The February personal income and outlays report shows personal income bounced back by 1.1% from last month's nose dive that was due to the payroll tax holiday expiration and fiscal cliff deal. Disposable income increased 1.1%, but after adjusted for inflation, shows a monthly increase of 0.7%. Consumer spending increased 0.7%, but when adjsted for inflation grew by 0.3% for the month. The below graph shows the monthly percentage change of personal income going back to 1990.
Consumer spending is another term for personal consumption expenditures or PCE. Real personal consumption expenditures are hugely important to economic growth as consumer spending is about 71% of GDP. Real means adjusted for inflation.
Graphed below are the monthly changes for real personal income (bright red), real disposable income (maroon) and real consumer spending (blue). The wild swings for the last four months are unusual. We can also see it would have to be quite an increase in March in real consumer spending for Q1 2013 GDP to be large.
Below are the real dollar amounts for real personal income (bright red), real disposable income (maroon) and real consumer spending (blue). Notice by levels how much lower real disposable income is now.
Consumer spending encompasses things like housing, health care, food and gas in addition to cars and smartphones. In other words, most of PCE is most about paying for basic living necessities. Graphed below is the overall real PCE monthly percentage change. January and February are the first two months for Q1 where for both months real consumer spending has increased 0.3%.
What people spent money on, adjusted for prices, or in real dollars, by monthly percentage change was:
- durable goods: +0.1%
- non-durable goods: +0.5%
- services: +0.3%
Health care, for example, is a service. Gasoline is a nondurable good. Cars are a durable good. When people are cutting back on their spending, durable goods are usually the first things to go, especially large ticket items.
Price indexes are used as divisors to adjust for inflation and price changes. The indexes are used to compute spending and income for an apples to apples, real dollar comparison to previous months and years. Economic statisticians use real dollars so one does not erroneously assume economic growth when it's really inflation.
The PCE price index is used to remove inflation from consumer spending and income, reported above. The price index increased 0.4%, for February as energy and gas prices shot up 5.8%. The price index is now up 1.3% from a year ago. Minus energy and food, the price index increased 0.1% and is up 1.4% from this time last year. While the PCE price index represents inflation, it is different from CPI.
Personal income is the total for everybody in the United States who is reported and not part of the underground economy. Below is personal income, not adjusted for inflation, or price changes. Notice the difference between December and January, that is the expiration of tax credits from the Stimulus.
Real personal income, or personal income adjusted for inflation, via the PCE price index, and also has government payments, such as social security, removed, increased 0.8%. Below is the graph of real personal income.
Why the BEA report doesn't give real personal income monthly changes including transfer receipts, instead of excluding them, I do not know. Below is the monthly percentage change in real personal income, or adjusted for inflation and excluding payments from the government.
Disposable income is what is left over after taxes. DPI (disposable income), increased 1.1% from last month. DPI adjusted for inflation (see the price indexes above), increased 0.7%, from the previous month. These numbers are aggregates, which includes income of the uber-rich, or the 1% of the population, as they are now called. Below is DPI by levels.
Below is real disposable income per capita. Per capita means evenly distributed per person and population increases every month. January mid-month the U.S. population was 315,669,000. As aggregate personal income increases, so does the population to earn that income. When taking increased population into account, we basically have no growth in real disposable personal income and this is over years.
The monthly percentage change for wages and salaries was 0.6% which pretty much zeroed out last month's -0.6% drop. Landlords just keep making out like bandits, rental income increased 2.0% and every month rental income increases above 1.0%. Proprietor's total income, with inventory valuation and capital consumption adjustments, increased 1.0%.
Graphed below are wages and salaries for the past decade. Notice the dip and the more flat line than earlier in the decade. Bear in mind these are aggregate, or all wages and salaries, and not adjusted for inflation.
Below is adjusted for inflation personal income minus personal current transfer receipts. This graph shows how much personal income increased that wasn't funded by the government and is used as a recession indicator as show in the below graph with the gray bars indicating recessions. Transfer receipts are payments from the government to individuals where no actual services (work) was performed. This includes social security, unemployment insurance, welfare, veterans benefits, Medicaid, Medicare and so on.
Transfer receipts monthly change was 0.4%, not adjusted for inflation. Below is a graph of just transfer receipts.
Personal savings is disposable income minus outlays, or consumption and not adjusted for inflation. The Personal Savings Rate was 2.6% in February.
Below is disposable personal income minus personal consumption expenditures monthly raw total changes. When we see this spike we know people are not spending in relationship to the income they have available, alternately, they don't have enough income available on the downside.
Personal Outlays means what goes out of your pocket and thus into the economy. Personal outlays are PCE, personal interest payments, and personal current transfer payments. PCE is defined above by percentages is almost all of personal outlays. Personal interest payments are things like the interest you pay on your credit card. Personal transfer payments are defined as:
Payments consisting of transfer payments by persons to government and to the rest of the world. Payments to government include donations, fees, and fines paid to Federal, state, and local governments, formerly classified as "personal nontax payments."
In other words, personal transfer payments are nothing more than that speeding ticket you just got or how you just donated to this site. People often confuse transfer payments with transfer receipts, not the same thing.
Taxes collected on person income increased. From the BEA report:
Personal current taxes increased $15.4 billion in February, in contrast to a decrease of $15.2 billion in January. Payments of final settlements and back taxes less refunds in federal net
nonwithheld income taxes reduced the January change by $3.4 billion. Indexation provisions of current tax law reduced federal withheld income taxes by $1.4 billion in January.
Below is a graph of personal income taxes. Here we can see the effect of the Bush tax cuts as well as the recession (no income, no taxes on that income), as well as the temporary tax breaks from the Stimulus.
To visualize more data from this report, consider playing around with more of the St. Louis Federal Reserve Fred graphs. Here are our overviews of personal income & outlays and overviews of GDP are here. This overview details the BEA Personal Income and Outlays statical release, which covers individual income, consumption and savings. The personal income & outlays report is annualized and seasonally adjusted, although most percentages are presented as monthly rates.