Download Household Income, Demand, and Saving:

Household Income, Demand, and Saving:
Deriving Macro Data with Micro Data Concepts
Barry Cynamon
Frontiers of Measuring Household Economic Behavior
Federal Reserve Bank of Boston, April 27, 2015
Acknowledgements
Multi-year research project linking
household finances and economic growth
Acknowledgements
Multi-year research project linking
household finances and economic growth
• Joint work with Steve Fazzari
• Generous support from INET
• Opinions are mine and not those of the Fed
This Session
Reconciling macro and micro estimates of
U.S. household income and expenditures
This Session
Reconciling macro and micro estimates of
U.S. household income and expenditures
• Understand how the aggregate measures are distributed
• Validate survey measures comparing to trusted aggregate
measures
• Learn from aggregates consistent with micro data
concepts
Motivation for Measurement
INEQUALITY AND CONSUMPTION
“Inequality, the Great Recession, and Slow Recovery”
Forthcoming in the Cambridge Journal of Economics
Working paper available at SSRN: http://ssrn.com/abstract=2205524
The Original Goal
Investigate relationship between income
inequality and Great Recession
The Original Goal
Investigate relationship between income
inequality and Great Recession
• Rich have lower propensity to consume
– (Maki and Palumbo 2001)
• Increasing share of income flowing toward rich
– (Piketty and Saez, 2003; CBO, 2013; Johnson and Smeeding, 2014)
• Downward pressure on aggregate consumption ?
Increasing share of income flowing toward rich
Income share of the top 5% of US households
40%
35%
30%
25%
20%
15%
1960
1964
1968
1972
1976
1980
Source: The World Top Incomes Database
1984
1988
1992
1996
2000
2004
2008
2012
Consumption Drove Economic Growth
Consumption share of GDP
70%
65%
60%
55%
1960
1964
1968
1972
1976
1980
1984
Source: BEA National Income and Product Accounts
1988
1992
1996
2000
2004
2008
2012
Households Doubled their Leverage
Debt to income ratio of US households
140%
120%
100%
80%
60%
40%
1960
1964
1968
1972
1976
1980
1984
Source: FRB Financial Accounts of the United States
1988
1992
1996
2000
2004
2008
2012
Initial Plan
Find a micro data set with income and
consumption expenditure
Initial Plan
Find a micro data set with income and
consumption expenditure
• SCF: oversamples wealthy, but no consumption data
• CPS: annual and large sample, but no consumption
• CE: fails to match aggregate data in level or trend
– Under-reporting especially among higher income households
(Sabelhaus, Johnson, Ash, Swanson, Garner, Greenlees, Henderson,
2013)
Revised Plan
Use a mix of aggregate and micro data to
generate results at “group” level
Revised Plan
Use a mix of aggregate and micro data to
generate results at “group” level
• SCF: for distribution of balance sheet accounts
• CPS: for distribution of income
• National accounts: for authoritative time series
Maki and Palumbo (2001)
Assets and Liabilities
Aggregate
Stocks
Flows
FAOTUS
FAOTUS
Income
NIPA
disposable personal
income
Micro
SCF
*identification
CPS
shares interpolated
linearly between waves
assume flows
proportional to holdings
money income
• Numbers add up to net worth and saving for the
personal sector published in the FAOTUS
• Distribution matches the SCF in every survey year
Revised Plan ii
M&P for group-level saving numbers and
then back out consumption numbers
Revised Plan ii
M&P for group-level saving numbers and
then back out consumption numbers
• Mark Zandi provided us with saving rate information
derived using the M&P approach
• First, we adjusted those FAOTUS saving numbers to
match NIPA saving numbers
• Then we allocated NIPA transfers and interest between
our groups so we could back out “group” consumption
Revised Plan ii
M&P for group-level saving numbers and
then back out consumption numbers
Disposable
Income
Outlays
− Saving = Outlays
= Consumption
+ Transfers + Interest
Disposable
Consumption =
− Saving −
Income
Transfers −
Interest
The Story
Non-rich took on debt to maintain consumption,
which delayed the effect of rising inequality
The Story
Non-rich took on debt to maintain consumption,
which delayed the effect of rising inequality
Before Great Recession:
• Debt to income ratio of non-rich grew before GR
• Consumption rate of non-rich stable or rising
After Great Recession:
• Consumption of rich only has recovered
• Per capita, real GDP far below trend after Great Recession
The Story
Non-rich took on debt to maintain consumption,
which delayed the effect of rising inequality
Before Great Recession:
• Debt to income ratio of non-rich grew before GR
• Consumption rate of non-rich stable or rising
After Great Recession:
• Consumption of rich only has recovered
• Per capita, real GDP far below trend after Great Recession
Debt to income ratio of non-rich increased
200%
175%
150%
125%
100%
75%
50%
25%
Bottom 95%
Top 5%
Source: FRB Survey of Consumer Finances, data provided by Romain Ranciere
Consumption rate of non-rich stable or rising
100%
95%
90%
85%
80%
75%
Consumption Rate 95%
Consumption Rate 5%
Outlay Rate 95%
Outlay Rate 5%
Source: Cynamon and Fazzari (2015)
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
70%
Consumption of rich has recovered;
that of non-rich has not
Index of Real Consumption, Bottom 95% and Top 5% (1989=100)
260
240
220
200
180
160
140
120
100
Bottom 95%
Source: Data from Cynamon and Fazzari (2015)
Top 5%
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
80
GDP well below trend after Great Recession
Per capita, real GDP, chained dollars (exponential trend)
$65,000
$50,000
$35,000
$20,000
$5,000
1960
1964
1968
1972
1976
Source: BEA National Product Accounts
1980
1984
1988
1992
1996
2000
2004
2008
2012
Measurement Exercise
MEASURING DEMAND
“Household Income, Demand, and Saving: Deriving Macro Data with Micro Data Concepts”
Forthcoming in the Review of Income and Wealth
Working paper available at SSRN: http://ssrn.com/abstract=2211896
Motivation
Reconcile macro and micro estimates of U.S.
household income and expenditures
Motivation i
Reconcile macro and micro estimates of U.S.
household income and expenditures
• Maki and Palumbo (2001) reliant on consistent concepts
– CPS income distribution applied to NIPA disposable personal income
– SCF net worth distribution applied to FAOTUS balance sheet
• But there are inconsistencies between micro and macro data
– Not just sampling error; important conceptual differences
• Previous efforts to match NIPA and survey income
– Katz (2012), Bosworth et al. (2007)
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
0.70
0.70
0.60
0.60
PSID
1.10
1.00
0.90
0.80
0.70
Pre-tax income data from
surveys well below 100% of
NIPA personal income
0.60
2012
0.80
2009
0.80
2006
0.90
2003
0.90
2000
1.00
1997
1.00
1994
1.10
1.10
1991
CPS
1988
2012
2009
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
Comparisons to Survey Data
SCF
Motivation ii
Reconcile macro and micro estimates of U.S.
household income and expenditures
• Might learn from macro measures adjusted to match
micro concepts
– PCE vs. what households actually spend
– Different definitions of saving may tell different stories
Objective
Measure the flows of purchasing power
under the control of the household
• Eliminate imputed value of services in
consumption
– Example: Imputed rent
• Eliminate spending not controlled by households
– Example: Medicare
Objective
Measure the flows of purchasing power
under the control of the household
• Household financial flows the way households
actually see these flows
• Concept likely to correspond better with flows
households report on surveys
Key Identity
• Accounting identity maintained before and after
adjustments:
Disposable
Household
Transfers Financial
Income
= Consumption + Investment + & Interest + Saving
• Identity holds in NIPA
– Household investment not distinguished from financial saving
• Adjustments to consumption or income require
balancing change elsewhere
Housing Example (2013 $billions)
Disp.
Income
Cons. HH Invest. Trans. &
Int.
Implicit Rent
- 1326
- 1326
Intermediate Inputs
+ 152
+ 152
Mortgage Interest
+ 334
Depreciation
+ 312
New Construction
Fin.
Saving
+ 334
+ 312
+ 426
- 426
Single-Family Homes
Broker commissions
Total
+ 105 - 105
- 528
- 1068 + 321
+ 334
- 115
• Eliminate “rent home to yourself” business
Other Important Adjustments
• About 40 separate adjustments
• Remove non profit institutions that serve households
• Free financial services
• Medical care
– Employer and government, not households
• Retirement accounting
– Exclude contributions by employers and government to defined
benefit plans
– Include benefits from DB plans
Other Important Adjustments
Disposable
Income
Consumption
Transfers &
Interest
Financial
Saving
Owner-Occupied
Housing
-4%
-9%
81%
-19%
Financial Services
-6%
-2%
Defined Benefit
Pensions
-1%
Third-Party Paid
Medical Services
-13%
-14%
Non-Profit Sector
-1%
-4%
Other
-2%
Adjusted Data
73%
Category
-76%
-27%
61%
8%
-30%
70%
242%
-44%
Note: Household investment excluded form table, because it has no clear personal sector counterpart in the NIPA
Adjusted measures: real, per capita
$40,000
Disposable Income
$5,000
Transfers and Interest
$35,000
$4,000
$30,000
$25,000
$3,000
$20,000
$2,000
$15,000
$10,000
$1,000
$5,000
$0
19481953195819631968197319781983198819931998200320082013
$40,000
$0
19481953195819631968197319781983198819931998200320082013
Disposable Personal Income
Personal Interest and Transfers
Adjusted Disposable Income
Adjusted Transfers and Interest
Consumption
$4,000
$35,000
$3,000
$30,000
$2,000
$25,000
$1,000
$20,000
$0
$15,000
-$1,000
$10,000
-$2,000
$5,000
-$3,000
$0
19481953195819631968197319781983198819931998200320082013
Personal Consumption Expenditures
Household Demand
Adjusted Consumption
Saving
-$4,000
19481953195819631968197319781983198819931998200320082013
Personal Saving
Adjusted Gross Household Saving
Financial Saving
Comparisons to Survey Data
PSID
1.10
1.00
0.90
0.80
0.70
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
0.60
Note: All measures shown pre-tax; CBO net realized capital gains added to adjusted disposable income to match SCF, which includes realized gains.
2012
2009
2006
2003
2000
1997
1994
SCF
1991
2012
2009
2006
2003
2000
1997
0.60
1994
0.60
1991
0.70
1988
0.70
1985
0.80
1982
0.80
1979
0.90
1976
0.90
1973
1.00
1970
1.00
1967
1.10
1.10
1988
CPS
Expenditure Shares of Income
115%
110%
105%
100%
95%
90%
85%
80%
75%
0%
70%
1948
1953
1958
1963
1968
Adjusted Consumption
1973
1978
1983
Household Investment
1988
1993
1998
2003
Adjusted Transfers and Interest
2008
2013
Bigger Collapse: Cash Flow Measure
Demand Rates: NIPA Definition and Adjusted
102%
100%
98%
96%
94%
92%
90%
88%
86%
84%
NIPA PCE / NIPA DPI
Adj HH Dem / Adj DPI
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
1948
82%
New saving rate concepts
15%
10%
5%
0%
-5%
-10%
-15%
1948
1953
1958
1963
NIPA Saving Rate
1968
1973
1978
1983
1988
Adj. Gross Household Saving Rate
1993
1998
2003
2008
Adj. Financial Saving Rate
2013
Future Directions
1. Use the Maki and Palumbo procedure with micro-consistent
aggregate income and saving series; see if the results change
–
Wondering if anybody at the Board would like to team up with us
2. Investigate the business cycle properties of the microconsistent aggregate consumption series
–
Would like to generate quarterly-frequency numbers
3. Exploit panel structure of PSID to see if story of rising
balance sheet fragility among non-rich followed by discrete
fall in consumption during GR holds up at household level
–
Joint work with Daniel Cooper
Future Directions
1. Use the Maki and Palumbo procedure with micro-consistent
aggregate income and saving series; see if the results change
–
Wondering if anybody at the Board would like to team up with us
2. Investigate the business cycle properties of the microconsistent aggregate consumption series
–
Would like to generate quarterly-frequency numbers
3. Exploit panel structure of PSID to see if story of rising
balance sheet fragility among non-rich followed by discrete
fall in consumption during GR holds up at household level
–
Joint work with Daniel Cooper
Future Directions
1. Use the Maki and Palumbo procedure with micro-consistent
aggregate income and saving series; see if the results change
–
Wondering if anybody at the Board would like to team up with us
2. Investigate the business cycle properties of the microconsistent aggregate consumption series
–
Would like to generate quarterly-frequency numbers
3. Exploit panel structure of PSID to see if story of rising
balance sheet fragility among non-rich followed by discrete
fall in consumption during GR holds up at household level
–
Joint work with Daniel Cooper