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Wednesday, July 19, 2006

Bernanke and Disposable Personal Income

by Calculated Risk on 7/19/2006 03:46:00 PM

Professor Hamilton covers some of Chairman Bernanke's positive comments today: Bernanke's latest testimony

This sentence, from Dr. Bernanke's statement leapt off the page (as least for me):

"... favorable fundamentals, including relatively low unemployment and rising disposable incomes, should provide support for consumer spending."
Rising disposable incomes?


Click on graph for larger image.

SOURCE: BEA Personal Income and Its Disposition, Monthly

One of my concerns has been that real disposable personal income has been fairly flat for the last 6 months. Consumers have increased their consumption, as measured by real PCE, by borrowing, not from any increase in real DPI.

Perhaps Chairman Bernanke believes that nominal disposable incomes will continue to rise at the about the current pace, even as inflation subsides, thereby increasing real disposable incomes. In that case, rising DPI "should provide support for consumer spending". Maybe.