Personal Income Levels – Easy Trends (thru January 2013)

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NOTE: You may be reading an outdated analysis.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 - January 2013 - 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 falling by about $5.5 billion per month between June and October 2012. The latest three months, however, have shown readings that can’t be placed into a trend.  We’ll have to see what happens the next month or two.  Remember, rising incomes support consumer spending, which happens to be about 70 percent of the economy.

Personal Income Levels - Real Personal Income Less Transfer Payments - January 2013 - Trends

Source Data: Bureau of Economic Analysis

Current Trend: No trend with at least 50 percent confidence.

Last Confirmed Trend: Jun – Oct 2012.  During that time, personal income levels were rising by about $5.5 billion per month.

Projected Next Data Point

No projection because there is no trend.

Easy Take

The report for the January 2013 personal income levels showed an even larger one-month drop than the one-month surge we saw last month – a drop of about 4.5 percent.  We now have no latest trend for the data, and based on revisions, it turns out there was a confirmed trend between June and October of last year (unfortunately, it was a falling trend).  The problem with the December report was that the surge in income was due to a special factor.  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 turned out to be a big negative factor for the personal income report of January 2013.  We’ll have to see what the trend looks like after February and a couple of other months of 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.

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