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Business columns: How deeply are consumers cutting back?

There&rsquo;s something fishy about the official data on consumer spending, said Michael Mandel in <em>BusinessWeek.</em>

Michael MandelBusinessWeek

There’s something fishy about the official data on consumer spending, said Michael Mandel. The Bureau of Economic Analysis says consumer spending in February was down 0.4 percent from the year before. That works out to $40 billion out of total spending of $10 trillion—a significant drop, though hardly “enough to wreak economic havoc.”

But the official number seriously overstates real consumer spending, because of what the government strangely includes as personal expenditures. For example, the government counts $112 billion in health-care spending, even though 85 percent of that total is paid for by the government or employers. It also includes outlays by religious groups and by personal philanthropies such as the Bill & Melinda Gates Foundation. Even stranger, the consumer spending figures include “categories where no money actually changes hands,” such as rent on owner-occupied housing; that’s “the money people supposedly pay themselves for living in their own homes.”

Strip out these types of outlays, and it looks as if personal out-of-pocket consumption dropped by $200 billion, not $40 billion. “That explains why the downturn has hit Main Street hard.”

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