Personal Income Levels – Easy Trends (thru December 2012)

Let’s talk about personal income levels, its importance and the current trends.  I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest personal income levels trend analysis for more info.

Quick ‘n Easy

Personal income levels are important for the health of the economy.  When people have more income, they spend more, which helps business grow and employ more people … a prosperous circle of event.  The group that officially decides whether the economy is growing or shrinking looks at something called “real personal income less transfer payments.”  That basically means they take all the income people make and subtract money they get without doing any work, like government benefits.  The “real” refers to the fact that this statistic is adjusted for inflation.

Here’s a ten-year chart of the personal income levels (without transfer payments and adjusted for inflation) from the Federal Reserve Bank of St. Louis:

Personal Income Levels - Real Personal Income Less Transfer Payments - December 2012 - FRED

Source: StLouisFed.org

Personal Income Levels Trends and Projections

Below, I will discuss whether industrial production is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released.

Personal Income Levels Trend Analysis

Quick ‘n Easy

The personal income levels, excluding transfer payments and adjusted for inflation, were rising by about $99.4 billion per month between August and December 2012 – the trend is unconfirmed though. This latest unconfirmed rising trend is super steep, but that’s because of a temporary issue that deals with investors wanting to pay lower taxes on their dividends.  Expect early 2013 personal income levels to be unusually low to balance this out and probably leave us with a very slow rise again.  Still, an upward slope is a positive development, as rising incomes support consumer spending, which happens to be about 70 percent of the economy.

Personal Income Levels - Real Personal Income Less Transfer Payments - December 2012 - Trends

Source Data: Bureau of Economic Analysis

Current Trend: Aug – Dec 2012 – Unconfirmed upward trend of about $99.4 billion per month, which is about 1.00 percent of the latest figure.

Last Confirmed Trend: Nov 2011 – Jun 2012.  During that time, personal income levels were rising by about $28.3 billion per month.

Projected Next Data Point

The next report is for January 2013.  If the recent trend (excluding any off trend points) extends perfectly, the next reading of personal income levels will be about $9.903 trillion for January 2013, a decrease of 0.19 percent from the previous month.  The surge at the end of 2012 was due to a temporary issue with tax rates on dividends going up in 2013, which caused many companies to issue their dividends early so their shareholders could pay lower taxes.  In 2013, we can expect that personal income will suffer early on as a payback for those temporarily-carried-forward payments.

Easy Take

The report for the December 2012 personal income levels showed a massive one-month rise, this time 3.12 percent.  We still have an unconfirmed upward trend, although the confidence level is ever so close to the “confirmed” level of 95 percent.  The problem with the latest report is that the surge in income is due to a special factor that will not last.  Tax rates on dividends (profits that companies pay out to their shareholders) increased in 2013 versus 2012, so many companies were paying out those dividends earlier than usual.  As such, this will be a big negative factor for the personal income reports in early 2013.  We’ll have to see what the trend looks like after January and February 2013 data are known.

Personal income levels are critical for consumers to be able to continue spending, supporting businesses, which can then turn around and hire more workers.  In fact, income is a more significant predictor of consumer spending than things like consumer sentiment or confidence.  The fact that this is possibly trending upward now gives me hope that the health of the economy may really have a chance to be good in 2013.

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