Friday, June 26, 2009

Personal Income Saved by Unemployment Insurance

WSJ reports:

The income of Americans soared in May because of the government's economic stimulus, leading them to increase spending modestly and boost the saving rate to the highest in 15 years.

Personal income rose at a seasonally adjusted rate of 1.4% compared to the month before, the Commerce Department said Friday. The jump reflected reduced taxes and increased social benefit payments unleashed by the stimulus package.

Up? Yes. Soared? No. Looking at year over year figures, personal income continues to show anemic (or in disposable personal income terms negative) growth.



Was stimulus the savior? Well, if you classify unemployment (and the extension of these benefits), then yes. The amount of unemployment benefits paid out has doubled in the past 12 months.



The chart below shows this more clearly. While personal income has stabilized, it has been due to unemployment benefits making up the shortfall in compensation.



They key is what happens now. Unless benefits are extended again (and soon), these figures will turn negative unless you believe the broader economy picks up. There already have been negative signs as the exhaustion rate (i.e. those no longer able to collect benefits) has increased in recent months.

Source: BEA