Latest Personal Income Report: A “Mixed Bag”

By SBE Council at 31 August, 2023, 3:47 pm

by Raymond J. Keating –

The latest “Personal Income and Outlays” report from the U.S. Bureau of Economic Analysis amounted to a mixed bag.

First, if one’s focus is on consumer spending, then this was a good news report. Personal Consumption Expenditures (PCE) grew robustly for the second straight month. After growing by 0.4 percent in real terms in June, real PCE increased by 0.6 percent in July.

Second, if inflation is your concern, then this was a solid report as well, given that monthly PCE inflation advanced at only 0.2 percent for the second consecutive month. Over the past three months, annualized inflation registered 2.8 percent. That’s a vast improvement over where we were not long ago.

Third, but if personal income growth – and in particular, disposable income growth – is your focus, then this report was disappointing. The 0.2 percent growth in July in personal income effectively was wiped out by inflation.

Meanwhile, real disposable personal income (i.e., personal income less personal current taxes adjusted for inflation) declined by 0.2 percent in July. And that came after no growth in June. (See the trend in real per capita disposable personal income below.)

Source: Federal Reserve Bank of St. Louis, FRED

When we get beyond the distortions from the pandemic and the government responses to it, we see that real per capital disposable income stood at $46,741 (in real 2012 dollars) in July 2023. That compared to the February 2020, pre-pandemic level of $45,948. Therefore, in nearly two-and-a-half years, growth in real per capita disposable income was a mere 1.7 percent.

As I’ve often written, real per capita disposable personal income is the most import income measure, as this shows the resources that individuals have available for investing, saving and consuming.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.