Government Made Error in Calculating Consumer Spending in May--Revised downward by 40%

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Government Made Error in Calculating Consumer Spending in May By Jeannine Aversa Associated Press Writer Published: Jul 6, 2001

WASHINGTON (AP) - Consumers spent less in May than reported by government economists, who erroneously calculated light truck sales. The Commerce Department's Bureau of Economic Analysis, which compiles monthly reports on consumer spending and income, disclosed the mistake Thursday.

As a result, consumer spending, a key force keeping the economy afloat, actually rose by 0.3 percent in May, not by the 0.5 percent that the government reported Monday.

The change, private economists said, is significant because consumer spending accounts for two-thirds of all economic activity. But the correction didn't change their view that the economy barely grew in the recently ended April-June quarter.

"The second-quarter was probably the trough of the economic slowdown," which began last year, said Tim O'Neill, chief economist for Bank of Montreal and Harris Bank. Even with the downward revision in spending, "consumers are still holding up reasonably well," he said.

O'Neill and other economists said they continue to believe the economy will rebound by the end of this year, helped along by the Fed's credit-easing campaign and Congress' tax-refund checks, which will hit mailboxes later this month.

Consumer spending in May actually came to $19.8 billion, rather than the $32.1 billion reported on Monday. The $12.3 billion overstatement came entirely from miscalculating spending on light trucks, said, BEA Director Steve Landefeld.

The mistake was brought to the bureau's attention by a Federal Reserve economist, who questioned the spending figures, he said.

Once fixed, spending on durable goods, such as cars, actually declined by 0.3 percent in May, rather than rose by 1.2 percent.

The mistake didn't affect the calculation of Americans' incomes in May, which rose by 0.2 percent.

Given that consumer spending didn't outpace income growth by as much as the government initially reported, the corrected spending figure did lead to an improvement in the nation's personal savings rate.

The personal savings rate - savings as a percentage of after-tax income - in May was a negative 1.1 percent, versus the negative 1.3 percent originally reported. In April, the savings rate stood at negative 1 percent.

The savings rate doesn't give a complete picture of household finances because it doesn't capture gains from such things as higher real estate values or financial investments, economists say.

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On the Net:

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-- Carl Jenkins (somewherepress@aol.com), July 06, 2001

Answers

Let's see now...assume a light truck costs $50,000. OK, so an overspend of $12.3 billion would be...2.46 million trucks.

In other words, about 1% of the US population would have had to have bought a light truck for these figures to be correct.

And they've only just noticed the mistake ???

-- a programmer (a@programmer.com), July 06, 2001.


These figures still do not add up. Who is doing the math? Pee Wee Herman?

-- R2D2 (r2d2@earthend.net), July 06, 2001.

Sorry, that should've been 246,000 trucks (OK, I'd just got up :) ). That's still a lot of trucks...

-- a programmer (a@programmer.com), July 06, 2001.

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