Investors: Media Confusion About Inflation Means We’re On Our Own

No surprise, perhaps, but disappointing. Today’s reporters and editors are unprepared for inflationary times. As a result, current articles are confused attempts to understand and explain what is happening and what it means.

The November “Personal Income and Outlays” report released December 23 is a good example. It contains key information about income, spending and inflation. And yet the leading publications either botched their coverage or they chose not to bother reporting.

The ones who did report concentrated on two numbers and one analytical point regarding Personal Consumption Expenditures (PCE):

First, total spending was up 0.6% in November. Second, that growth rate was less than October’s 1.4%. Reason? Supply issues caused people to buy forward in October. End of story.

The only inflation information was a statement that total PCE inflation over the past twelve months was 5.7%, adding that it is the Federal Reserve’s preferred inflation measure.

Missing was the inflation-adjusted PCE news. With PCE inflation of 0.6% in November, the real PCE growth rate was zilch – 0%. Now, that’s important to know.

Moreover, that 0% spending growth leads to disposable personal income. It’s the source of spending, so what’s it doing? It wasn’t reported in the media, but the answer is, “Not so well.” Inflation-adjusted, it has declined in each of the past four months, with November at -0.2%. Furthermore, in the previous three months, real spending growth was positive, so perhaps November’s 0% is a retrenchment of sorts.

In this beginning part of the inflation cycle, the lag in real disposable income is typical. Organizations are always quicker to raise prices (revenues) than boost employee pay (expenses).

Not to worry – All the important information is clearly available

Let’s start with the clear and thorough November report issued by the U.S. Department of Commerce’s Bureau of Economic Analysis. Here are the first two paragraphs (underlining and bold is mine):

“Personal income increased $90.4 billion (0.4 percent) in November according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) increased $70.4 billion (0.4 percent) and personal consumption expenditures (PCE) increased $104.7 billion (0.6 percent).

“Real DPI decreased 0.2 percent in November and Real PCE increased less than 0.1 percent; spending on services increased 0.5 percent and spending on goods decreased 0.8 percent (tables 5 and 7). The PCE price index increased 0.6 percent. Excluding food and energy, the PCE price index increased 0.5 percent (table 9).”

Note the importance of that second paragraph. It shows the serious negative effect of inflation. And it shows that organizations collecting economic data understand that fact.

In addition, to help with understanding the short-term trend beyond a one-month change, those two paragraphs are followed by this table. The green highlighted data show inflation’s grip, including the real reduction of disposable personal income. The yellow items are what the media reported.

The other report tables referenced in the first two paragraphs are filled with more information. They contain nominal and real amounts, monthly and annual percentage changes, and breakdowns of the PCE between services and goods, with the latter being further broken down into durable and nondurable goods.

The bottom line: Don’t expect the availability of quality data to produce quality analysis by the media

We really have stepped backwards in having access to quality analysis. Even the top news organizations now resort to simplistic and shallow reporting. And that means we investors must read the economic reports ourselves for a true understanding of what is happening.