Saturday, March 08, 2008

Media Distortions on the Economy

Tom Blummer at Newsbusters writes about the distortions the media is putting out:

"It is reports like the one written up by Shobhana Chandra at Bloomberg yesterday on household net worth that make you wonder if everyday US citizens will ever get the information needed to accurately evaluate what's going on in the economy without doing more digging than they have time for -- or that they should even have to do":

U.S. Household Worth Fell for First Time Since 2002 (Update2)

U.S. household wealth fell in the fourth quarter for the first time in five years and borrowing slowed as home values plunged and lenders restricted credit, Federal Reserve figures show.

Net worth for households decreased by $532.9 billion from the previous three months, the first decline since the third quarter of 2002, according to the Fed's quarterly Flow of Funds report today. Housing-related net worth dropped by $176.4 billion.

Lower home and stock prices and reduced access to loans are prompting Americans to spend less and are driving up foreclosures. A slowdown in consumer spending, which accounts for two-thirds of the economy, threatens to push the U.S. into a recession.

Incredibly, Chandra never told us what total US household net worth is, only supplying the amount of the decrease. Of course, many readers will see the $532.9 billion decline, a very big number, and think the worst -- that our portfolios are disappearing, that our homes are becoming worthless, and that the economy is irretrievably going into the tank (Was that the point, Ms. Chandra?).

Additionally, Chandra never told us what has happened to household net worth between the third quarter of 2002, the last time it declined, and the most recently reported quarter.

Here are the key numbers Chandra failed to report, including what has happened to household net worth in the past five years:

Household net worth at the end of 2007 was $57.7 trillion.

The $532.9 billion decline during the fourth quarter was a "whopping" 0.91% drop from the third-quarter peak of $58.25 trillion. It's a little difficult to make the case for a "threatened recession" based on such a small decline.

Here is how household net worth grew from 2002 to 2007:

Household net worth has increased over 47% since 2002 (about 27% after inflation during those years) -- and we're supposed to be breaking into a cold sweat because of a one-quarter decline of less than 1%?

Omitting the three items just noted borders on journalistic malpractice -- on the wrong side of the border..........Read the whole story here

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