Economics is often referred to as "the dismal science." Whether it is science at all is the subject of some debate. I find that debate irrelevant. What matters is that the subject is important even though many people find it boring and incomprehensible. It need not be. And some of us find it interesting enough to make a career of it.
Economists are generally in the role of analyzing, explaining, and, depending on their position, advising those who hold power of decision in both the public and private sectors. This they do with varying degrees of success.
Among the unexciting but useful tasks undertaken by economists and statisticians at the U.S. Department of Labor's Bureau of Labor Statistics is to compile various indexes that track prices of goods and services over time. These indexes are used by those in the public and private sectors for a variety of business and public policy decisions. Perhaps the most familiar index to most people is the Consumer Price Index. One use of the CPI is to govern the annual rate of change of payments to Social Security recipients. The inflation rate as measured by the CPI influences the Board of Governors of the Federal Reserve regarding short-term interest rates, which affect other interest rates in the economy.
The CPI is designed to track the weighted average of prices of a "typical" basket of consumer goods and services over a period of time. Naturally, there is no combination of goods and services that exactly fits every consumer's expenditures. But it is obvious that the combination of goods and services in the index is significant in determining its relevancy.
For some 30 years the PNC Bank of Pittsburgh, PA has, for both instructional and entertainment purposes, compiled a price index of the 12 sets of items in the song, "The Twelve Days of Christmas."
While those 12 items in the song are far from a typical package of consumer items, this whimsical exercise illustrates some interesting characteristics of index numbers.
Let's take a look at 2016 prices, relative to 2015, of the items in the song that the well-heeled True Love gives to his sweetheart over 12 days.
The cost of the Partridge in a Pear Tree actually declined by 2.3 percent. While the pear tree cost remained constant at $189, the cost of the partridge declined from $25 to $20.
The cost of the Two Turtle Doves rose from $290 in 2015 to $375 in 2016 for an increase of 29.3 percent. While this is a substantial percentage increase, this item is such a small portion of the total cost of the 12 items, it has little influence on the total index.
The cost of the Three French Hens remained stable at $182. The cost of the Four Calling Birds also remained stable, at $600.
The price of gold fluctuated throughout 2016, but remained little changed from 2015 at year's end. This net result is that the cost of the Five Golden Rings remained at $750.
As with most of the other birds in the song the cost of the Six Geese-a-Laying remained stable, at $360.
The Seven Swans-a-Swimming are by far the most costly of the birds, and generally the most volatile in price. However, in 2016, their price remained stable at $13,125. The stability of this item goes far to explain the stability of the index for 2016.
We now move to the labor components of the song. As with many public and private enterprises, labor is the major cost item. That is, with the exception of the long-suffering Eight Maids-a-Milking. These hard working maids are stuck with the federal minimum wage which has for years remained unchanged, not even keeping up with mild inflation. The cost of this item remains at a mere $58.
The highly skilled Nine Ladies Dancing, though receiving no wage increase over 2015, are awarded $7,553 in 2016.
The Ten Lords-a-Leaping are paid $5,509, the same as in 2015.
The musicians, though less handsomely compensated than the dancers, managed a modest increase. The Eleven Pipers Piping managed an increase of $73 over 2015 for a total of $2,708.
The Twelve Drummers Drumming enjoyed an increase of $80 to $2,934.
The 2.8 percent increase enjoyed by the musicians correlates with the 2.8 October 2015 to October 2016 wage increase measured by the BLS, the largest year over year increase since the Bush Recession.
The total cost of the 12 sets of items in 2016 comes to $34,363, for an approximate .7 percent increase over the $34,131 in 2015. Recall that in the song, with the exception of the Twelve Drummers Drumming, the True Love awards these gifts successively over 12 days. In doing this, the overly generous, most would agree, True Love, racks up a hefty sum of $156,508 compared to $155.407 last year.
As a practical matter, odds are that True Loves of today can safely avoid charges of insufficient romanticism by sticking with the golden rings. Probably one would be sufficiently appreciated. No need to overdo this lavish gift giving exercise.
Fed Chair Janet Yellen has long held an inflation rate of 2 percent to be the target before raising the Federal Funds rate. The Christmas Price index at .7 percent is a long way from that, thanks largely to the flat wages of the Nine Ladies Dancing and the Ten Lords-a-Leaping, and the unchanged price of the Seven Swans-a-Swimming, components that weigh heavily on the index.
The actual CPI compiled by the BLS has risen 1.6 percent for the twelve months ending October, and average hourly earnings have risen 2.8 percent over last October. Economists and others who follow these matters believe that the Fed will raise rates.
Will this have the feared effect on financial markets?
Probably not. This anticipated increase has, very timely, already been baked into the Christmas pie.
- John Waelti of Monroe can be reached at jjwaelti1@tds.net. His column appears Fridays in The Monroe Times.
Economists are generally in the role of analyzing, explaining, and, depending on their position, advising those who hold power of decision in both the public and private sectors. This they do with varying degrees of success.
Among the unexciting but useful tasks undertaken by economists and statisticians at the U.S. Department of Labor's Bureau of Labor Statistics is to compile various indexes that track prices of goods and services over time. These indexes are used by those in the public and private sectors for a variety of business and public policy decisions. Perhaps the most familiar index to most people is the Consumer Price Index. One use of the CPI is to govern the annual rate of change of payments to Social Security recipients. The inflation rate as measured by the CPI influences the Board of Governors of the Federal Reserve regarding short-term interest rates, which affect other interest rates in the economy.
The CPI is designed to track the weighted average of prices of a "typical" basket of consumer goods and services over a period of time. Naturally, there is no combination of goods and services that exactly fits every consumer's expenditures. But it is obvious that the combination of goods and services in the index is significant in determining its relevancy.
For some 30 years the PNC Bank of Pittsburgh, PA has, for both instructional and entertainment purposes, compiled a price index of the 12 sets of items in the song, "The Twelve Days of Christmas."
While those 12 items in the song are far from a typical package of consumer items, this whimsical exercise illustrates some interesting characteristics of index numbers.
Let's take a look at 2016 prices, relative to 2015, of the items in the song that the well-heeled True Love gives to his sweetheart over 12 days.
The cost of the Partridge in a Pear Tree actually declined by 2.3 percent. While the pear tree cost remained constant at $189, the cost of the partridge declined from $25 to $20.
The cost of the Two Turtle Doves rose from $290 in 2015 to $375 in 2016 for an increase of 29.3 percent. While this is a substantial percentage increase, this item is such a small portion of the total cost of the 12 items, it has little influence on the total index.
The cost of the Three French Hens remained stable at $182. The cost of the Four Calling Birds also remained stable, at $600.
The price of gold fluctuated throughout 2016, but remained little changed from 2015 at year's end. This net result is that the cost of the Five Golden Rings remained at $750.
As with most of the other birds in the song the cost of the Six Geese-a-Laying remained stable, at $360.
The Seven Swans-a-Swimming are by far the most costly of the birds, and generally the most volatile in price. However, in 2016, their price remained stable at $13,125. The stability of this item goes far to explain the stability of the index for 2016.
We now move to the labor components of the song. As with many public and private enterprises, labor is the major cost item. That is, with the exception of the long-suffering Eight Maids-a-Milking. These hard working maids are stuck with the federal minimum wage which has for years remained unchanged, not even keeping up with mild inflation. The cost of this item remains at a mere $58.
The highly skilled Nine Ladies Dancing, though receiving no wage increase over 2015, are awarded $7,553 in 2016.
The Ten Lords-a-Leaping are paid $5,509, the same as in 2015.
The musicians, though less handsomely compensated than the dancers, managed a modest increase. The Eleven Pipers Piping managed an increase of $73 over 2015 for a total of $2,708.
The Twelve Drummers Drumming enjoyed an increase of $80 to $2,934.
The 2.8 percent increase enjoyed by the musicians correlates with the 2.8 October 2015 to October 2016 wage increase measured by the BLS, the largest year over year increase since the Bush Recession.
The total cost of the 12 sets of items in 2016 comes to $34,363, for an approximate .7 percent increase over the $34,131 in 2015. Recall that in the song, with the exception of the Twelve Drummers Drumming, the True Love awards these gifts successively over 12 days. In doing this, the overly generous, most would agree, True Love, racks up a hefty sum of $156,508 compared to $155.407 last year.
As a practical matter, odds are that True Loves of today can safely avoid charges of insufficient romanticism by sticking with the golden rings. Probably one would be sufficiently appreciated. No need to overdo this lavish gift giving exercise.
Fed Chair Janet Yellen has long held an inflation rate of 2 percent to be the target before raising the Federal Funds rate. The Christmas Price index at .7 percent is a long way from that, thanks largely to the flat wages of the Nine Ladies Dancing and the Ten Lords-a-Leaping, and the unchanged price of the Seven Swans-a-Swimming, components that weigh heavily on the index.
The actual CPI compiled by the BLS has risen 1.6 percent for the twelve months ending October, and average hourly earnings have risen 2.8 percent over last October. Economists and others who follow these matters believe that the Fed will raise rates.
Will this have the feared effect on financial markets?
Probably not. This anticipated increase has, very timely, already been baked into the Christmas pie.
- John Waelti of Monroe can be reached at jjwaelti1@tds.net. His column appears Fridays in The Monroe Times.
