American workers got a paltry raise in March. The headlines will tell you: personal income increased 0.5% last month. After all, that's what the Bureau of Economic Analysis reports. But is the news really as good as it looks? Digging deeper shows that the income growth wasn't so spectacular.
First, here's the historical chart for the change in income, disposable income, and spending:
March marks the sixth straight month incomes have risen. Spending rose by 0.6% last month, a little less of an increase than the 0.9% jump in February. Since September you can kind of see these lines move up together in a somewhat linear fashion. That appears to be a nice trend, since more income and spending should help to feed the recovery
But looking deeper into March's numbers reveals that the 0.5% income jump wasn't as good as it looks. Income increased at an annualized rate of $67 billion. Of that, $25 billion consisted of government handouts, in the form transfer payments such as Social Security and unemployment benefits. So the government accounted for more than one-third of the growth in personal income last month. That's the biggest boost transfer payments have provided since August.
To make matters even worse, if you take inflation into account, disposable income barely increased at all. Using chained 2005 dollars, disposable income rose by just 0.1% in March, after flat growth in February. Here's a chart comparing disposable income with and without inflation:
You can see that the gap between these lines began to grow late last year, when inflation began to pick up. This translates into meaning that Americans gained little purchasing power last month.
On the saving front, the performance in March was also lackluster at best:
Last month, Americans' saving grew by just 0.6%. The chart shows that this tiny increase was still better than February's performance, however. Then, saving actually declined by 6.5% compared to January. Seeing Americans save even a little bit more than last month is certainly better than the alternative.
So this all amounts to one of those economic reports that looks good until you dig in. Americans didn't have much more purchasing power after March than they did after January. Much of last month's small increase in income also came from the government, instead of from the private sector. Finally, savings sputtered in March. There isn't much there to celebrate.