Personal income and spending better, but owners still not giving to their employees

Wanted to give a few reflections on the US personal income and spending report for June, which came out last week. The topline numbers were solid for both areas, and was backed up by good GDP numbers for the 2nd Quarter of 2018.

Personal income increased $71.7 billion (0.4 percent) in June according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $65.3 billion (0.4 percent) and personal consumption expenditures (PCE) increased $57.1 billion (0.4 percent).

Real DPI increased 0.3 percent in June and Real PCE increased 0.3 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

That matches up with the rebounds that we saw in 2nd Quarter growth in Friday’s GDP report. But much like we saw with the GDP report, the bigger story to me were the revisions to the income and spending figures that go back decades (!). The biggest changes were to more recent years, and like we saw in the GDP report, it showed that both the Obama years and Year 1 of Trump was slightly better than we already knew for incomes.

Personal income was revised up $107.4 billion, or 0.8 percent in 2013; $173.6 billion, or 1.2 percent in 2014; $166.6 billion, or 1.1 percent in 2015; $196.4 billion, or 1.2 percent in 2016; and $401.9 billion, or 2.4 percent in 2017….

The personal saving rate was revised up 1.4 percentage points to 6.4 percent in 2013, up 1.6 percentage points to 7.3 percent in 2014, up 1.5 percentage points to 7.6 percent in 2015, up 1.8 percentage points to 6.7 percent in 2016, and up 3.3 percentage points to 6.7 percent in 2017.

From 2012 to 2017, the average annual rate of growth of real disposable personal income was revised up 0.4 percentage point from 1.8 percent to 2.2 percent.

However, almost all of that upward revision in income came from “non-farm proprietors’ income” (aka CEO and other bosses’ pay), along with bumps up in 2014-15 for income from interest, and $130 billion in upward revisions for dividend income for 2016 and 2017. By comparison, wages, salaries and supplements actually ended up being slightly less than first reported from 2013-16, with only an upward revision in 2017 making that revision a net positive.

If you look at what the changes over the last 5 years look like as a result of these revisions, you'll see that the mid-2010s had a huge amount of growth in dividends, while both owners and wage-earners didn't gain by nearly as much. It's also worth noting that job growth was around 2% in this time, so the actual wage + salary increase in the US was more like 2% per person per year.



In the last 2 1/2 years, dividends haven't jumped as much (although there's been a notable increase since the GOP Tax Scam was passed at the end of 2017), but owners have been increasing their own incomes more than we've seen for wages, particularly in the last 24 months. Again, note that even with a tightening labor market, the growth in wages and salaries keeps increasing at the same tepid (non-inflation adjusted) rate.



Consumption was also slightly less than first reported, especially in 2016 and 2017, and I wouldn’t be surprised if those trends were related, along with the higher CEO and dividend pay being the choice made instead of paying wages and salaries.

As a result of the lower wages and the lower consumption, my earlier warnings about low savings rate in the US are now rendered irrelevant. Savings rates for 2013-2017 have now been revised up by amounts ranging from 1.4% in 2013 to 3.3% in 2017, and ended up above 6% for this entire time period, instead of down around 3%, as we had in the last reported data.



So these revisions to income, spending and saving means the economy was on better footing than we previously knew for both the Obama years, and for today under President Trump. But that gap between wages and CEO/shareholder income also was bigger than we first knew (especially in recent years), growing our inequality gap even more. It shows the absurdity of GOPs in Congress and at our State Capitol in Madison for continuing to pursue policies that give more to the people who already have more than enough, while limiting the purchasing power of the vast majority of the country.