Doug Short: With the release of today’s report on August Personal Incomes and Outlays we can now take a closer look at “Real” Disposable Personal Income Per Capita.
The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013.
The August nominal 0.28% month-over-month increase in disposable income remains unchanged when we adjust for inflation. The year-over-year metrics are 2.83% nominal and 2.49% real.
The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let’s compare the nominal and real growth in per capita disposable income since 2000. Do you recall what you were doing on New Year’s Eve at the turn of the millennium? Nominal disposable income is up 63.6% since then. But the real purchasing power of those dollars is up only 22.4%.
Here is a closer look at the real series since 2007.
Year-Over-Year DPI Per Capita
Let’s take one more look at real DPI per capita, this time focusing on the year-over-year percent change since the beginning of this monthly series in 1959. The chart below highlights the value for the months when recessions start to help us evaluate the recession risk for the current level.
Of the eight recessions since 1959, only two started with a YoY number higher than the current reading. However, the volatility of Real DPI militates against putting very much emphasis on this metric. Check out the conspicuous tax planning blips as well as Microsoft’s big dividend payout in 2004.
The Consumption versus Savings Conflict
The US is a consumer-driven economy, as is evident from the percent share of GDP held by Personal Consumption Expenditures.
But the money to support consumption has to come from somewhere, and a growth in real disposable income would be the best source. An alternative is to spend more by reducing savings. Given the long timeframe, this chart features a log scale vertical axis to give a better view of the relative savings rate.
As the chart above illustrates, the US savings rate had generally declined since the early 1980s, a trend no doubt supported by the psychology of the secular bull market from 1982 to 2000.