No Good News in Latest Personal Income Report

By SBE Council at 28 January, 2022, 7:07 pm

by Raymond J. Keating -

The latest "Personal Income and Outlays" report from the U.S. Bureau of Economic Analysis offers no good news, as inflation turns everything negative.

The personal consumption expenditures (PCE) price index is a measure of inflation that tends to get close attention from the Federal Reserve. In December 2021, PCE index inflation registered 0.4 percent, after jumping by 0.6 percent in each of the previous two months. Over the past year, PCE index inflation came in at a hot 5.8 percent.

This inflation ate into gains in personal income and consumption.

So, personal consumption expenditures in December not only declined by 0.6 percent in nominal terms, but once inflation was factored in, the decline sank to 1.0 percent.

Personal income grew by 0.3 percent in nominal terms, with inflation then taking that into negative territory.

The key income measure in this report, as SBE Council has explained before, is real per capita disposable personal income, that is, after-tax income (personal income less personal current taxes) from which individuals invest, save and consume.

After we get clear of various government COVID relief checks being distributed, real per capita disposable income declined for the fifth month in a row in December.

Source: Federal Reserve Bank of St. Louis, FRED

In addition, compared to the pre-pandemic level, real per capita disposable income basically has stagnated. That is, comparing the December 2021 level to February 2020, growth was a mere 1.2 percent, and if inflation continues raging, that minimal gain will be diminished or outright disappear.

Don't forget that, as noted in the latest GDP report, business investment has suffered in the two most recent quarters, which in turn undermines productivity and income growth. Plus, the Biden administration and Congress are looking to raise taxes. All of this points to diminished disposable income, and therefore, fewer resources available for investing, saving and consumption.

The December 2021 personal income report offered no good news, and concerns linger that this will continue to be the case with personal income reports in the coming months as well.

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

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