Personal income rose in April, but let's look at where the money came from.

• "Private wage and salary disbursements decreased $1.3 billion in April, compared with a decrease of $39.1 billion in March. Private wages and salaries had been reduced by an adjustment of $20.0 billion at an annual rate in January, in February, and in March to reflect smaller-than-usual bonus payments." Private wages are half of personal income. Government wages and benefits, unsurprisingly, rose in March and April.
• "Personal current transfer receipts increased $45.7 billion, compared with an increase of $34.3 billion. Provisions of the Federal Additional Compensation Program of the American Recovery and Reinvestment Act of 2009 boosted the level of personal current transfer receipts by $11.8 billion at an annual rate in April and $5.7 billion in March. The provision provides an additional $25 per week unemployment payment." That's right: Of the $58.2 billion increase in personal income overall in April, more than 3/4 comes from increased spending on unemployment checks. That's change we can believe in!
• "Personal current taxes decreased $63.6 billion in April, compared with a decrease of $34.1 billion in March. The Making Work Pay Credit provision of the American Recovery and Reinvestment Act of 2009 reduced personal current taxes $49.8 billion at an annual rate in April and $11.2 billion in March. The provision allows a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns." Disposable personal income -- income after taxes -- rose $121.8 billion, of which more than 80% comes from unemployment insurance payments and the tax credit -- which is really a spending program, since many of those receiving the credit have a zero tax liability without it.

The purpose of these funds is to increase spending from consumers, but so far it has done no such thing: Personal outlays fell $9.7 billion in April, after falling $33.5 billion in March. Personal saving rose to $620.2 billion in April from $488.7 billion in March. The savings rate continues to climb. Is it possible that, like the credit markets, the American consumer is understanding that the bill for ARRA is coming due? The Administration's economists are still trying to persuade you they've put out the fire, but the American consumer hasn't moved away from the hydrants yet. If families are starved for cash, it's to repair their portfolios. (Perhaps the recent rise in consumer confidence will change this; too soon to say.)

Meanwhile, Russ Roberts updates the spending from ARRA: $37 billion as of this morning. That site includes in the figures payments for Social Security, so it's part of the transfer payments and not part of government purchases.

I await my visit from Norman Eisen now.

Labels: economics