IN WHICH I PLAY THE GRINCH….I’m twiddling my thumbs for a bit until it’s time to hop in the car and head over to my father-in-law’s place, and a few minutes ago I came across a piece by Michael Barbaro in the New York Times about “bleak” retail holiday spending this year:
Spending between Thanksgiving and Christmas rose just 3.6 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company. By comparison, sales grew 6.6 percent in 2006, and 8 percent in 2005.
But this isn’t right. As near as I can tell (though, naturally, Barbaro doesn’t bother to mention it), these numbers aren’t adjusted for inflation. In other words, they’re useless. Here’s what that paragraph should have said:
Adjusted for inflation, spending between Thanksgiving and Christmas declined 0.7 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company. By comparison, sales grew 4.0 percent in 2006, and 4.4 percent in 2005.
I adjusted Barbaro’s numbers using annual CPI figures. Alternatively, you could use some other measure of inflation. For example, you could exclude food and energy, which would give you a lower inflation rate but also a smaller spending increase. One way or another, though, you have to adjust for inflation in some kind of reasonable way. Nominal figures are the worst possible way of conveying the correct impression of what’s really going on.
Question: why does this happen so routinely? Wages that are up 3% in a period when inflation is running 4% aren’t actually up. Spending that’s up 3% in a period when inflation is running 4% isn’t actually up. This isn’t rocket science. Anyone tasked with writing economic news, even on Christmas, should know that spending numbers have to be adjusted for inflation if you want to genuinely inform your readers about the state of the economy. Nominal numbers can be added later in the story if you want to present those too. Why is this so hard?