Some Questions Regarding the Latest Personal Income Data

By at 31 May, 2019, 2:14 pm

by Raymond J. Keating-

The latest report on personal income from the U.S. Bureau of Economic Analysis pointed to 0.5 percent growth in personal income in April. Normally, that would be viewed as pretty healthy. However, there’s more to the story when digging below the headline.

First, inflation, as measured by the personal consumption expenditure (PCE) index, came in at 0.3 percent, cutting away a big chunk of that rise in personal income.

Second, as SBE Council has noted many times before, the key personal income measure that matters most to the economy is real per capita disposable income, or after-tax income adjusted for population and inflation.

As SBE Council reported at the end of March, the recent trend in terms of annual real per capita disposable income has been positive. We noted that “growth in real per capita disposable income accelerated over the past two years, with growth registering 0.99 percent 2016, 1.94 percent in 2017, and 2.24 percent in 2018. The 2018 growth level of 2.24 percent topped the average annual growth rate of 2.15 percent for the past near-six-decades.”

However, the most recent data point to some stagnation over the past few months. As noted in the following graph, during the first four months of 2019, there has effectively been no growth. In fact, the April level is down slightly from the levels registered in December of last year, and in the first two months of this year.

Source: The Federal Reserve Bank of St. Louis, FRED

Real per capita disposable income is the key measure to keep an eye in terms of the state of economy since this is the income from which consumer spending, saving and investing come.

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


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