« A new full employment rate | Main | Fears of deflation »

July 13, 2010

A better economic indicator

Policy makers and economists are always looking for ways to better measure the economy. Usually measures such jobs, production and sales are used. Is there any other measure that might be a better summary of status of the economy for most people?

"There may be one, ... and it is called real disposable income. And what it is, it's a measure of the income that is available for people -- you and me -- to spend.

"Now let's break that term apart. Real simply means you take out inflation. So we do adjust those income numbers over time for inflation. And the disposable part means we are taking out taxes. So again, what this means is, using the same value of the dollar, what do people have to spend year after year after year?

"And if you look at that number, and you look at what's happened over the last couple of years with the recession, as people might expect it has actually gone down. People have not had as much to spend, once you take out taxes and once you take out inflation. And indeed it doesn't look like we are going to get back to that pre-recessionary level of real disposable income maybe until about a year to a year and a half from now.

"So this is simply another indicator we can throw into our toolbox of indicators to try to get a feeling of what people are really feeling economically speaking, and real disposable income does suggest that we still have some issues."

Posted by deeshore at July 13, 2010 08:35 AM