Personal Income Growth
Despite the point that the first data reported in the monthly personal income report is nominal personal income, it does not get much attention in the press and by bloggers. We
are starting to see a rebound in nominal personal income growth even though it is still quite low by historic norms. The current smoothed growth rate is 2.8% and the earlier signs that growth is accelerating have faded. This is why it is important to monitor the growth in weekly average earnings in the employment report.
The way to look at nominal income growth is that it is a necessary condition but not a sufficient condition for economic growth to become self-sustaining. Moreover, this cycle, for the first time in the post WW II era nominal growth must be sufficient to accommodate both inflation and rising personal savings before real income growth can strengthen. In previous cycles rising personal savings was not a major factor dampening growth and/or creating a wedge between nominal income growth and real personal spending..
But if nominal income growth does continue to improve — a heroic assumption — it would raise serious questions about fed policy. As the chart below shows, personal income growth is an important leading-concurrent indicator of fed policy. Rising personal income growth implies that the fed would not need to continue pumping additional liquidity into the system
and call into question the need for QE 2 that the consensus now seems to be expecting and
the stock market appears to be discounting.
Moreover, personal income growth is one of the best leading indicators of the S&P 500 PE. It actually has a stronger correlation with the market PE than bond yields. Moreover, it is even better at forecasting the market PE three months into the future than it is at explaining the current PE.
do you have figures for median income? how does it compare historically?
Here is REAL median income HOUSEHOLD income since 1967.
http://uspolitics.about.com/od/economy/ig/Consumer-Income–Insurance/Real-Median-Income–2007.htm
Stunning compounded growth rate of less than 0.75%
Cheers!
JzB
spence
Ok, so Henry Ford was right when he said assemblers of Model Ts should be able to afford Model Ts.
Where can I find the data series for personal income growth? Is that in FRED somewhere? Might as well add that to my charts to look at.
I realize all we are looking for here is correlation, and not causation, but would it be useful to graph corporate earnings on the PE graph as well?
here’s from this week: Median Household Income Fell Once Again in 2009
The US Census Bureau announced earlier this week that real median household income in the United States dropped in 2009 to $49,777. This was down from $50,122 in 2008, and $50,233 in 2007. It’s not very surprising to note that real median household income in the United States has dropped since the beginning of the “Great Recession” in December of 2007. If you had to guess when the United States hit its peak in terms of inflation adjusted median household income, what year would you guess? If you said 1999 (which was the height of the dot com bubble), then you would be correct. Inflation adjusted median household income in the United States in 1999 was $52,587. That’s not really a surprise, especially considering the fact that the national unemployment rate was hovering near an outrageously low (relatively speaking) 4%. Times have changed.
If you feel poorer than you did 10 years ago, that’s because you probably are.
Personal Income growth is reported at BEA.GOV.