The August personal consumption expenditures report, released Friday, shows a continuing decline in inflation. Another important metric in the PCE data: disposable personal income. As in how much money Americans made after taxes from wages, but also from assets, interest, dividends and the like.
Overall, our incomes ticked up 0.2% in August from July. And compared to a year earlier, they rose about 3%.
That’s been a pretty consistent story this year. Real disposable incomes have grown 3% or more annually in each month of 2024, according to the Department of Commerce.
It’s a sign the economy is looking something like normal.
Like so many charts that track aspects of the economy, the one showing the change in disposable income jumped all over the place starting in 2020 and continuing all the way into 2023.
But now, “it seems good,” said Allison Luedtke, an associate professor of economics at St. Olaf College in Minnesota. “We’re, like, evening out from that big jump and big drop and big jump and big drop.”
Those changes in income have stabilized at around 3% a year, which equates to a 3% gain in our standard of living. Historically, that’s a good place for any economy, said Betsey Stevenson, a professor at the University of Michigan.
“If we look over the last 100 years, sort of averaging 2 to 3% improvements in living standards year after year after year is, we know, what is normal,” Stevenson said.
Of course, this is the broad view of how much Americans are bringing in, with the sources — stock dividends and Social Security checks, for instance — ranging widely.
Even though incomes are rising above the rate of inflation, said Mark Hamrick of Bankrate, “purchasing a home, purchasing a vehicle or even retiring are seen as huge challenges for a significant component of the American population.”
So, it’s probably not great news to those folks that while disposable income growth continues to be pretty good, it’s slowed down a bit in the last few months.
But that’s a welcome sign to economists who’ve hoped to see inflationary pressures ease, said Wendy Edelberg at the Brookings Institution. Now, she said, it needs to stop slowing.
“We’ve gotten to a good place. Now, we just need to stand pat. We need to stick the landing.”
If we can do that, she said, the economy could run at a sustainable pace for a while.
