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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 681.43+1.6%4:00 PM EST
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To: pater tenebrarum who wrote (25789)9/14/1999 5:18:00 PM
From: Les H  Read Replies (1) of 99985
 
stats.bls.gov

The 1.5 point downward adjustment (may have been as much as 2.0) was part of the 1995 balanced budget deal. Precious little was done to reform the government spending that caused the problem. 1994 saw the government bi-partisan commission on entitlements; the politicians ignored it and decided to do another round of 'adjustments' on the CPI. The last big one before 1996 was in 1983 in conjunction with the higher payroll taxes to 'rescue' Social Security and finally, bring the federal workers into the 'contribution' class.

All of the statistical adjustments are downward adjustments. They also assume elasticity of demand and perfect substitution for all goods. As you mention, the housing rental 'equivalents', their limited sampling of housing and rental prices, the adjustment downward of prices for 'qualitative improvements'. The last category alone creates a downward bias. They also heavily weight computer purchases in the economy. There's probably also a downward bias in new users who adopt technology items when they reach certain price points, such as under $ 1000 for computers, then $ 500 for computers, and so on, not the least would be cell phones. It's misleading to categorize a new cost category for a new user as price reduction --- if the computer didn't reach their price point for purchase, they wouldn't have purchased the item.
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