Latest BEA Data: Inflation Bites Into Income

By SBE Council at 29 September, 2023, 1:33 pm

by Raymond J. Keating –

Inflation took a significant bite out of personal income in August, according to data in the latest personal income report from the U.S. Bureau of Economic Analysis.

While personal income grew by 0.4 percent in August, the PCE (personal consumption expenditures) price index also rose by 0.4 percent. So, in real terms, that is, after factoring inflation in, personal income was flat in August.

In addition, a key income measure actually declined. Real disposable personal income, which is personal income less personal current taxes adjusted for inflation, declined by 0.2 percent in August.

And on a per capita basis, real disposable income now has declined for three consecutive months. While the August level of real per capita disposable income was above the pre-pandemic level, the numbers clearly are not where they should be given lost growth. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

In the end, real per capita disposable income is an important measure of income because these are the resources from which individuals consume, save and invest. So, the recent decline, and the lack of growth overall in recent years, is troubling for small businesses that need investment and obviously that sell to the public, and for the economy overall.

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.