Personal income increased $38.1 billion, or 0.3 percent, and disposable personal income (DPI) increased $36.0 billion, or 0.3 percent, in February, according to the Bureau of Economic Analysis (BEA). Personal consumption expenditures (PCE) increased $69.1 billion, or 0.7 percent. In January, personal income increased $147.4 billion, or 1.2 percent, DPI increased $92.0 billion, or 0.8 percent, and PCE increased $29.5 billion, or 0.3 percent, based on revised estimates.
Real disposable income decreased 0.1 percent in February, in contrast to an increase of 0.5 percent in January. Real PCE increased 0.3 percent, in contrast to a decrease of less than 0.1 percent.
The January change in disposable personal income (DPI) was affected by two large special factors. Reduced employee contributions for government social insurance, which reflected provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, boosted DPI in January by reducing the employee social security contribution rates (employee contributions for government social insurance are a subtraction in the calculation of personal income). This effect was partly offset by the expiration of the Making Work Pay provisions of the American Recovery and Reinvestment Act of 2009, which boosted personal current taxes and reduced DPI (personal current taxes are a subtraction in the calculation of DPI). Excluding these two special factors, which are discussed more fully below, DPI increased $36.0 billion, or 0.3 percent, in February, following an increase of $25.2 billion, or 0.2 percent, in January.One month of data is not a trend, and taken in perspective of trend lines – February had widespread strength across the entire private sector (rich and poor). The major reason for the negative number in the chained (equal weight) dollars is that the government’s payments for unemployment benefits has dropped off at an annual rate of $10 billion.
Despite the slight drop on per capita disposable income, the three month upward trend line remains. Econintersect prefers to use per capita data as it represents changes at consumer level.The above graph also shows that the relationship between disposable income and expenditures (PCE) is in a three month downtrend of the percent of income spent. This downcycle began in December 2011.
Overall, the data shows the economy is moving like a tortoise in the right direction. But, as Doug Short points out in another article today, there is a long way to go to get back to the “good old days.”
