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Income Mirage

Introduction
 
Today's Wall St Journal (subscription required) reports a huge drop in personal income for January, 2005. But that statistic is not meaningful: it reflects an even greater increase in the prior month's income.

These days, you have to take economic reports at least an hour after your Prozac ...

 
 

What went on is the enormous $3.2 billion dividend paid by Microsoft in 2004. That single event skewed national income statistics.

Another statistic is that 90% of all dividends get paid to the top 10% of income recipients. Thus, other things being equal, we would suppose that the primary beneficiaries of the Microsoft disbursement are those top 10%. It probably is even narrower than that, but we don't know the income distribution of Microsoft's shareholders. What we do know is that more than 20% of Microsoft's shares are held either by Bill Gates or the Gates Foundation.

What the income report might show is that income for the lower classes is nearly unchanged, or possibly lower. That's because inflation is higher, which affects those with lower incomes sooner and more severely. But, we don't know exactly what is happening to ordinary people because data collection methods smear them into the "averages."

These most recent reports show the dangers of statistics. More importantly, it shows that we really don't know what sort of economy the "average" person actually experiences, if we mean "median" or "most" when we say "average." Thus, the government's statistics are inadequate for their purpose. Worse, the words used suggest conditions that may or may not exist. This sort of deceit is typical of Bandit Thought.

With Big Payout a Memory,
Personal Incomes Slide 2.3%

Microsoft Effect Distorts Income Trend;
New-Home Sales Post Broad 9.2% Drop

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
February 28, 2005 10:05 a.m.

WASHINGTON -- After a monster $32 billion stock dividend boosted personal incomes at the end of 2004, incomes in January booked the sharpest drop in 11 years while consumer spending stalled and savings levels remained low.

The Commerce Department said Monday U.S. personal income fell 2.3% after an unrevised 3.7% rise in December -- a record gain fueled by Microsoft Corp.'s $3-a-share dividend. Stripping out the Microsoft factor, income increased 0.5% in January and 0.6% in December.
...

Disposable income, or income after taxes, tumbled 2.6% following a revised 4.1% advance. Growth in wages and salaries, the mainstay of personal incomes, slowed but remained relatively strong, increasing $22.3 billion after a $28.4 billion gain in December. As the Microsoft-related surge in December unraveled, dividend income fell $295.8 billion after increasing $301.7 billion.

The drop in disposable incomes pushed the savings rate down to 1% in January. Savings had jumped to 3.6% of disposable income in December, bolstered by Microsoft, after having been steady at 0.5% for prior three months.
Inflation measures in the report ticked up slightly. A price index for personal consumption expenditures excluding food and energy rose 0.3% during January compared to the prior month. The rate was flat in December. Year over year, personal consumption expenditures minus food and energy rose 1.6% in January compared to January 2004. The year-over-year climb in December was 1.5%.

Separately, new single-family home sales decreased 9.2% to a seasonally adjusted annual rate of 1.106 million, the Commerce Department said Monday. But December home sales got a generous upward revision, marked up to a 5.6% gain as the government raised the annual rate to 1.218 million from an earlier estimated 1.098 million.

Commerce's report Monday showed new-home demand down in three of four regions in the U.S. during January. Sales fell 17.1% in the Northeast, 40.3% in the Midwest and 3.3% in the South. Demand climbed 5.6% in the West.

Average and median home prices were mixed in January. The average price was $281,900, compared with a revised $281,800 in December. The median price was $199,400, down from a revised $229,700. In January 2004 the average price was $262,100 and the median was $209,500.
An estimated 85,000 homes were actually sold in January, up from 82,000 in December, based on figures not seasonally adjusted. The inventory of homes on the market rose in January to a 4.7 months' supply from December's 4.2 months' supply.
 

 

WalterB - clock 07:48:21 - Monday, 02/28/2005

Last update: 11/11/2007

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