Personal Income Data for June: “Mixed” Results

By at 31 July, 2021, 2:57 pm

by Raymond J. Keating – 

Based on the latest report from the U.S. Bureau of Economic Analysis, the story on personal income, as well as personal consumption expenditures (PCE), is a mixed tale. Certain key aspects in the report are pointed in a positive direction, others in a negative direction, and we are still left trying to sort out the impact of government aid and its unwinding.

Employee Compensation Growth “Unimpressive.” First, the topline growth of 0.1 percent in personal income in June was unimpressive, except for the fact that this tiny gain came after big declines in April and May. Also, the increase in June mainly was attributed to employee compensation, while government social benefits decreased. That’s positive.

Small Business Income Grows. Second, small business income – that is, proprietors’ income with inventory valuation and capital consumption adjustments – grew as well. That is the sixth straight month of growth in this measure of small business income, after tremendous volatility in 2020 once the pandemic hit. It’s important to note that the June 2021 level of small business income was 10 percent higher than the February 2020 amount.

Source: Federal Reserve Bank of St. Louis, FRED

Disposable Income Drops. Third, real per capita disposable income (i.e., personal income less personal current taxes adjusted for population and inflation) arguably is the most important broad income measure coming out of this report each month, as it captures the amount of income that individuals have to use for investing, saving and consuming.

Real per capital disposable income dropped in June. It was the third month in a row of declines, after a spike thanks for government aid hitting in March. Indeed, as noted in the following chart, disposable income has been ping-ponging around. But the June 2021 level was up by 2.7 percent versus pre-pandemic February 2020. Let’s hope that coming months see a reversal, from recent declines to growth.

Source: Federal Reserve Bank of St. Louis, FRED

Inflation Running “Quite” Hot. Fourth, the inflation measure in this report – that is, the PCE price index – lines up with other inflation measures in showing inflation running quite hot. The PCE price index jumped by 0.5 percent in June, following on increases of 0.5 percent in May, 0.6 percent in April and 0.6 percent in March.

Consumption Rises. Fifth, and finally, personal consumption expenditures increased by 0.5 percent in real terms in June, following on a decline of 0.6 percent in May. Again, consumption has bounced around largely in concert with changes in government aid.

Whatever the merits during a pandemic and related shutdowns in the economy, the distortive effects and costs of massive government aid packages cannot be wished away. As we work to get free of this pandemic, we obviously will gain a clearer picture of where the economy really stands in a variety of areas, while also confronting the realities of the costs of government draining resources from the private sector and then reallocating those dollars in various forms of aid.

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


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