The Personal Income and Outlays report is issued by the Bureau of Economic Analysis (BEA) monthly. This report provides a measure of income received from wages and salaries, as well as investment income, as well as an estimate of personal consumption on goods and services, interest payments made on non-mortgage debt and certain transfer payments. This is an important economic indicator since personal income is one of the largest factors driving consumer demand. If people have more disposable income, they will generally spend more money or increase savings. In addition, the PCE Price Index (with food and energy removed) is considered by the Federal Reserve as its key measure of inflation.
As was telegraphed by the 1st quarter GDP report, Personal Income and Outlays rose at an anemic 0.1 percent in July, following two months of 0.3 percent growth. To put this in context, if income were to grow at 0.3 percent per month, over the course of the year income would be up by 3.7 percent. Income growth of .01 percent per month would lead to 1.2 percent growth in income over the course of a year.
Looking at the data in detail, however, shows that the July was not all that it was cracked up to be. In fact, much of the growth in personal income is due to higher dividend payments on investments and savings and higher income from rents. Wages actually fell by 0.3 percent ($21.8 billion) during the month. In other words, even though income as a whole was up, all of that increase went to owners of capital and assets.
The last time wages fell was in January of this year, but that month overall income was down by a whopping 4.4 percent reflecting the cost of large tax increases that went into effect at the beginning of 2013.
The PCE price index rose at an annualized rate of 1.4 percent, but the cost of energy rose much faster (4.8 percent) while the cost of goods rose only slightly.
One of the issues dividing the parties in Washington (and for that matter the state houses) is the growing income inequality in the country. As the data this month show, overall income gains do not always reflect increasing wages, but can actually be positive due to increasing costs for certain members of society. Rental incomes were up sharply in July but this is at the expense of renters. Wage income was actually down suggesting that even though there has been job creation the newer jobs are not as high paying as older jobs and are dominated by part-time opportunities. Even the large growth in dividend income is partly reflective of payments being made by one government entity (Fannie Mae) to another (the Federal Reserve).
Until wage growth begins to take off, the economy will continue to feel like it is recession, even though the statistics show it is growing. This is partly due to the shift in income from wages to capital, but also due to the nature of the jobs being created.