you wonder if everyday US citizens will ever get the information needed to accurately evaluate what’s going on in the economy without doing more digging than they have time for — or that they should even have to do.

Cross-posted at NewsBusters.org.

Positivity: Pongo the pooch returns 3 weeks after tornado

Filed under: Positivity — Tom @ 11:11 pm

From Gassville, Arkansas:

Updated 3:05 p.m. ET, Tues., Feb. 26, 2008

Plucky canine survives three weeks after twister demolishes enclosure

Every day since a tornado damaged the Harrises’ home and their dog’s pen, the family has checked to see whether Pongo made it back.

On Friday, nearly three weeks after the storm, he was — hungry but healthy.

“He poked his head out of the dog house,” said Tim Harris, husband of Pongo’s owner, Katresa Harris. “He was running; he was so excited to see her.”

The 9-year-old basset hound and blue heeler mix had been missing since the Feb. 5 tornado devastated the Gassville area. He apparently ran off after the tornado broke open a fence.

The family has been returning to the home, which they are not living in during repairs, to see whether Pongo returned and to put out food. The family also made posters with a picture of Pongo and checked animal shelters.

“I knew he made it,” Tim Harris said. “We never gave up on him, that’s for sure.” …..

Go here for the rest of the story.

Are the USA’s Adult Population and Workforce Shrinking? If So, Why?

Filed under: Economy,Immigration,Taxes & Government — Tom @ 1:09 pm

Following up on this post relating to the Employment Situation Report issued earlier today —

Since the business press either doesn’t see it, or doesn’t think it’s as important as the next “Economy in Crisis” story, I guess it’s left to me to present these two charts that were just updated by Uncle Sam’s Bureau of Labor Statistics today, and to discuss their possible significance (go to this link to select the tables you see below, specifically “Civilian noninstitutional population” and “Civilian labor force” [not seasonally adjusted]):

WorkforceAndAdultPop0208

The red-boxed areas point to the following:

  • In the first table, the not-seasonally adjusted size of our workforce (i.e., the raw numbers) shrank by 2,368,000 from July 2007 to February 2008. Though a few are in the 1.5 – 1.6 million range, no other July-February period in the past 10 years comes even close to the current number.
  • In the second table, the total adult population has barely budged in four months (up 94,000), and has gone down 347,000 since December. Again, no other analogous periods in the past nine years come close to these (2003-2004′s four-month increase of 318,000 and two-month loss of 152,000 are the closest).

Where have these people gone? Although the stat mavens may tell us that there’s imprecision in the numbers, these BLS tables raise these questions:

  1. Is net out-migration really occurring?
  2. Are those here illegally are going further “underground” and escaping detection (they are supposed to be part of BLS’s Household Survey)?
  3. Or is it a combination of both?

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Filed under: News from Other Sites — Tom @ 11:49 am

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February’s Employment Report (Updated for Media Mangling)

ALSO:
- See additional commentary on press coverage of the Employment Situation Report at this NewsBusters post.
- See this bigger-picture post — “Are the USA’s Adult Population and Workforce Shrinking? If So, Why?”

________________________________________________

Advance info:

  • ADP, in its monthly report, says that “Nonfarm private employment grew 23,000 from January 2007 to February of 2008 on a seasonally adjusted basis.” Of course, these are the same guys who posted a 130,000-job increase last month (since revised to 119,000) when the government came in with an employment decrease.
  • Forbes is predicting +30,000 jobs (vs. last month’s -17,000) and unemployment increasing to 5.0% from last month’s 4.9%.
  • CNNMoney.com is reporting a Thomson Financial consensus of +25,000 jobs and 5% unemployment, but is also saying that “economists are placing bets all over the map on which direction it will take.”

The actual report:

It’s from Uncle Sam’s Bureau of Labor Statistics, and arrives at 8:30. Here’s where it will be is.

Well, it’s the old bad-news, good-news combo — actually 2 out of 3 are good:

Nonfarm payroll employment edged down in February (-63,000), and the unemployment rate was essentially unchanged at 4.8 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment fell in manufacturing, construction, and retail trade. Job growth continued in health care and in food services. Average hourly earnings rose by 5 cents, or 0.3 percent, over the month.

That average hourly earnings number is the second “good” item.

Digging into the detail:

  • In the Household Survey (the basis for the unemployment rate), the workforce dropped again, this time by a whopping 450,000 after January’s 42,000 drop.
  • The actual number of unemployed people dropped by 195,000, from 7.576 million to 7.381 million. Adding that to January’s 89,000 decrease, the number of unemployed has dropped 284,000 in two months. Not a bad result during a recession (/sarc).
  • Prior-month revisions — December’s +82,000 (after last month’s revision) was revised to +41,000 (a -41,000 net change), while January’s -17,000 was revised to -22,000 (a -5,000 net change).
  • Maybe it implies more precision than exists, but I’m going to calculate it anyway — Carried to three decimal points, the unemployment rate was 4.975% in December, 4.925% in January, and 4.812% in February.
  • So the number of estimated number of Americans working at the end of February was 109,000 fewer (-63-41-5) than it was thought to be at the end of January.
  • African-American unemployment dropped a whopping 0.9% from 9.2% to 8.3%; teen unemployment dropped from 18.0% to 16.6%. Maybe the next item below has something to do with this.

What’s with the contracting workforce?

This extends a comment I made in January that I believe is even more relevant now.

  • The Household Survey element of the BLS report shows that the civilian labor force contracted by a whopping 450,000 in February, after dropping 42,000 in January.
  • At the same time, the unemployment rate and the number of unemployed went down for the second straight month.
  • Keep in mind that BLS doesn’t inquire as to legal status in its Household Survey questions. Therefore, the reported civilian workforce is designed to capture all who could be working — legal AND illegal.
  • If (emphasis “if”) these are indicators that the illegal-immigrant population has actually stopped increasing or is perhaps even decreasing (for an example, see Oklahoma; also see this and this), it may be that despite weak fourth quarter GDP growth, per-capita and/or per-household GDP based on the country’s real, all-inclusive population, including illegals, are still going up nicely.
  • If that’s the case, per-capita/per-household GDP would be a more relevant measurement than overall GDP in the current situation.

Unfortunately, I don’t see how you can get definitive answers to the the points I’ve just raised — and I don’t see the business press being smart enough, or open to anything that isn’t gloom-doom bad news, to catch on to this possibility. They may try to claim it’s “discouraged workers,” even the today’s report has statements that specifically contradict that claim.

Update: Here’s a bit of evidence supporting the out-migration theory — The BLS report shows that thetotal adult population is DOWN 246,000 from December to February. Would that perhaps mean that illegal immigrants are leaving, and if so, is it partially because of laws passed in Oklahoma and Arizona?

Media Mangling Update:

As if on cue, from Jeannine Aversa of the Associated Press:

Employers slashed jobs by 63,000 in February, the most in five years, the starkest sign yet the country is heading dangerously toward recession or is in one already.

The Labor Department’s report, released Friday, also showed that the nation’s unemployment rate dipped to 4.8 percent as hundreds of thousands of people – perhaps discouraged by their prospects – left the civilian labor force. The jobless rate was 4.9 percent in January.

Job losses were widespread, with hefty cuts coming from construction, manufacturing, retailing, financial services and a variety of professional and business services. Those losses swamped gains elsewhere including education and health care, leisure and hospitality, and the government.

The latest snapshot of the nation’s employment climate underscored the heavy toll of the housing and credit crises on companies, jobseekers and the overall economy.

The BLS report directly contradicts Aversa’s “discouraged workers” theory, with this statement:

Among the marginally attached, there were 396,000 discouraged workers in February, about the same as a year earlier.

I looked it up — February 2007′s discouraged worker count was 375,000. (Update: NewsBusters’ Noel Sheppard also noted that January 2008′s “discouraged worker” number was a lot higher [467,000] than February’s. Zheesh.)

Of course, Aversa made no mention of the fact, as noted above, that 284,000 fewer Americans were unemployed in February compared to two months earlier.