2/15/2007 – Be careful interpreting economic data

Over the past few years bullish economists supported their viewpoint using “average” data while bearish economists relied on “median” data. Median measures give the best picture of what is happening to the middle class because, unlike mean or average wages, median wages are not pulled upwards by rapid gains at the top. As the joke goes: Bill Gates walks into a bar and, on average, everyone there becomes a millionaire. But the median does not change. 

Over the past few years the economy has been very good to the rich, but most data has overstated the benefit to working-class America. However, recent trends are encouraging. After four years in which pay failed to keep pace with price increases, wages for most American workers have begun rising significantly faster than inflation. Now investors need to keep a watch to make sure higher wages don’t result in higher inflation or lower corporate profits.