Signs of Hope for Spring? The Latest Personal Income Data

By at 27 March, 2021, 9:42 am

by Raymond J. Keating-

There are signs of hope in various places – hope that this pandemic will soon be put to rest for the sake of lives, public health, and the economy. That hope is tied to the distribution of vaccines, which will then lead to a return to normalcy, including for the economy.

In the meantime, we are subject to continuing challenges, again, including on the business and economy front. Consider that the latest report from the U.S. Bureau of Economic Analysis on personal income pointed to two months of wild swings.

The Big Spike, then Plunge, in Personal Income

First, due to government payments and increased unemployment insurance benefits tied the Coronavirus Response and Relief Supplemental Appropriations Act, enacted on December 27, 2020, we experienced a huge spike in personal income (+10.1 percent), including in disposable income (+11.4 percent), in January.

Second, as forms of government aid were either ended or reined in, personal income then plunged in February (-7.1 percent), including a big drop in disposable income (-8.0 percent).

There’s not much to latch onto in these topline numbers then when it comes to figuring out what might be going on in the real economy. Two items worth taking note of, though, are private industry wages and salaries, and proprietors’ income, that is, small business income.

Private Wages and Salaries Stagnate

As for private wages and salaries, they basically stagnated in February. Private wages and salaries had been growing (or more accurately, recovering) since May of last year. It’s also worth noting that the February 2021 level of private industry wages and salaries stood at essentially the same level as a year earlier (factoring inflation out of the equation).

Small Business Income Increases

Meanwhile, proprietors’ income saw the first monthly gain since October. Unfortunately, this measure of small business income has not returned to where it was a year ago (again, without accounting for inflation).

Source: Federal Reserve Bank of St. Louis, FRED

Nonetheless, the latest month’s growth in small business income offers, again, hope.

Our economic recovery and eventual growth ultimately are not going to be tied to government redistributing income via checks. Instead, it will be about entrepreneurship, small business and investment being re-energized, and leading economic, income and employment growth.

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


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