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April Personal Income Down a Record 13.1%,

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April Personal Income Down a Record 13.1%, Disposable Personal Income Down a Record 14.6%, Savings Falls 54.0%, Marketwatch 666, RJS The April report on Personal Income and Outlays from the Bureau of Economic Analysis reflects the partial unwinding of the March government stimulus in just about every metric it tracks except for prices, which are said to be “transitory“, influenced by temporary shortages and supply chain issues….as you’ll recall, this report includes the month’s data for our personal consumption expenditures (PCE), which usually accounts for nearly 70% of the month’s GDP, and with it the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative

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April Personal Income Down a Record 13.1%, Disposable Personal Income Down a Record 14.6%, Savings Falls 54.0%, Marketwatch 666, RJS

The April report on Personal Income and Outlays from the Bureau of Economic Analysis reflects the partial unwinding of the March government stimulus in just about every metric it tracks except for prices, which are said to be “transitory“, influenced by temporary shortages and supply chain issues….as you’ll recall, this report includes the month’s data for our personal consumption expenditures (PCE), which usually accounts for nearly 70% of the month’s GDP, and with it the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated…in addition, this release reports national personal income data, disposable personal income, which is income after taxes, and our monthly savings rate…however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, they’re seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if April’s change in seasonally adjusted income and spending were extrapolated over an entire year . . . however, the percentage changes are computed monthly, from one month’s annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from March to April..

Thus, when the opening line of the press release for the April report tell us “Personal income decreased $3.21 trillion (13.1 percent) in April“, that means that the annualized figure for seasonally adjusted national personal income in April, $21,195.2 billion, was $3.205 trillion, or a record 13.1% less than the annualized personal income figure of $24,400.5 billion extrapolated for March; the actual, unadjusted change in personal income from March to April is not given…at the same time, annualized disposable personal income, which is income after taxes, fell by a record 14.6%, from an annual rate of an annual rate of $22,061.8 billion in March to an annual rate of $18,844.5  billion in April….the reasons for the annualized $3.21 trillion decrease in personal income can be viewed in the Full Release & Tables (PDF) for this release, also as annualized amounts, and primarily reflected a $3,383.8 billion decrease in government social benefits, mostly reversing March’s $3,990.6 billion increase, which was in turn only slightly offset by a $102.1 billion increase in wages and salaries, a $57.8  billion increase in farm and small business proprietor’s income, and a $15.8 billion increase in interest and dividend income…again, those are all annualized figures…

For the April personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, BEA reports that they rose at a $ $80.3 billion annual rate, or by more than 0.5%, as the annual rate of national PCE increased from $15,480.1 billion in March to $15,560.3 in April….March PCE was revised from $15,401.6 billion annually to $15,480.1 billion, while February PCE was revised from $14,785.5 billion annually to $14,789.7 billion, revisions that were already included in this week’s GDP report….total personal outlays for April, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $82.8 billion to $16,030.4 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $2,814.2 billion annual rate in April, down by a record $3,300.1 billion from the revised $6,114.2 billion in annualized personal savings in March…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 14.9% in April, after the previously reported 27.6% March savings rate was revised to 27.7%…

As you know, before those personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….that’s done with the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is computed from the components by the BEA and included in Table 9 in the pdf for this report….that index rose from 113.387 in March to 114.075 in April, a month over month inflation rate that’s statistically 0.60677%, which BEA reports as an increase of 0.6 percent, following the rounded 0.6% increase in the PCE price index reported for March…applying that 0.607% April inflation adjustment to the 0.5% nominal change in PCE left real PCE down by 0.0882% in April, which the BEA reports as a 0.1%% decrease in their press release and in the tables, following the 4.1% increase in March….note that when those PCE price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in those familiar chained 2012 dollars, which are the means that the BEA uses to compare the goods and services produced in one month or one quarter to the real goods and services produced in another….that result is shown in table 7 of the PDF, where we see that April’s chained dollar consumption total works out to 13,641.8 billion annually, 0.879% less than March’s 13,653.8 billion, again a decrease that the BEA reports as -0.1%…

However, to estimate the impact of the change in PCE on the change in GDP, that month over month PCE change doesn’t help us much, since GDP is computed & reported quarterly… thus we have to compare April’s real PCE to the real PCE of all 3 months of the first quarter….while this release reports PCE for all those amounts on a monthly basis, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 13,352.2 billion in chained 2012 dollars..(note that’s the same as is shown in table 3 of the pdf for the 1st quarter GDP report)….when we compare April’s adjusted PCE of 13,641.8 billion to the 1st quarter real PCE of 13,352.2 billion on an annual basis, we find that April’s real PCE has risen at a 8.96% annual rate from that of the 1st quarter….that would mean that even if real PCE does not appreciate during May and June from the April level, growth in real PCE would still add 6.27 percentage points to the growth rate of 2nd quarter GDP… .. 

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