Economics 26/06/09: US Personal Income

US Personal Income increased $167.1bn, (+1.4%), and disposable personal income (DPI) increased $178.1bn, (+1.6%) in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.1bn, (+0.3%). In April (revised estimates), personal income increased $78.3bn, or 0.7%, DPI increased $140.0bn, or 1.3%, and PCE increased $1.0bn, or less than 0.1%. But don’t hold your breath for the trumpets of recovery: per BEA “the pattern of changes in personal income and in DPI reflect, in part, the pattern of increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009”.

How big is this ‘in part’? Provisions of the Act reduced personal current taxes and increased government social benefit payments. The ARRA of 2009 provides for one-time payment of $250 to eligible individuals receiving social security, supplemental security income, veterans benefits, and railroad retirement benefits. These benefits boosted the level of personal current transfer receipts by $157.6bn at an annual rate in May.

Excluding these special factors, which are discussed more fully below, DPI increased $20.6bn, or 0.2%, in May, following an increase of $101.3bn, or 0.9%, in April. So things are getting worse not better. Uncle Sam is doing the job (no hope here for Ireland), but any real (non-fiscal stimulus) growth is still way off.

• Private wage and salary disbursements decreased $12.4bn in May, compared with a decrease of $0.7bn in April = DOWN trend
• Goods-producing industries' payrolls decreased $12.9bn, compared with a decrease of $12.2bn = DOWN trend;
• Services-producing industries' payrolls increased $0.5bn, compared with an increase of $11.5 bn = DOWN trend.
• Government wage and salary disbursements increased $3.9bn, compared with an increase of $5.7bn = DOWN trend.
• Supplements to wages and salaries increased $3.3bn in May, compared with an increase of $3.9bn in April = DOWN trend.
• Proprietors' income increased $0.4bn in May, compared with an increase of $3.1bn in April = DOWN trend.
• Nonfarm proprietors' income decreased $0.2bn, in contrast to an increase of $0.5 bn = DOWN trend.
• Rental income of persons increased $5.2bn in May, compared with an increase of $4.9bn in April = UP trend.
• Personal income receipts on assets (personal interest income plus personal dividend income) increased $2.5bn, compared with an increase of $2.6bn = slight DOWN trend.
  

Good news, Americans are paying less in taxes: Personal current taxes fell $11.1bn in May, compared with a decrease of $61.6bn in April. The Making Work Pay Credit provision of the ARRA of 2009 (allowing a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns) reduced personal current taxes by $49.8bn at an annual rate in both May and April, and $11.2bn in March.

Thus, disposable personal income (DPI) -- personal income less personal current taxes -- increased $178.1bn (+1.6%) in May, compared with an increase of $140.0bn (+1.3%) in April. So here we do have a meaningful improvement.

And that was reflected in personal outlays too. Personal outlays increased $17.9bn in May, in contrast to a decrease of $6.3bn in April. PCE increased $25.1bn compared with an increase of $1.0bn.

Personal saving -- DPI less personal outlays -- was $768.8bn in May, compared with $608.5bn in April. Personal saving as a percentage of disposable personal income was 6.9% in May, compared with 5.6% in April. Precautionary savings motive is still working through American balance sheets, but consumption is sloping up and loans repayments are going on still at a healthy rate. America is saving, deleveraging and getting better, although for now primarily thanks to tax-cutting and stimulus spending Federal Government…