Friday, June 27, 2008
The Commerce Department reported Friday that after-tax disposable incomes jumped by 5.7 percent in May, the biggest one-month gain since a 6.3 percent increase in May 1975 when Ford was president. He was fighting a recession that year with a program to mail individual taxpayers $50 checks.Personal income (not including the tax rebates) were up 1.9% in May, with surges in proprietors' income (profits for nonincorporated firms). $179.6 billion was added by the Economic Stimulus Act. Overall, 14% of the increase in disposable personal income (personal income minus taxes) was spent in May. Call that a short-form marginal propensity to consume, mostly from temporary income. Some of it will be spent later, but most will be saved. You can see who's doing what here (h/t: Barry Ritholz) who finds some of the stories "terribly sad". I suspect there's some selection bias going on...
This time around individual payments range from $300 to $600 with couples getting up to $1,200. In all, $48.1 billion in rebate payments were made in May and through this week, the government announced Friday, payments total $78.3 billion -- three-fourths of the $106.7 billion scheduled to be paid to 130 million households. The payments are to be completed by mid-July.
Bolstered by the big 5.7 percent surge in after-tax incomes, consumer spending rose by 0.8 percent last month, the best showing since November. Even after removing the effects of higher gasoline and other products, inflation-adjusted spending rose by a solid 0.4 percent, the best performance since last August.
Since consumer spending accounts for two-thirds of total economic activity, analysts said the big jump in May should guarantee a positive reading for overall economic output in the current April-June quarter of around 1.25 percent to 1.5 percent, up from 1 percent growth in the January-March quarter.
Consumer sentiment is falling, and that might be a bad thing this time around, but so far the economy seems to be in a slow growth period and might stay there for a few more quarters.