Weak growth of real personal income excluding relocation

Personal income rose 0.5 percent in February, according to the Bureau of Economic Analysis (see first chart). Over the past two years, personal income data has been sharply distorted by lockdown policies that have led to massive layoffs, and government stimulus programs that have skyrocketed transfer payments. As distortions diminish, personal income returns to the recent trend growth of around 4.5 percent (see first chart).

Excluding personal transfer payments, personal income rose 0.7 percent in February and up 9.0 percent from the last 12-month period. This is 2.2 percent above the 4.1 percent trend line (see first chart).

In real terms (adjusted for price changes), personal income excluding transfers rose 0.1 percent in February, up 2.5 percent for the year but 2.5 percent below the trend line and 2.2 percent below its September 2021 level (see first chart).

The weak growth of real personal income without relocation is a matter of concern for the real consumer spending outlook. Total Personal Consumption Expenditure (PCE) rose 0.2 percent in February after jumping 2.7 percent in January. Among the components, sustainable products fell 2.5 percent while attic-product costs fell 0.1 percent, while services spending rose 0.9 percent month-on-month.

In real terms, PCE fell 0.4 percent as actual sustainable product costs fell 2.5 percent, actual non-sustainable product costs fell 1.9 percent, and actual service costs rose 0.6 percent. Despite the decline, the actual PCE 2.2 percent trend remained 1.8 percent above the growth line (see Chart 2).

Personal savings rose 3.5 percent in February, but the level is below the December 2019 level and equal to the July 2019 level. Personal savings rates also increased in February, reaching 6.3 percent of disposable income after 6.1 percent in January and 8.4 percent in December, but this is below the pre-epidemic rate of 7.3 percent in December 2019 and consistent with December 2013 (see Chart 3).

Price indicators from personal income and expenditure reports are the primary measures to be followed by the Federal Reserve. The total PCE price index rose 0.6 percent in February as prices of durable-goods were flat, prices of durable-goods rose 1.8 percent and prices of services rose 0.3 percent. Excluding food and energy, the PCE price index rose 0.4 percent for the month.

Over the past year, the PCE price index has risen 6.4 percent, compared to 6.0 percent in the previous month. The core PCE index, which excludes food and energy prices, rose 5.4 percent from a year earlier. Both systems have been running well above 2 percent since April 2021.

Overall, ongoing disruptions in labor supply and production, material shortages, and logistical and transportation constraints continue to put upward pressure on prices. The increase in the number of new Kovid cases in late January and early February was likely to boost supply chain and support business efforts to expand production, with geopolitical instability surrounding Russia’s aggression in Ukraine having a dramatic impact on capital and commodity markets, a start. New wave of potential barriers to business. For consumers, rapidly rising prices are hurting real incomes and eroding confidence in personal finances, suggesting a threat to real spending. The outlook for the economy has become extremely uncertain and extreme caution has been exercised.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for over 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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