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.
Personal income growth ground to a halt in July, growing at just 0.2 percent, with disposable income rising at only 0.1 percent. This followed fairly strong income growth in the second quarter (averaging about 0.5 percent per month). Virtually no income class achieved much of any growth outside of rental income which was up almost 1 percent on the month, and certain government transfers like veterans’ benefits which rose by 2.5 percent in July. Controlling for inflation and population growth, real per capita income was down slightly in July (off by about $5 per person). Taxes also increased sharply in July.
Outside of taxes, spending (or outlays) was down across the board in July, though savings did increase at a rate of 4.2 percent on the month.
Income and spending drive the reported GDP figures (even though GDP is supposed to be an measurement of production), therefore, seeing a drop off after a strong second quarter suggests that 3rd quarter GDP will be back in line with earlier estimates of anemic 2.0 percent growth. This, along with the fairly high capacity utilization rates also reported on in this indicators report suggests that the economy is reaching the peak of the economic cycle. This is something to be concerned about because current monetary and fiscal policies are all very simulative, and there will not be much firepower left (from a Keynesian sense) to handle the coming recession.
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