Life in PNoy’s Enchanted Kingdom

Mangar Mangahas of SWS tears apart a press release from NEDA. (ORIGINAL AND RELATED ARTICLES HERE)

The deceptive NEDA press release
by Mahar Mangahas

Here is how bad economic news from one agency was disguised as good economic news by another agency two days later.

I was truly amazed to see the deceptive title “FIES results show improving incomes” on the Oct. 11, 2007 press release of the National Economic and Development Authority (NEDA), which dealt with the very same 2003 and 2006 Family Income and Expenditures Surveys, reported by the National Statistics Office on Oct. 9, on which I based my last column “GNP grew, but incomes fell.”

The deception in the title is repeated in the first sentence of the said NEDA release (www.neda.gov.ph/ads/press_release/pr.asp?ID=904): “The National Economic and Development Authority (NEDA) said the 2006 Family Income and Expenditures Survey (FIES) show [sic] that the average income of families has been improving alongside economic growth.”

This lead sentence deserves a failing grade in elementary economics, because there is absolutely no way that a survey finding of a drop in real income per family between 2003 and 2006, i.e., after correction for inflation, can be considered an improvement. A mere increase in peso units is not an improvement when, as computed by NSO itself, the peso amount in the end year buys less than it did in the beginning year. It is an out-and-out worsening, not an improvement.

After much blah-blah, this tricky NEDA press release cites numbers for the first time in its fifth paragraph: “The National Statistics Office (NSO) reported that from 2003-2006, average nominal incomes of families in the bottom 30 percent grew faster at 17.5 percent compared to families in the upper 70 percent which grew by 15.9 percent.” Here the tell-tale word is “nominal,” which means before correction for inflation (which happened to be 19.6 percent between the two years).

Ah, but doesn’t the seventh paragraph — “Total family income rose faster by 22.7 percent from the 2003 figure to reach PhP2.99 trillion in 2006. Adjusting for inflation, total income of families in real terms grew by 2.6 percent to PhP2.5 trillion compared to the Php2.4 trillion registered in the last survey period.” — account for inflation?

Well, the seventh paragraph is creative economic journalism. On the one hand it adjusts for inflation, but on the other hand it switches reference units. Note carefully that it refers specifically to income of all families and not to average income per family. Sure, the income of all families grew by 2.6 percent over 2003-2006; but the number of families grew faster than that (by 5.6 percent) over the three years, and therefore the total income divided by the number of families fell!

Ultimately, the ninth paragraph of the ten-paragraph NEDA release gives away the deception completely:

“Given the 19.6 percent increase in the price of family expenditure items between 2003-2006 coupled with the 5.6 percent increase in the number of families during the same period, real average income of families declined by 2.7 percent to PhP144,000 per family from PhP148,000 per family in 2003. In the same manner, average family expenditures in real terms dropped by 0.8 percent. As a result, real average family savings was slashed by 12.5 percent to just PhP21,000 from PhP24,000 in 2003.”

The ninth paragraph’s statistics of P144,000 and P148,000 are precisely what I cited in my October 20th column.

The basic findings of the Family Income and Expenditure Surveys bear repeating: Real income per family, real expenditures per family, and real savings per family all fell between 2003 and 2006.

If average incomes fell, then poverty must have grown. On March 2, 2007, the National Statistical Coordination Board (NSCB), which does the official poverty lines, released preliminary estimates for 2006 and 2007, for every province (www.nscb.gov.ph/poverty/2006-2007/pov_th_07.asp).

In terms of the national average, on a per year per person basis, the NSCB poverty thresholds are P14,405 for 2006 and P14,866 for 2007. These are in so-called “current prices,” meaning uncorrected for inflation from any given base year. To convert these into current pesos per family per year, we multiply by the average family size of 5.0 (2005 NSO Census of Population and Households) and arrive at P72,025 for 2006 and P74,330 for 2007.

According to the 2006 FIES, the average income, in current prices, of the lowest-income 10 percent (called the first decile) of families was P32,000 per year. By decile, average family incomes in 2006 in current pesos were as follows: 1. 32,000, 2. 51,000, 3. 65,000, 4. 81,000, 5. 100,000, 6. 123,000, 7. 156,000, 8. 204,000, 9. 290,000, and 10. 617,000.

For any decile from 2 to 9, the lower income boundary is more or less halfway from its own average income to the average income of the decile below, and the upper income boundary is more or less halfway to the average income of the decile above. For example, the third decile, whose average is P65,000, more or less extends from P58,000 to P73,000. For a 2006 threshold of P72,000, practically all families in the first three deciles would be classified as poor.

Since NSCB’s official poverty incidence in 2003 was only 25 percent, it will be interesting to see if it can now come out with a poverty estimate of close to 30 percent for 2006. Does NSCB have the guts to ever report that poverty got worse? Or will it engage in creative journalism, like NEDA?