Three Takeaways from the December Personal Income Report

By at 27 January, 2023, 1:36 pm

by Raymond J. Keating –

The U.S. Bureau of Economic Analysis reported that personal income barely inched higher in December 2022, with personal consumption expenditures declining.

Focusing in closer on the report and data, here are three key takeaways.

First, inflation, as measured by the personal consumption expenditures (PCE) index which is a favorite of the Federal Reserve, registered a calm 0.1 percent. Like the Consumer Price Index, PCE inflation has come down considerably over the past six months.

Source: Federal Reserve Bank of St. Louis, FRED

Second, real per capita disposable income (i.e., personal income less personal current taxes and adjusted for inflation and population) has now grown for three consecutive months. That, in part, is due to the reduction in the inflation tax.

As SBE Council has noted many times before, this is the most important measure of personal income as it is the income that individuals have to consume, save and invest. As noted in the following chart, real per capita disposable income has been beaten down by recession, inflation and inadequate private investment. Let’s hope these last few months of growth point to a positive run over the long haul.

Source: Federal Reserve Bank of St. Louis, FRED

Third, real personal consumption expenditures declined in December (-0.3 percent), following on a drop in November (-0.2 percent) as well. This lines up with poor retail sales data to close out 2022. The consumer clearly is nervous about the economy and where it’s headed.

So, while inflation in this report was good news, the rest of the tale was mixed. Disposable income has begun to move in the right direction, while consumers are skittish, no doubt, about the possibility of recession and lingering inflation worries.

As SBE Council pointed out in our recent look at GDP data:

“In the midst of all of this, it’s rather stunning how disengaged or mistaken federal elected officials are. Our policy focus needs to be on a pro-growth agenda centered on tax and regulatory relief, and free trade, along with government spending restraint and immigration reform expanding much-needed entrepreneurs and workers. Yet, it’s hard to find anyone leading with such a vital agenda. Indeed, it’s easier to find policy leaders, such as President Biden, actively pushing, and imposing, the exact opposite policies.”

This needs to change, and quickly.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.


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