Consumer spending - a major indicator as to the health of the economy and also of consumer's expectations - remained "flat" in April, rising only 0.4%. March saw a rise of 2.2% month-over-month, which had economists forecasting equally large increases for the month of April. But neither number is indicative as to what's happening in the economy without proper analysis.
ERRORS:
If you care about consumer spending or any statistic for pure conversational purposes, you may want to consider the errors reported for each statistic, which are found in the original issued report. Every statistic has an error margin and economists can say with 95% certainty that the value reported is between two values. For instance, April's consumer spending increase of 0.4% had a "confidence interval" between -0.1% and 0.9% meaning that economists are 95% certain that the number reported is somewhere in that range. Theoretically, we could have had a decrease of 0.1% or an increase of nearly 1%. What this really means is that the reported statistic is no different from zero.
UNDERLYING ANALYSIS:
Consumer spending normally increases as personal income increases. Both statistics increased 0.4% (theoretically zero) in April. In the same month, the savings rate rose 3.6% indicating that instead of spending, consumers are saving. And for some reason, the media makes this sound scary.
What's really going on is consumers are being careful; they're re-establishing their savings base, something many lost during months of unemployment or furlow. What this means today is that companies might hold off on increased employment and capital spending. What this means in the long run is that consumers are voluntarily creating a stronger, healthier, and safer economy by learning to live within their means. Don't forget, for the housing market to see increased buyers, there must be saved money out there somewhere and that's exactly what people are now doing.
May 28, 2010
May 6, 2010
More Regulations?
Congratulations USA, you can now change your name to China. I'm referring to government regulation restricting private broadband companies from pricing their products. When I first read the article in the WSJ about a government effort to regulate the Internet I was shocked - how could this happen in the US? But after reading the article I was still shocked, but for a very different reason.
My first impression was that the regulation would concern content but that misconception was quickly stymied. As I read on I learned that what in fact the government is proposing is "net neutrality," which is purposefully vague and P.C.-sounding and is sure to confuse and convince many who refuse to read between the lines. The issue being debated is the current pricing schedule used by most broadband companies.
Broadband customers have a choice; for those that use the Internet for surfing the web and emailing they can opt to purchase the low-speed option for which they pay less. For those that like to download mega files and stream video constantly, they have the choice to pay more and get more speed. So far so good.
The issue here is that both customers are using the same cable with the same potential speed but for broadband companies to target multiple markets, they must offer diversified products. But to do this, broadband companies need to make their one product, a high-speed cable, into multiple products by purposefully slowing the Internet to those customers that opt for the basic package.
This is where the government comes in. They spout "net neutrality" and how everyone should have equal access (read: speed) to Internet. Therefore, my grandma who pays 19.99 for basic high-speed cable should have the same access that large corporations receive who pay thousands of dollars in order for their firm to have access to the fastest Internet possible.
It is basic economics that people like choice, people like diversified products, and that they are willing to pay more to get exactly what they want. By regulating the market, the government will create a market with a one-size-fits-all product.
My first impression was that the regulation would concern content but that misconception was quickly stymied. As I read on I learned that what in fact the government is proposing is "net neutrality," which is purposefully vague and P.C.-sounding and is sure to confuse and convince many who refuse to read between the lines. The issue being debated is the current pricing schedule used by most broadband companies.
Broadband customers have a choice; for those that use the Internet for surfing the web and emailing they can opt to purchase the low-speed option for which they pay less. For those that like to download mega files and stream video constantly, they have the choice to pay more and get more speed. So far so good.
The issue here is that both customers are using the same cable with the same potential speed but for broadband companies to target multiple markets, they must offer diversified products. But to do this, broadband companies need to make their one product, a high-speed cable, into multiple products by purposefully slowing the Internet to those customers that opt for the basic package.
This is where the government comes in. They spout "net neutrality" and how everyone should have equal access (read: speed) to Internet. Therefore, my grandma who pays 19.99 for basic high-speed cable should have the same access that large corporations receive who pay thousands of dollars in order for their firm to have access to the fastest Internet possible.
It is basic economics that people like choice, people like diversified products, and that they are willing to pay more to get exactly what they want. By regulating the market, the government will create a market with a one-size-fits-all product.
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