Latest Personal Income Data: Small Business Income Off by Nearly Twice the Decline in Wages and Salaries

By at 31 July, 2020, 12:07 pm

by Raymond J. Keating-

The latest report on personal income from the U.S. Bureau of Economic Analysis basically sums up or reflects the story of the pandemic economy, so far.

Out of all the measures coming from this report, the most relevant is disposable income, that is, personal income less personal current taxes. That’s the money people have left for consuming, saving and investing.

So, if we look at changes in real disposable personal income, there was growth in February (+0.6 percent), which was followed by a decline in March (-1.5 percent) as COVID-19 hit the U.S. economy. That was followed by a big jump up (+15.3 percent) in April with government aid being distributed. That temporary blip was followed by big declines in both May (-5.2 percent) and June (-1.8 percent). (By the way, per capita changes basically mirrored the changes in these disposable income totals.)

Meanwhile, personal consumption expenditures (PCE) dropped by 6.5 percent in March (in real terms) and by 12.4 percent in April, with increases (following aid distribution) in May (+8.4 percent) and June (+5.2 percent).

Those consumption numbers, of course, will be temporary without real growth occurring in the economy.

Along those lines, it’s worth highlighting that private industry wages and salaries – again, after big declines in March and April followed by some clawing back in May and June – was down by 6.6 percent in June compared to February.

Also, proprietors’ income (with inventory valuation and capital consumption adjustments) – which is mainly small business income – was down in June by 12.3 percent versus the February level.

Source: Federal Reserve Bank of St. Louis, FRED

The fact that small business income is off by nearly twice the decline in wages and salaries provides more evidence that small business is being hit particularly hard in this economy, and raises questions about the robustness of the eventual recovery.

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


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