Friday, February 29, 2008

25th Month of Real Disposable Income Growth

According to today's BEA report, real disposable personal income increased by 1.23% in January compared the same month a year ago (see chart above).


1. January marks the 25th consecutive month of positive growth for real disposable personal income.

2. Although there has certainly been a slowdown in the growth of real disposable income over the last 5 months, it's not necessarily an indication of recession. Notice in the graph that there was a period in 2002-2003 when real disposable income was growing at below 1% in 6 out of 9 months, and several months in 2005 with negative growth, and neither period was recessionary.


At 2/29/2008 9:33 AM, Anonymous Anonymous said...

I agree with the slowdown in 2002-3, but the 2005 area you circled is because this is year over year data. The first decline in Katrina, and because it is year over year, there is a corrisponding blip up one year later. The first blip up was due to the one time Microsoft dividend, and then one year later there is a corrisponding blip down. So the two declines were becaue of Katrina and the stastical effect of a blip higher a year prior.

At 2/29/2008 10:27 AM, Anonymous Anonymous said...

A decline in real DPI is not a necessary and sufficient condition for recession. Real DPI held up remarkably well during the last recession, i.e. it never went negative during a single month year over year. In the early 1990's recession, real DPI was only negative in 3 months year over year and in the early 1980's double dip recession, real DPI never went negative year over year.


You better develop a different recessionary indicator than real DPI.

At 2/29/2008 5:27 PM, Anonymous Anonymous said...

Your looking in the rear view mirror and there is a semi loaded with dynamite headed right at you. Good luck.

At 3/01/2008 8:15 AM, Anonymous Anonymous said...

Yes and the dollar that disposable income is received in is falling like a rock. Our economy has been held up by home equity extraction which is now all but gone due to the credit market implosion, falling home values, falling equity markets which are starting to wake up, savings are negative, and with commodity prices exploding due to the FED's rate cuts disposable income will be going to food or fuel. This puppy is toast, the more the FED cut's the worse it will get for the average joe.

At 3/02/2008 1:59 PM, Anonymous Anonymous said...

The chartist forgot to add an overlay for CPI and PPI...


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