PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Not So Hot: Latest Personal Income Numbers

By at 29 September, 2017, 1:56 pm

by Raymond J. Keating-

The latest personal income data report released by the U.S. Bureau of Economic Analysis was not exactly robust – in fact, it was troubling in the measure that matters most.

The key data to look at in the personal income report is real per capita disposable personal income, which is after-tax income after inflation and population are accounted for. This matters because it’s the money that individuals use for investing, saving and consuming.

In August, real per capita disposable income was down compared to July, and off from the recent high hit in May of this year. For good measure, disposable income growth has been poor for the past year – growth of only 0.5 percent from August 2016 to August 2017 – as well as the last two years, up by only 1.3 percent from August 2015 to August 2017. (See the accompanying chart.)

This lackluster growth is a continuation of the trend we’ve seen for the past decade-plus. As pointed out in SBE Council’s previous brief on personal income, “real per capita disposable income grew at an annual average rate of 2.2 percent from 1950 to 2016, and a 2.4 percent rate from 1950 to 2000. Compare those numbers to an average growth rate of 1.3 percent from 2001 to 2016, 0.95 percent from 2008 to 2016, and post-recession, from 2009 to 2016, at an average rate of 0.99 percent. In effect, in recent years, the growth rate in real per capita disposable income has been running at less than half of what it should be doing.”

What needs to be done to provide a sustained boost in disposable income?

Namely, changes in public policy, such as tax and regulatory relief, that enhance incentives for entrepreneurs and businesses to make investments that enhance worker productivity, and substantively cutting taxes on individuals and families. Policy has started to move in that direction with the recent announcement from congressional and White negotiators on a tax plan. Now that have to finish the job and sign a solid plan into law.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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