Bad News from Personal Income Report

In today’s personal income report from the BEA,  real personal consumption was up by 0.3%, which according to many commentators was a sign that the economy was improving. Bloomberg had a short piece with the headline:  

U.S. Stocks Rise as Consumer Spending Boosts Economic Optimism

But I look at the numbers and say something very different. I see that real personal income, leaving out transfer payments, fell in February for the second straight month.  So I would have written the headline a different way:

Consumers Keep Spending Because the Government is Giving Them Money

 The private sector shows no sign yet  organically generating growth.  That is to say, the real personal income generated by jobs and private businesses and investments is falling, once we omit the effect of government transfer payments, such as  unemployment insurance, Social Security, Medicare, and Medicaid. Here’s a little graph:

Not a good sign, by my lights.


  1. Not exactly good, but wouldn’t you expect employment rates to show improvement before incomes?

  2. Historically, real personal income excluding transfers tends to be a lagging indicator at
    economic bottoms, a concurrent indicator over the course of most cycles and a leading indicator at tops.

    Much of this due to the very heavy skew of consumer spending by the upper income groups. At bottoms, wealth, especially stock market wealth plays a much larger role.

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