Real Personal Income: New Heights

August 1st, 2012 by 
PK

"Ask yourself, 'Are you better off now than you were four years ago?'” implored Ronald Reagan in his debate against President Jimmy Carter on October 28, 1980.  Maybe it seems like the United States is on the cusp of a second recession, but in one key measure the US is finally starting to outpace inflation and population growth.

That measure?  Real Personal Income - personal income deflated by the Personal Consumption Expenditures Price Index - is on a definite upswing.  The personal income component is defined as all income earned from production and from transfer payments from both business and government.

A Chart to Run On!

Here's a graph of (recently revised) Real Personal Income, showing the measure just eclipsing the measure which peaked in the early stages of the 'Great Recession'.

So, yeah - the United States is earning more income than it was (and it is increasing at a faster pace) than it was even a few months before.  For those of you reading the Presidential Tea Leaves, this is unequivocally a good chart for incumbent President Barack Obama.  RPI and Personal Income are closely watched indicators since they can give an early heads up on a recession - but the numbers you see cast a lot of doubt on that scenario.

Is There a Downside?

There's always a downside, folks!  In this case, it's the transfer payments component of Personal Income.  Transfer payments have risen rapidly (mostly during the recession) as seen in the chart below.

Without these payments, RPI would still be lagging its peak in the early days of the recession.  In hard numbers, PCTR stood at $1.792 billion in January of 2008, and now (well, June 2012) stands at a whopping $2.358 billion - a 31.5% increase in transfer receipts in only 41 months.

Are you better off than you were four years ago?  Should the President run on the recently revised numbers?  Do you agree we're not (currently) headed for a recession, even if growth is slow?

      

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK lives in New Hampshire with his wife, kids, and dog.

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