PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Economic Trends: The Positive Trend on Disposable Income

By at 1 July, 2018, 8:53 am

Small Business Insider 

by Raymond J. Keating-

According to the latest report from the U.S. Bureau of Economic Analysis, personal income in May showed solid growth. The 0.4 percent rise in May was up from 0.3 percent in March and 0.2 percent in April.

Meanwhile, the personal consumption expenditures price index, a limited inflation measure, was up by 2.3 percent over the past year – its largest rise in some six years. So, that warrants watching.

However, as I have argued many times, the best read on personal income remains real per capita disposable personal income, i.e., personal income less current taxes, and accounting for inflation and population.

Real per capita disposable income registered $39,670 (in real 2009 dollars) in May, and it has been on the rise now for eight straight months. That’s one of the strong periods of growth for the U.S. And to a degree, that has to do with the tax cut that was signed into law in December of 2017. In the chart below, it must be noted that the big decline in real per capita disposable income that occurred at the start of 2013 was due to a major tax increase imposed by Congress and President Obama. On the flip side, real per capita disposable income took a jump up at the start of this year due to the recent tax cut.

Why Does this Matter?

Because disposable income measures the resources individuals have available for saving, investing and consuming. It’s the critical income measure when considering economic growth now and down the road a bit. And the recent trend on real per capita disposable income has been clearly positive for the economy, and for small businesses.

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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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