Friday, November 03, 2006

Not that simple

Commenter Richard suggested that my "simple math" from yesterday really isn't that simple. He's right for a variety of reasons. Most obvious is that the ULC calculation might not perfectly reflect total consumer income, such as wealth gains from sale of securities or real estate. Another important point which Richard brought up is the problem of imports. If consumers have 5% more income but use it entirely to buy foreign goods, the impact on U.S. inflation may be minimal.

I spoke with John Burger of Loyola College in Maryland's economics department last night about ULC. He supposed the negative serial correlation issue I mentioned yesterday is probably due to poor measurement on the part of the BLS. Be that flawed methodology or that the data is just hard to get a handle on, either way I'm suspicious of the downward trend in ULC.