July Personal Income Data: A Mixed Story

By at 27 August, 2021, 4:21 pm


Sorting through the July personal income report from the U.S. Bureau of Economic Analysis results in a mixed story.

Let’s initially take a look at some positives (all data seasonally adjusted annual rates).

The Mostly Positives

First, after a big decline in April, a smaller but still significant drop in May, and a move to the positive side in June, the topline 1.1 percent growth in personal income looks impressive.

Second, real disposable income (i.e., personal income less personal current taxes adjusted for inflation) grew by 0.7 percent, after three straight months of decline.

Third, the PCE (personal consumption expenditures) price index – an often-watched measure of inflation – continued a slight cooling trend, from 0.6 percent in both April and May, to 0.5 percent in June, and then to 0.4 percent in July. That, of course, is still far too hot, but the direction is welcome.

Fourth, private industry wages and salaries continued to expand for the fifth month in a row.

But there were noteworthy negatives in the July personal income report as well.

The Noteworthy Negatives

First, 60 percent of the gain in personal income came from government social benefits, in particular from new advance child tax credit payments.

Second, small business income (i.e., proprietors’ income with inventory valuation and capital consumption adjustments) suffered a slight decline in July, breaking a streak of gains going back to the start of this year.

Third, after declining in April and May, real per capita disposable income has effectively stagnated for the past two months.

Fourth, after adjusting for inflation, personal consumption expenditures declined in July, marking a decline in two of the last three months.

Troubling Signs to Watch

While month-to-month fluctuations are inevitable in the data, the combination of declining small business income and the bulk of personal income gains coming via a government benefits program is a particularly troubling combination that warrants watching. If such a mixture were to persist, it would be grim for the U.S. economy.

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


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