The Latest Personal Income Report: Some Positives as Well as Concerns to Watch

By at 26 June, 2021, 7:36 am

by Raymond J. Keating –

Various signals emanated from the latest personal income report from the U.S. Bureau of Economic Analysis.

Personal income declined by 2 percent in May, and that came after a decline of 13.1 percent in April. Looking at real disposable income (i.e., personal income less personal current taxes), which is the amount of money individuals have available for consuming, saving and investing, it fell by 2.8 percent in May, after a 15.1 percent decline in April.

These two-month falloffs were attributed to declines in pandemic-related government assistance programs.

Private Sector Positives  

Private industry wages and salaries increased in both April and May, as did proprietors’ (i.e., small business) income. In fact, the increases over the past three months pushed proprietors’ income above its pre-pandemic level (at least in nominal terms). See the following chart:

Source: Federal Reserve Bank of St. Louis, FRED

So, there are positives to be found in the personal income numbers, along with concerns.

Pandemic Aid and Personal Expenditures

Meanwhile, personal consumption expenditures were flat in May. Factor inflation in, and real personal consumption expenditures declined by 0.4 percent. Again, the decline in pandemic aid came into play here.

The Inflation Factor

Finally, this personal income report includes a prominent inflation measure – the personal consumption expenditures price index.

The index pointed to an increase of 0.4 percent in May. That actually was a bit more restrained compared to the 0.6 percent increases in each of the two previous months. But make no mistake, the PCE price index, like other measures of inflation, point to inflation running hot – though not as hot as the CPI inflation measure.

A Mix of Hope and Red Flags to Watch

The May personal income report provides hope, while also raising concerns. Recovery and growth in small business income is most welcome, for example. However, where exactly personal income and consumption stand separate from government aid remains hard to nail down. And of course, the PCE price index reflects the concerns we all have about the realities and threats of inflation.

Entrepreneurs, investors, employees and consumers would all benefit if we had a policy agenda whereby the White House and Congress were focused on policies that would encourage entrepreneurship and private investment, and therefore, economic, income and job growth; while the Fed got focused on price stability.

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


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