A Reader’s Guide to Economic Headlines

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Several of our recent articles touched upon the interpretation of economic data releases. In many instances, the news headlines on this data do not reflect what the data tell us. One of our readers asked about how one should approach interpreting data headlines, especially if someone is unfamiliar with the topic. Let me describe how I go about it, which may be helpful to you.

Deceitful Headlines

We often hear that you can come up with a statistic to justify any conclusion. One of the main ways this is done is by not giving any context to the statistic and just letting the reader infer a conclusion. Here is an example from ABC News:

Given that this is a headline, ABC believes it is newsworthy. But is it really? What is ABC trying to say? If you see this headline, you might conclude that the US economy is not doing well since people are becoming reliant on credit card debt. But is this true? 

Let’s start by asking whether focusing on ‘total credit card debt’ is insightful. Suppose I have $1000 of credit card debt. Next year, I have $1100. My total credit card debt went up. Is this a problem? To determine that, you’d probably have to ask me how much income I have or how much savings I have. If my income went up by 20%, this 10% credit card debt increase is not a problem. 

So maybe looking at total debt on its own does not make sense. How does total debt look in comparison to income (GDP – Gross Domestic Product is a good proxy for this). Let’s take a look at the chart that looks at household debt to GDP:

The current household debt to GDP level in the US is at a level comparable to 2000, and well below the highs of 2007-08, and even lower than pre-pandemic levels. Hmm – the ABC News