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Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (39173)	6/13/2000 9:03:00 AM
From: flatsville	Respond to of 42523

CB-- Make certain you read quote.bloomberg.com and add the following excerpt to your file-- Fair Use/etc... Equivalent It's Not The economy will probably have one more growth scare, accompanied by accelerating inflation, in the third or fourth quarter, before the Fed is forced to administer another dose of interest-rate medicine that eventually brings the period of 4-plus percent growth to an end. That's assuming things go well. What makes me think the inflation numbers will get worse? When one fifth of the entire index, a component called owners' equivalent rent, is rising at a slower pace than in the last recession -- in fact slower than at any time in its 17 year history -- you have to think something's amiss. OER attempts to impute a rental value to a home and is derived from a sample survey of rental units. The same survey acts as the basis for another CPI housing component, residential rents (RR). The Bureau of Labor Statistics assigns different weights to the results in compiling OER and RR. OER accounts for 20.5 percent of the CPI and 26 percent of the core CPI, which excludes food and energy. Following a change in the sampling method, the year-over-year change in OER slowed from 3.4 percent in October 1998 to a cycle and all-time low of 2.3 percent in October 1999. As of April, OER was rising at a 2.6 percent rate. Skewed Reality While the BLS openly admits that it is not trying to measure home prices, with imputed home value so far afield from reality, one has to question just what they are measuring and why. An index of repeat home sales compiled by the Organization of Federal Housing Enterprise Oversight, a regulator of Fannie Mae and Freddie Mac, shows home prices up 6.5 percent in the first quarter compared with a year earlier. The housing price index bottomed during the last recession (Q4 1990) at a scant annual increase of 0.3 percent. Measuring home prices during downturns probably doesn't capture the decline in value. ``Most people just sit tight during recessions,'' says Susan Hering, chief economist at Carr Futures. If houses don't ``trade,'' it's tough to attach an arbitrary value to them. Not for the BLS. Hering thinks that the BLS measure of owners' equivalent rent is divorced from reality, that the decline in the core CPI during 1999 was largely a reflection of the distortions in OER. That said, she's not optimistic the quirky category will start mirroring what's going on in the U.S. economy. ``I don't see any reason why it should start to tell the true story now,'' she concedes.