 | Personal Income Increased 0.4% in July |
|
| Posted Under: Data Watch • PIC |
Implications: Incomes and spending continued to move higher in July, led by the fastest growth in wages & salaries so far this year. Payrolls are up almost three million from a year ago, helping push private-sector wages & salaries up a robust 4.6% in the past year. Total income – which also includes rents, small business income, dividends, interest, and government transfer payments – increased 0.4% in July and is up 4.3% in the past year, faster than the 3.5% gain in consumer spending. In other words, consumers have enough income growth to keep lifting their spending without getting into financial trouble. One part of the report we keep a close eye on is government redistribution. In the past year, government transfers to persons are up 5.1%, largely driven by Obamacare. However, outside Medicaid, government transfers are up a slower 4.2% in the past year and unemployment compensation is hovering around the lowest levels since 2007. The bad news is that overall government transfer payments – Medicare, Medicaid, Social Security, disability, welfare, food stamps, and unemployment comp – aren't falling back to where they were before the Panic of 2008, when they were roughly 14% of income. In early 2010, they peaked at 18%. Now they're down to around 17%, but not falling any further. Redistribution hurts growth because it shifts resources away from productive ventures. This is why we have a Plow Horse economy instead of a Race Horse economy. The PCE deflator, the Fed's favorite measure of inflation, increased 0.1% in July. Although it's only up 0.3% from a year ago, it continues to be held down by falling energy prices. Nevertheless, in the past three months, the PCE deflator is up at a 2.5% annual rate. The "core" PCE deflator, which excludes food and energy, is up 1.2% from a year ago. That's still below the Fed's 2% inflation target, but it's up a faster 1.7% annualized rate in the past six months. As soon as energy prices stop falling, inflation is going to pick up, supporting the case for starting rate hikes in September.
Click here for PDF version
|
|