This morning the BEA came out and said American personal income up was up 1.4% in May, which was more than the .7% it grew by in April.
That’s where the good news ends.
For one thing, the money’s being saved, not spent. Consumption was up only .3%, and the savings rate hit 6.9%. Actually, we don’t buy into the orthodoxy that Americans need to spend-spend-spend in order to fix the economy, since that’s the thinking that got us into this mess. But if you’re desperate to see positive GDP sometime soon, then shrinking spending isn’t what you want to see.
But beyond that, the gains came from transfer payments.
Karl Denninger breaks it down:
Here’s what the BEA said:
The pattern of changes in personal income and in DPI reflect, in part, the pattern of increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009.
Right. The government hands out money (which it taxes or borrows) and this is reflected in these numbers but taking money from one hand and giving it to another does not help GDP as it does not represent income produced through labour.
A couple of paragraphs into the release the BEA explains:
Private wage and salary disbursements decreased $12.4 billion in May, compared with a decrease of $0.7 billion in April.
Notice that number – it is dramatically worse than April. That’s the REAL income contribution (or in this case, loss) to the economy.
Just as we can’t believe the financial markets, since the Fed has created so much liquidity, we’re at the point where it’s hard to believe the real economy, because so much of it is based on transfer payments and government spending obscuring what the private sector is able to do on its own.