Personal Income Moving Back in Right Direction

By at 29 June, 2019, 9:05 am

by Raymond J. Keating-

Personal income growth, according to the latest report from the U.S. Bureau of Economic Analysis, has stepped up over the past two months.

Personal income grew by 0.5 percent in both April and May. That’s welcome after a stretch of underwhelming growth during the first three months of 2019.

But as we have pointed out many times, the measure of personal income that matters most to the economy is real per capita disposable income, or after-tax income adjusted for population and inflation. This is the income from which individuals consume, save and invest.

Again, through the first three months of this year, real per capita disposable income declined. But growth – albeit slow growth – resumed in April and continued in May, with growth rates of 0.1 percent in April and 0.2 percent in May.

As noted in the following chart, the solid growth experienced in real per capita disposable income from early 2017 to the end of 2018 has given way to a slight decline or, at best, stagnation over the last five months.

Source: Federal Reserve Bank of St. Louis, FRED

Let’s hope that these last two months of growth point to continued and accelerating growth. Policymakers could help by providing permanent, substantive tax relief, and shifting from a trade agenda focused on higher tariffs (i.e., taxes) to tax relief (i.e., advancing free trade that reduces tariffs).


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

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