Courtesy of Doug Short.
Earlier today I posted my monthly update of the year-over-year change in the Personal Consumption Expenditures (PCE) price index since 2000. My focus was on PCE data as a measure of inflation.
Now let’s look at the PCE data to understand what the latest numbers are telling us about a key driver of the U.S. economy: "Real" Disposable Income Per Capita.
The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000.
The Bureau of Economic Analysis (BEA) use the average dollar value in 2005 for inflation adjustment. But the 2005 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 we’re doing on New Year’s Eve at the turn of the millennium? Nominal disposable income is up 46.6% since then. But the real purchasing power of those dollars is up a mere 13.9%.
In fact, real disposable personal income is at a level first attained in October 2006 and remains about 1.2% below the level at the beginning the 2007-2009 recession. Real DPI has remained essentially flat for the past 12 months, down 0.5%.
The mainstream media focuses on nominal disposable income with little or no attention to population or inflation adjustment. Thus today’s business headlines speak of a 0.1 percent MoM decline in disposable income versus the 0.4% decrease when population and inflation are included. The “real” story in the latest PCE data is one of continued economic weakness.
Note: My source for the recent data is the BEA Table 1 in the full release available here. Earlier data is from FRED, the St. Louis Federal Reserve database: available here.
