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COVID vs Stimulus - Did Personal Incomes REALLY Rise?

COVID vs Stimulus - Did Personal Incomes REALLY Rise?

September 02, 2020
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2020 has continued to be a most unusual year in a number of ways. Two recent reports on personal income bear this out and will surprise many of our readers.

According to economist Paul Kasriel, in the April to June quarter, personal income grew at a 32.6% annualized rate. What's more amazing is that this happened at the same time that employee compensation contracted by 24.6% on an annualized basis. How could both of those happen in the same three month period of time?
  
The answer is primarily the result of additional government transfer payments. These primarily took the form of one time stimulus payments and enhanced unemployment benefits. According to Kasriel, US households appear to have been generously compensated for the COVID-19 disruption. He does share that the payments didn't treat everyone equally and may have been "distributionally" generous. He believes that compassionately replacing income lost through a disaster is one thing, but the government giving people more than what they lost is something we have not witnessed before. 
 
This is what happens when the government looks to do something quickly, rather than correctly. There will be a lot of armchair quarterbacking after the fact. However, policymakers were under intense pressure to do something. At the end of the day, we will all end up paying for this generosity with some combination of higher taxes, lower government spending, and/or higher inflation.
 
A second report from former Treasury economist Ernie Tedeschi shows similar results from February to June in a graphic format. As you can see below, total disposable income in that time period rose more than 5%. At the same time wages, salaries and proprietors' small business income all dropped significantly. It would appear that unemployment insurance (UI) and stimulus checks more than offset this drop. As Congress and the White House are currently locked in a stalemate over additional stimulus monies, it is likely that the removal of the stimulus programs will lead to less disposable income, and an equally significant impact on consumer spending and retail sales.
 
As we head towards the Presidential and Congressional elections, our goal is to keep you educated and informed about real issues that impact our economy and our clients. We want you to be well-informed and understand what is being talked about during debates and in political ads as we all try to survive this season of life and continue "Moving Life Forward" together. If you should have any questions regarding this, please do not hesitate to reach out to the team at Impel Wealth Management.