Monday, October 04, 2010

Personal Income

One of the big stories last week was the news that personal incomes had jumped in August. This seems to fly in the face of everything we hear about a stagnant job market and flat wages.

"Personal income increased $59.3 billion, or 0.5 percent.

Personal consumption expenditures (PCE) increased $41.3 billion, or 0.4 percent.

Real PCE increased 0.2 percent, the same increase as in July."

However, with any good data point there is always a component that really jumps out at us. Jed Graham at investors.com helps to clarify this data with a great graph.






This shows that for all of the complaints about "big government" the proportion of personal income generated by government wages has been roughly flat for the past 30 years. However, in the past year, the proportion of personal income that is comprised of transfer payments (including: Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Food Stamps - now called Supplemental Nutrition Assistance Program (SNAP) , medical insurance (Medicaid and Medicare), and housing assistance.) has soared. Now government payments - wages and transfers - represents 30% of US personal income.

This isn't a political commentary on the state of our country, you can insert your own flawed political beliefs here, but I think it is important to read beneath the headlines. If you think the jump in personal income in August suggests a healthy, robust economy, you might want to wait until the September data comes out.

Cheers!

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