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If You’re Average, You’ll Spend $98 Today

Daily consumer spending averaged $98 in May, the highest it has been in six years -- an indication that the economy is heading in the right direction.

If you’re like most consumers, according to a recent Gallup poll, you reported spending an average of $98 in May. That’s $10 higher than April, and the highest monthly average seen since early 2008.

Historically, consumer spending in May tends to be higher than in most other months, as people pile up expenses related to the start of summer—yard work, spring cleaning, barbecues, etc. December is usually a close second, what with holiday parties and gift shopping. Sure enough, the most recent three-day average high for spending was measured over Memorial Day weekend (daily spending: $134), followed by a trio of days right before Christmas 2013 (daily spending: $129).

Since 2009, when consumer spending in May was measured at just $63, there’s been a consistent increase, rising to $90 in May 2013 before hitting $98 this year. In the big picture, the trend may be viewed as an indication of an economy on the upswing—especially when other data, including improving confidence among small and big businesses alike, are factored in.

Another interesting indicator is that the national birth rate, which has fallen over the course of five years and has been viewed as a sign of larger economic strife and uncertainty, appears to have hit bottom. Births were up slightly in 2013 compared to the year before, an indicator that people have been feeling (slightly) better about bringing a baby into the world lately, even with all of the costs and responsibilities of being a parent.

TIME Economy

The World’s Mania for Economic Data Is Pretty Silly

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Want to double your GDP? That's easy. Just calculate it differently

In early April, Nigeria achieved an amazing feat. Overnight, its economy swelled by 89%. Just like that. The West African giant has been posting pretty impressive growth rates recently. But it wasn’t fresh investment, surging consumer spending or high oil prices that generated the GDP windfall. Nigeria can thank its statisticians.

Nigeria’s bookkeepers made a few changes to how they calculate GDP, updating the base year for determining prices and improving data collection. And voila! GDP almost doubles with a few clicks on a spreadsheet. This isn’t an economic magic trick or some kind of corrupt shell game. Economists have more confidence in the new figure than the old. Nigeria had not been refreshing the way it measures GDP as it should have been.

Confused yet? Global financial markets thrive upon data. Every new figure or percentage gets analyzed, reanalyzed, debated, discussed, dissected and analyzed some more. The reality, though, is that many important economic statistics aren’t as hard and fast as we tend to treat them to the point where we have to wonder how much use they are to understanding the world economy.

Take a look, for instance, at China. Much praise (or concern, depending on where you sit) has been lavished on China’s rapid ascent. But the Chinese data we use is riddled with question marks. Its GDP figures, for instance, just don’t add up. A recent report from Bank of America Merrill Lynch commented that the sum of the GDPs of China’s provinces doesn’t match national GDP, though the investment bank also noted that the discrepancy has narrowed recently, “perhaps due to less data rigging.”

China’s current trade data is also screwed up because companies were caught last year fabricating exports as a way to evade the country’s capital controls. Perhaps we should take the advice of China’s Premier, the No. 2 policymaker in the nation, who, earlier in his career, said Chinese GDP figures are “man-made” and “for reference only.”

Nevertheless, these statistics are taken as official. Then they are put through another round of numerical aerobics. Headlines turned heads in April when new figures from a World Bank report estimated that China’s economy was much larger than originally thought. The data suggested that China would overtake the U.S. as the world’s No. 1 economy as early as this year, much more quickly than anticipated. This prompted all sorts of talk about the decline of the West and a new world order led by China.

But again, we find ourselves in a statistical conundrum. To compare GDPs from country to country, the figures are usually converted from their national currencies into U.S. dollars using exchange rates. But some analysts believe that this method is flawed. Exchange rates, the thinking goes, fail to properly measure GDP since they fluctuate and can’t fully account for different prices in varied countries. So the International Comparison Program, coordinated by the World Bank, offered an alternative using “purchasing-power parity” (PPP), which adjusts for the prices of goods and services across economies.

The result: China’s GDP practically doubles, from $7.3 trillion in 2011 using exchange rates, to $13.5 trillion based on PPP. How’s that for different? (China’s economy is far from the only one inflated in this way. India’s tripled by the ICP’s calculations, to nearly $5.8 trillion.)

Which number is right? Derek Scissors of the American Enterprise Institute blasted the ICP, saying the PPP method “makes no sense.” PPP comparisons were devised to better understand personal incomes and consumption, and using them to compare economic size “stretches the idea of PPP beyond the breaking point.” Instead, Scissors recommends comparing economies not on GDP at all, but on a measure of national wealth.

Obviously, the experts don’t agree on which statistics to believe. That would be of purely academic interest if data weren’t taken so seriously. Economists and investors make all sorts of choices based on statistics that can change radically depending on who is doing the calculating.

It isn’t just GDP data that suffers in this way. U.S. financial markets gyrate wildly based on jobs data released by business-services firm ADP, since it is widely seen as an indicator for the official report from the U.S. government released at a later date. Yet ADP has proved a poor forecaster, even after an overhaul of its methodology, inspiring one economist to call the report “a joke.”

Policymakers are also stuck trying to make decisions based on conflicting data. William Galston, once an adviser to President Bill Clinton, recently argued for action to ensure workers are properly rewarded for their increased efficiency. Based on the stats he was using, workers were producing more, but wages haven’t been rising to properly compensate them for that extra contribution and that was widening inequality and creating a major economic headache.

“For the sake of economic growth, social mobility and political stability, we must think more boldly about reforging the connection between compensation and productivity,” he wrote. That led the Cato Institute to condemn Galston for employing “statistical fog” to promote “the worst economic policy idea of the past 40 years.” Cato argued that data upon which Galston based his argument was faulty, and by using supposedly superior methods, the imagined gap between wages and productivity vanishes.

What can we do? Economic statistics are what they are imperfect numbers based on imperfect data and twisted further by contending methods of analysis. Just keep that in mind next time you dip into a database.

TIME Economic Indicators

Poll: Washington D.C. and San Jose Residents Most Confident In Economy

Gallup poll has the capitals of tech and government neck and neck for most bullish on the state of the U.S. economy

Residents of the San Jose, Calif. and Washington D.C. metropolitan areas are the most confident in the country about the state and trajectory of the U.S. economy, according to a Gallup poll out Monday.

Gallup’s score for “economic confidence” is a composite of two metrics: how respondents feel about the current state of the economy, and how optimistic they are about the direction it’s heading. Though both D.C. and San Jose gave the state of the economy at present a negative rating overall, both cities—respectively the capitals of government and the tech industry—vaulted to the head of the pack due to their optimism about the economy’s trajectory. Other metro areas in the top five most economically confident are, in order, San Francisco, Minneapolis-St. Paul, and Seattle.

The city with the gloomiest outlook on the state of the economy is Jacksonville, Fla., where residents said not only that things are pretty terrible but that they’re even more likely to get worse. Next cities down the list are Pittsburgh, Oklahoma City, Cincinnati, St. Louis, and Providence, R.I.

[Gallup]

TIME Economic Indicators

February Was a Pretty Excellent Month for the Economy

NYSE Opens For Trading A Day After Major Losses
John Moore—Getty Images

Strong growth in U.S. industrial production last month emboldened Wall Street investors today, pushing the Dow Jones up 200 points in early trading, as new Federal Reserve figures show manufacturing more than bounced back from a slow January

Wall Street took heart Monday morning from strong economic indicators showing the economy swung back in February after the polar vortex froze many sectors earlier this year.

Figures released Monday by the Federal Reserve reveal that manufacturing performed strongly in February, and more than bounced back after a slowdown in January. Industrial production increased 0.6 percent in February, reversing a 0.2 percent drop in the first month of the year due to extreme weather, which can slow consumer spending, construction activity, and hiring. Meanwhile, factory production rose a full 0.8 percent, nearly making up for a 0.9 percent decline in January.

Auto production rose 4.6 percent after falling 5.1 percent in January, and home electronic output increased 0.7 percent.

The gain in overall factory production was the largest since 6 months ago in August, and the Dow Jones catapulted 200 points in early trading Monday in response to the surge in output.

Consumer goods production, a key reflection of the overall economy’s health, increased 2.6 percent in February compared to the same month last year as it drifts up slowly to 2007 levels. Total industrial production is operating at a higher level than it was before the recession, with February industrial production at 101.6 percent of its 2007 average.

February saw fairly strong job gains as well. Total non-farm payroll employment increased by 175,000 last month, and even though the unemployment rate didn’t change, the data points to signs of strength after the January freeze. The International Monetary Fund expects the United States gross domestic product to grow 2.8 percent in 2014, compared with 1.9 percent in 2013.

TIME Economic Indicators

China Exports Boom Suggests Economic Recovery

Illustration by Alexander Ho for TIME

... if the figures are reliable, that is

Exports and imports in China shot up more than 10% in January compared to the year earlier, calming fears about economic malaise even as it elicited some skepticism about the accuracy of the country’s trade data.

Analysts had expected a 0.1 percent growth in exports from China after a meager 4.3% December year-over-year rise, but the breakout January export rise of 10.6% suggests a recovery of demand among western importing economies, reports The Wall Street Journal. China manufacturing data released last month sparked fears that the country was sliding into a contraction, but the latest export results indicate market strength despite the stifling effect of the Chinese Lunar New Year holiday.

In addition, imports strengthened more than expected in China, with the inflow of goods from commodity producers like Australia and Brazil growing 10% in January.

Chinese businesses have been known to overstate the value of their shipments to bypass China’s strict capital controls, and some analysts expressed doubts about the reliability of the data.

[WSJ]

TIME Economy

Economy Growing at Fastest Pace in 2 Years

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The U.S. economy grew at an annualized rate of 3.2 percent in the fourth quarter of last year, the government estimated Thursday.

The Department of Commerce estimate was in line with economists’ expectations, and when combined with third-quarter growth of 4.1%, it represents the best six-month stretch of economic growth in two years. Growth for all of 2013, however, was only 1.9%, a decrease from 2012 that was brought down by slow growth during the first half of the year.

Nearly all sectors of the economy contributed to the healthy growth, from consumer spending to business investment and state and local government spending. The one big drag on growth was reductions in federal government spending, which decreased by 12.6% in the fourth quarter.

TIME Jobs

Why Today’s Miserable Job Numbers Are Probably Wrong

Views From A Job Fair As U.S. Added 238,000 Jobs In December
Prospective job applicants wait in line to learn about job openings at the Kentucky Kingdom Amusement Park during a job fair at the nearby Crowne Plaza Hotel in Louisville, Ky., Jan. 4, 2013. Luke Sharett / Bloomberg / Getty Images

The underwhelming 74,000 jobs added in December dampens any notion of recovery, but the government will likely revise the tally in coming days, writes Bill Saporito. The total differs from a privately funded report issued last week

The best thing you can say about today’s dismal job numbers is that they’re likely wrong. “This would be really bad news if it was true,” says professor Peter Cappelli, director of the Wharton School’s Center for Human Resources. The underwhelming 74,000 increase in non-farm payrolls suggest that the idea the economy was gaining momentum just got coldcocked by bad weather and weak spending.

Then again, consider that the November jobs report was revised upward to 241,000 from 203,000; the October report was upwardly revised to more than 200,000 new jobs too. The U.S., on average, has been adding about 180,000 jobs a month as it tries to fill the 8 million job hole created by the Great Recession. Just to keep pace with population growth we need to add 143,000 jobs monthly, so the 74,000 figure, if it stands, is actually a move backward.

Yes, you can blame the weather for some of this. According to BNP Paribas analyst Julia Coronado, our horrible winter could have whited out 75,000 jobs, as employment was lost in construction, tourism and transportation.

Along with weak job growth, the other perplexing number in the December report is the drop in unemployment, down to 6.7% from November’s 7%. That’s the lowest the jobless rate has reached since November 2008. But the lower number is problematic too because it signals that more people haven given up looking for work. “If the unemployment rate is falling and job growth is less than population growth, the only way that can happen is that lots of people have given up,” says Cappelli.

You can see that in the labor participation rate, which dropped to 62.8% from 63%–that’s the lowest level since February 1978, says National Association of Manufacturers chief economist Chad Moutray. It’s not unusual for people looking for full-time work to drop out in December, says Cappelli, since they figure that many companies are only hiring for temporary work at that time of the year. But it’s hardly encouraging and more men have thrown in the towel than women. For them, the so-called ‘he’-cession continues.

The jarring data also gets thrown into the mixer as the Fed gets ready to taper its bond buying program by $10 billion to $75 billion a month. Coronado points out that average hourly earnings grew a mere 0.1%, which dents purchasing power. Since the economy is nearly 70% consumer-based, that’s a sign of weakness. “This report certainly adds fuel to the fiery debate on whether low inflation is likely to continue or is sending a signal about the underlying strength of the economy,” she says.

So why are the data wrong? The government report contrasts sharply with payroll company ADP, which recently reported that private businesses added 238,000 jobs in December. It’s a matter of money, says Cappelli. The Bureau of Labor Statistics employment data is gathered through a survey, and the agency doesn’t or can’t spend the money needed to expand the design’s sample size enough to make the result more reliable. So the numbers are instead revised later when better data becomes available. Maybe BLS needs to hire a couple of people to improve the product.

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