Personal Income and Expenditures Show Joe Sixpack Sliding Back into Recession

December 2010 Personal Income and Personal consumption expenditures (PCE) presentation is distorting the state of the USA’s economic recovery expansion.  Simply put, this is an economic expansion of the rich, while the Joe Sixpack is getting poorer.

According the BEA:

Personal income increased $54.5 billion, or 0.4 percent, and disposable personal income (DPI) increased $47.3 billion, or 0.4 percent, in December, according to the Bureau of Economic Analysis.

Personal consumption expenditures (PCE) increased $69.5 billion, or 0.7 percent. In November, personal income increased $44.9 billion, or 0.4 percent, DPI increased $39.0 billion, or 0.3 percent and PCE increased $35.4 billion, or 0.3 percent, based on revised estimates.

Real disposable income increased 0.1 percent in December, compared with an increase of 0.2 percent in November. Real PCE increased 0.4 percent, compared with an increase of 0.2 percent.

This data accounts for over 2/3rds of GDP – and its obvious improvement from the BEA press release bodes well for continuing upward revision of 4Q2010 GDP (analysis here).  Econintersect author Rick Davis has produced an ominous perspective from the GDP data on the consumer, and this income and consumption data adds credence to Rick’s overall thrust:

The turbulent undercurrents read from the BEA’s report don’t address the social consequences of a likely widening gap between the rich and poor of this country — or the young and old. Cultural, racial, gender and educational gaps have probably widened as well — and we may well be seeing signs of that in our data. Frankly, no amount of slicing or dicing the BEA’s numbers can reconcile this “Advance Estimate” report to the behavior of the on-line consumers that we track. Our consumers are still contracting their on-line demand for discretionary durable goods on a year-over-year basis — and they have now been doing so for more than a year.

Econintersect Managing Editor John Lounsbury has set the tone for our concern in an article posted today:

Actually, this measurement of recession and recovery is flawed.  Those who have followed me for a while know I propose that aggregate factors, like GDP, should really be measured against readings normalized to population.  After all, to use a ridiculous extreme as an example, a GDP of $1 billion for a population to 100,000 is a much bigger number (10X) in value to society than is the same $1 billion for a population of 1 million.  See Normalized GDP, The “Real” Growth.

Econintersect will deviate from its usual presentation of data tables and will focus on a simple point – this is no recovery expansion – the economy of Joe Sixpack is still contracting.

The BEA nomenclature:

  • Wages and Salary are FICA wages.
  • Compensation is wages and salary plus employer contributions such as insurance and pensions.
  • Personal income is compensation plus rental income, interest and dividends, and the government’s transfers (social security, unemployment, etc).

Joe Sixpack becomes less and less part of the income from wages and salaries, to compensation to personal income.  In fact, working Joe has literally zero income in the gap between compensation and personal income.

And what is more concerning is that both wages & salaries and compensation expressed in chained dollars actually declined from November to December.

These economic trends underline that monetary and fiscal policy are growing only segments of economy – while Joe Sixpack continues to sit in a depression.  What is worse, in December – Joe Sixpack’s per capita income declined.

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