Even though it’s the demand for negativity in the first place that drives the bulk of the news and information we see all the time, my goal in this quick piece is to give you what is hopefully a nice, quick breather from the typical top headlines and narratives. Inflation is a word that can, and especially now, leave a bad taste in your mouth. Let’s touch on this inflation topic a little bit for the month of April but also point to some other facts:
As of end of April ’22, the overall PCE deflator (“consumer prices” – the Fed’s preferred measure for inflation) was up 0.2% from March ’22
However, average gross personal income rose 0.4% month-over-month as well as disposable (or after-tax income) at a rise of 0.3% from March to April, both outpacing the 0.2% inflation number
The 0.2% increase from March to April is not necessarily optimal but much improved from the previous month-over-month result, where the increase for the same measure was +0.9% from February to March
The 0.2% jump in April brings us to a 6.3% annual increase in the PCE deflator (or inflation) looking from April ’21 to ‘22
Although lagging the 6.3% number, personal income rose 2.6% for the average working American for this same time period
Using data manipulation transparently, if you take governmental transfer payments out of the equation (exclude stimulus checks and unemployment benefits as a result of the pandemic from meeting the definition of personal income for this 365 days), then the hypothetical rise in personal income is actually 8.4% and specifically 12.7% for the private sector, both significantly outpacing inflation for the past year
From April ’21 to April ’22, spending on goods is up 6.4% and 10.8% for services year-over-year
With modern technology, the pandemic originally put a much bigger damper on demand for services in comparison to goods – with these numbers above and even just a simple eye test, it’s easy to be economically optimistic especially regarding service-heavy industries such as Healthcare, Utilities, Energy, etc.
It is easy to get caught up in negativity and that’s not to say that we would pretend to look at high inflation, for example, as a positive in and of itself. But, we also and certainly do not want to ignore positive signs, either!
High inflation obviously causes more money to come out of your pocket for an average purchase/expense, however, these numbers show that on average, there should be more money in the same pocket in the first place (in terms of income). More specifically, we are truly looking at a much more positive short-term trend. While personal income rose 0.5% from Feb. to March, the inflation number was higher at 0.9%, a loss for the average American. While inflation rose 0.2% from March to April, personal income rose at double the rate at 0.4%, arguably a short-term WIN for the average American more recently. Lastly, even though my point about stimulus payments and unemployment uses data manipulation, we think it’s arguable that the concept behind it was and still is the #1 driver of this inflationary environment. This inflated influx of cash into our money supply as a result of the pandemic and certain policies that came with it should not be a normal, sustainable, and recurring event moving forward that we are currently battling with and CAN fully recover from.
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Article: April Personal Income and Consumption
Entity: Data Watch – First Trust Advisors L.P.
Authors: Brian S. Wesbury
Robert Stein, CFA
Strider Elass
Andrew Opdyke, CFA