Feb 5, 2007

Economy, Reporters And Numbers

In a Bloomberg article Courtney Schlisserman sourced statistics from the Institute for Supply Management's non-manufacturing index, which moved up in December to 59. A 59 reading indicates a very strong services sector that is healthy and growing. She then states that Services make up almost 90% of the GDP.

It’s this statement that drew attention and shows that many who write about the economy and financial matters do not understand how these numbers coincide with each other. If the Services sector is 90% of GDP then all other sectors must only be 10%. The military alone is more than 10%.

Manufacturing hit its peak in 1959 at 47% of GDP and in 2005 had dropped to 33%, last year manufacturing had further declines but is still above 30%. To do the math; military 10% + manufacturing 32% = 58% for everything else that makes up the GDP.

Later in the article Ms. Schlisserman does make some very good points: “Lower energy prices and higher wages are fueling increased consumer spending and generating stronger sales at retailers, adding to economic growth.” The first part, of the quote, nails the economy but the second part “and higher wages” is also inaccurate. Wages have increased at a slightly higher pace than inflation over the last three months, but over the last three years have not kept pace with inflation. In fact this trend has been going on for awhile, and the American workers earnings in real dollars, is at the bottom of the earnings scale today than at any time over the last 40 years. It is not wages but the unemployment rate that is adding to consumer spending.