What GDP Didn’t Show Us about Personal Income

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Today’s release on income and spending for March fills out the data from the last month of the first quarter of 2011. But wait, didn’t Q1 GDP come out yesterday, which contained Q1 estimates of income and spending? Sure did camperoos, so the value added from today’s release is that it provides more detail on the income side (that is, the flow of cash to and from consumers). So what juicy tidbits does today’s release contain? A couple of items of interest include recent drivers of income growth and spending on fuel.

On the income side, personal income increased at an 8.3-percent pace in the first quarter (wow), and the single biggest driver was the Middle Class Tax Relief Act of 2010. Coming in second place was compensation (mostly wages and salaries), which was driven by strong employment gains in the first quarter (recall that private sector employment jumped by 564,000 from December to March). Other components of income, like rental income, proprietor’s income, etc., were in the peloton following the first and second place finishers.

As we wrote yesterday, spending on gasoline continues to track closely with prices; the number of gallons of gas people bought in March dipped some (1.1 percent), but this series is pretty flat, and March purchases remained a tad above the levels seen in November, December, and January (on a seasonally adjusted basis). We’ve noted before that demand is inelastic, and we weren’t kidding – if we’re buying the same number of gallons of gas (roughly) and the price goes up, then the amount of money we spend on gas goes up too. Since November, dollars spent on gasoline has increased 22 percent. On a per household basis, that’s $54 more per month; of course, some households are hit harder than others, and the $54 is an average. Not to diminish the pain that high gas prices impose, but the good news is that disposable personal income per household is up $184 over this time period. Of course there will be some households where spending on gas exceeds their gains in income, and there will be households where the gains in income will exceed their spending on gas.

Mark Doms, Chief Economist, U.S. Department of Commerce
April 29, 2011