The Morning Economic Report
12:18 am
Mon April 7, 2014

Personal Income - 4/7/14

Personal income expanded by 0.3 percentage points in both January and February.  When one translates those monthly gains into annualized rates of income growth, the numbers appear impressive – good enough to suggest that growth in consumer spending can continue to power the economic expansion during the quarters ahead. 

But when one digs a bit more deeply into the data, the personal income expansion appears neither impressive nor as likely to be sustained.  That’s because nearly half of the increase in personal income during the first 2 months of 2014 came from large government transfer payments, which normally only account for 16 percent of all personal income according to writer Kathleen Madigan. 

Much of the increase in transfer payments reflects higher Medicaid spending as more people are now covered under the Affordable Care Act.  That extra Medicaid spending has more than offset the decline in unemployment checks associated with the cessation of extended jobless benefits.  Here’s the issue:  Once the Affordable Care Act’s enrollment period ends, that source of lift to income will dissipate.  Employee compensation has expanded at a slower pace, reflecting both softer job growth recently and minimal pay raises.