Americans didn't get any richer in April. Technically, personal income rose by 0.4% during the month, according to the Bureau of Economic Analysis. But after taxes the increase was completely attributable to inflation. Real disposable income remained essentially flat -- as it has throughout 2011. This lack of real income growth will hinder to the economic recovery.
Let's start with a few charts. First, here's income and spending without accounting for inflation:
As you can see, personal income has been pretty steady around 0.4% for the past couple of months. The big uptick in January was due in large part to tax changes. After-tax disposable income has been even more stable, between 0.3% and 0.4% since December.
Spending has moved around a bit more. It was up 0.4% in April, which was the lowest rate of growth this year. Still, as spending grows that will generally be viewed as a good sign for the economy. Unfortunately, if you take inflation into account, spending growth drops to 0.1% for April. So the actual quantity of goods and services purchased didn't increase much.
Inflation has a great impact on disposable income as well. It causes the 0.3% increase to disappear entirely:
This isn't good. If employers are barley keeping up with inflation, then Americans won't have more real dollars to spend on additional goods and services. Put another way, demand will remain essentially unchanged, unless people cut their saving or take on additional credit. In the first four months of 2011, disposable income has risen by just $117 million, or 0.01%. To put that number into perspective, in the first four months of 2010, real disposable income increased by $7.8 billion, or 0.93%.
The bad news keeps piling on if you look at saving:
It declined for the third month straight, falling at an annualized rate of $6.1 billion, or 1.1%. This makes sense, as in order to keep their spending growing, Americans are being forced to save less money. For a little perspective here, the month's 1.1% decline compares to a 14.2% increase in saving in April a year ago.
If incomes continue to sag, then this could ensure that the recovery remains very slow. Saving has already been steadily declining, and at some point Americans might decide that they shouldn't save any less. Pair that with zero income growth, and the very slow rise in real spending might grind to a halt. Without additional demand, firms won't hire and unemployment will remain very high.
We want to hear what you think about this article. Submit a letter to the editor or write to email@example.com.