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Personal Income’s Weak Rebound Clouds U.S. Economic Outlook

By James PicernoMarket OverviewJul 30, 2021 05:30PM ET
www.investing.com/analysis/personal-incomes-weak-rebound-clouds-us-economic-outlook-200594896
Personal Income’s Weak Rebound Clouds U.S. Economic Outlook
By James Picerno   |  Jul 30, 2021 05:30PM ET
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Economists are expecting another decline in today’s June report on US personal income. That’s worrisome because this key indicator has been a relative laggard vs. the strong rebounds in employment, consumer spending and industrial production – collectively known in some circles as the Big Four economic indicators that capture the core of US macro activity.

For perspective, let’s consider how each of these Big Four indicators has performed during the economic recoveries following each recession since 1970. There have been eight recessions over that span and so there are eight recovery periods, according to NBER. The current one began in May 2020 and in the charts below the numbers run through June 2021 for payrolls and industrial production. Personal income and spending data run through May 2021 — both indicators are due for a June update later this morning at 8:30 a.m. eastern.

Let’s start with private payrolls. As the first chart indicates, private employment has surged since the last recession ended (red line) — in absolute and relative terms. (All charts measure the relative change in expansions starting from trough of each recession, which is April 2021 for the most recent economic trough.)

US Private Payrolls Since 1970
US Private Payrolls Since 1970

Consumer spending and industrial production are also posting higher-than-normal rebounds in the current expansion.

US Personal Consumption Since 1970
US Personal Consumption Since 1970
US Industrial Production Since 1970
US Industrial Production Since 1970

The outlier on the downside is personal income. After an initial burst of growth (funded in no small part via government support), US personal income has stumbled. Relative to the end of the recession in April 2020, income has slipped modestly.

US Personal Income Since 1970
US Personal Income Since 1970

The weak trend in income can be attributed to the unusual nature of the last recession, which continues to linger on several fronts. In the modern era, a pandemic-triggered downturn is unprecedented. Apparently, so are the effects on personal income.

Since 1970, the weakness in income stands out as unusual and therefore represents a threat to otherwise strong economic expansion. It’s unclear how and when this weakness will affect economic conditions, but this much is clear: If personal income growth remains shaky, the anemic trend in this corner will eventually take a toll on consumer spending. As a result, the economic recovery appears to face stronger headwinds relative to “normal” recoveries.

Personal Income’s Weak Rebound Clouds U.S. Economic Outlook
 

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Personal Income’s Weak Rebound Clouds U.S. Economic Outlook

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Comments (2)
TJ Theodore
TJ Theodore Jul 31, 2021 10:59AM ET
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Well done. Analysis clearly shows the accellerated pace of this recovery and where its winning and falling short. I see peril ahead for Americans. There is clearly a mismatch between job openings and unemployment. Seems we are hopelessly unprepared for the future of work and skills required for current industry needs. I covid openned a window for millions of older americans to retire early anticipating both higher taxes and a disaster looming in pension certainty. And this has left an extreme white collar job gap that cant currently be filled by the existing unemployed. I dont think the FED fully understands this dynamic. Opportunities ahead for companies who figure out how to rapidly teach needed skills. Opportunities ahead for employees who learn how to step into and succeed in those positions.
William Bailey
William Bailey Jul 30, 2021 7:39PM ET
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Of course the free credit thing that goes primarily to corporate thugs ( who have no skin in the game to be responsible for the credit) isnt working… duh! Fed nearly out of treasuries to buy up and generate free credit to corporate thugs means the highly fake markets made of nearly free credit and GDP will fall to real GDP
 
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