4 Key Points from the Latest Report on Personal Income – Inflation a Factor  

By at 1 October, 2021, 11:06 am

by Raymond J. Keating –

In the latest report on personal income from the U.S. Bureau of Economic Analysis, real personal consumption expenditures (PCE) grew by 0.4 percent in August. However, the overarching story from this set of data was not positive, specifically, after factoring inflation into the equation, personal income declined in August.

Consider 4 key points:

First, while it was noted that personal income grew by 0.2 percent in August (seasonally adjusted annual rates), that reflected the change in nominal dollars.

Factor inflation in, and personal income declined.

Second, real per capita disposable income – a key measure in this report capturing after-tax income (personal income less personal current taxes) from which individuals invest, save and consume – declined in August, and basically has been stagnant for the past four months.

Third, while it was noted in the report that private wages and salaries increased, once inflation is factored in, wages and salaries effectively were unchanged in real terms.

Fourth, small business income (as measured in this report by “proprietors’ income with inventory valuation and capital consumption adjustments”) has declined for two months in a row in nominal terms. When inflation is factored in, of course, the decline worsens. And as noted in the following chart, this measure of small business income has been volatile since the pandemic hit, and is down from October of last year.

Source: Federal Reserve Bank of St. Louis, FRED

This latest personal income report serves to raise questions, or at least warnings, about the state of the economic recovery.

In turn, it also serves as a reminder to policymakers that imposing anti-growth measures, like higher taxes and more regulation, while always bad ideas, would be particularly misguided at this time.

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


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