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NIPA personal income

This page is about household sector income, as reported in the 'Personal income and outlays' account of the National Income and Product Accounts. The main question is simply the health of cash flows.

Summary

7 May 2013.

Trend growth in household real organic income (income less government transfers, adjusted for inflation) seems to be fairly constant. There is nothing in these data to suggest a change, for better or for worse, in the course of the recovery.

Graph

7 May 2013. Data through Mar 2013.

All data are from NIPA tables 2.6 and 2.8.4 (see Sources).

Highlights

Clippings below covered through 28 Jun 2010.

National income and product accounts background (4 Apr 2010) The national income and product accounts (NIPA), calculated by the Bureau of Economic Analysis, are a double entry accounting system of all US production of goods and services and the income that results. Every payment for goods or services is recorded as a payment from one sector to another (or the same) sector, where the sectors are business, household, government, and rest-of-world.

The accounts also treat savings and investment. For each sector there is a production account, an income and outlay account, and a capital account. The treatment of some items differs between these accounts. For example, transfer payments are included in income in an income and outlay account, but not in a production account.

The treatment of homes occupied by the owner sometimes causes confusion. An owner-occupant is treated as a pair of entities. One is a tenant, who pays an imputed gross rent, included in Personal Consumption Expenditures (PCE) and thence in GDP, for the service provided by the house. The other entity is a landlord, who runs a small business owning and renting the house; the landlord has a net income, included in Personal Income (PI) and thence in National Income, constituting the gross rent less mortgage interest, property tax, maintenance, insurance and depreciation.


Definition of DPI (12 Dec 2008) According to the BEA, “Disposable personal income is personal income less personal current taxes. It is the income available to persons for spending or saving.” The deflator used for real DPI is the PCE inflation index (not documented in the handbook, but clear empirically).


Definition of personal income (11 Dec 2008) Personal income is the income that persons receive in return for their provision of labor, land, and capital used in current production and the net current transfer payments that they receive from business and from government. Personal income is equal to national income minus business and government components, plus personal income receipts on assets and personal current transfer receipts. This is income from all sources, so is different from the income concept used for the sector in GDI.


Income and inflation long term (12 Dec 2008) The growth of nominal Personal Income, normalized either by the Civilian Workforce or by Total Population, compared to growth in CPI, suggests that total incomes grew about 1.5% faster than inflation over the long term:

Period CAGR nominal PI/worker CAGR nominal PI/person CAGR CPI
1957-2007 5.5% 6.0% 4.1%
1982-2007 4.5% 4.8% 3.1%
1997-2007 4.1% 4.3% 2.6%



NIPA imputed rent (3 Apr 2010) Under the NIPA, a homeowner-occupant is treated as a pair of entities. One is a tenant, who pays an imputed gross rent, included in Personal Consumption Expenditures (PCE) and thence in GDP, for the service provided by the house. The other entity is a landlord, who runs a small business owning and renting the house; the landlord has a net income, included in Personal Income (PI) and thence in National Income, constituting the gross rent less mortgage interest, property tax, maintenance, insurance and depreciation. The income of the landlord entity is essentially the operating profit of the business, and so is naturally much smaller than the expenditure of the tenant entity.

Imputed (gross) rent is calculated as the number of owner-occupied units, times the average rent of equivalent tenant-occupied units, in several property value tiers, using Census data.

The goal of imputation, in general, is to keep the accounts invariant when the same goods are produced/consumed in different ways. The same shelter is provided by a house whether the house is owned by the occupant or by someone else. Imputed rent may seem more natural if one imagines the extreme case of a society where everyone raises their own food and builds their own houses; without imputation the GDP would be zero.


Stimulus (29 Jun 2010) See 26 Jun 2009 entry for a sampling of some of the stimulus effects on income.

Sources

All data are from the Bureau of Economic Analysis.

See also

Clippings below were used in the construction of this page

Disposable personal income is income less taxes for the household sector

Sep 2006. Guide to the NIPA

http://bea.gov/national/pdf/nipaguid.pdf

“A Guide to the National Income and Product Accounts of the United States”

“Personal income (3–26) is the income received by persons from all sources—that is, from participation in production and from current transfer receipts from both government and business. “Persons” consists of individuals, nonprofit institutions that primarily serve households, private noninsured welfare funds, and private trust funds. Personal income is calculated as compensation of employees, received; proprietors’ income with IVA and CCAdj; rental income of persons with CCAdj; personal income receipts on assets; and personal current transfer receipts; less contributions for government social insurance.

Disposable personal income is personal income less personal current taxes. It is the income available to persons for spending or saving.”

NIPA handbook chapters 1 and 2

Jul 2008. Primary source from NIPA on the nature of the accounts.

http://www.bea.gov/national/pdf/NIPAhandbookch1-4.pdf:

“Concepts and Methods of the U.S. National Income and Product Accounts (Introductory Chapters 1–4)”

[INCOME and SAVING definitions] NIPA aggregate measures of current income … are viewed as arising from current production, and thus they are theoretically equal to their production counterparts (GDI equals GDP). NIPA saving is measured as the portion of current income that is set aside rather than spent on consumption or related purposes. Consequently, the NIPA measures of income and saving exclude … Capital gains … Capital transfers … Events, such as national disasters … personal income includes ordinary dividends … Personal saving is equal to personal income less personal outlays and personal taxes; it may generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences. …

  • Personal income is the income that persons receive in return for their provision of labor, land, and capital used in current production and the net current transfer payments that they receive from business and from government. Personal income is equal to national income minus corporate profits with inventory valuation and capital consumption adjustments, taxes on production and imports less subsidies, contributions for government social insurance, net interest and miscellaneous payments on assets, business current transfer payments (net), current surplus of government enterprises, and wage accruals less disbursements, plus personal income receipts on assets and personal current transfer receipts.

[SECTORS] For measuring domestic production in the NIPAs, the contribution, or value added, of various institutions can be broken down into three distinct groups, or sectors— business, households and institutions, and general government (table 2.1). A fourth sector, “the rest-of-the-world” sector, covers transactions between the United States and foreigners. …

  • Households and institutions: The households and institutions sector comprises households and nonprofit institutions serving households (NPISHs). NPISHs provide services in the following categories: religious and welfare, medical care, education and research, recreation, and personal business. The gross value added of households is measured by the services of owner-occupied housing and the compensation paid to domestic workers. The gross value added of NPISHs is measured by the compensation paid to the employees of these institutions, the rental value of fixed assets owned and used by these institutions, and the rental income of persons for tenant-occupied housing owned by these institutions.

for each sector, the production account records the value of the production that is attributable to that sector and the uses of the income arising from that production. The income and outlay account records the sources of the sector’s income, its current outlays, and its saving. The saving and investment account (also known as the capital account) records the sector’s gross saving and gross investment, where gross investment is net acquisitions of assets less net increase in liabilities.

Long term growth rate and inflation

12 Dec 2008. NIPA table 2.1, BLS for civilian labor force and CPI.

See sources.

“Table 2.1. Personal Income and Its Disposition [Billions of dollars] Seasonally adjusted at annual rates”

Inflation

Year Nominal DPI PCE inflation index Real DPI (table) Nominal deflated by PCE
1957 319.8 19.639 1628.5 1628.4
1982 2421.2 59.859 4044.9 4044.8
1997 5988.8 95.124 6295.8 6295.8
2000 - 100 - -
2007 10,170.5 117.659 8664.0 8644.0

So PCE inflation is the deflator for real DPI.

Real DPI (BEA table value) CAGR in last 10, 25, 50 years is 3.2%, 3.1%, 3.4%, respectively.

Normalized by workforce and total population (unclear which is more appropriate, given that 2/3 of income is employee compensation and 1/3 includes investment income and transfer payments):

Year Real DPI Civ Wkfce Real DPI/worker Real DPI/person
1957 1628.5 67,052 24,287 9,508
1982 4044.9 110,081 36,745 17,418
1997 6295.8 136,211 46,221 23,065
2007 8664.0 153,085 56,596 28,614

Apparently incomes did grow faster than population and inflation.

First gather the numbers. Population taken from NIPA table 2.1.

Year Nominal PI Workforce Nominal PI/worker Population Nominal PI/person CPI-U
1957 358.7 67,052 5349 171,274 2094 28.1
1982 2775.3 110,081 25,211 232,218 11,951 96.5
1997 6915.1 136,211 50,768 272,958 25,334 160.5
2007 11,663.2 153,085 76,188 302,087 38,609 207.3

Then, compare growth of nominal/person and nominal/worker to CPI (CPI for comparability to other results)

Period CAGR nominal PI/worker CAGR nominal PI/person CAGR CPI
1957-2007 5.5% 6.0% 4.1%
1982-2007 4.5% 4.8% 3.1%
1997-2007 4.1% 4.3% 2.6%

So it looks as if total incomes grew about 1.5% faster than inflation over the long term.

Stimulus contribution for May 2009

26 Jun 2009. BEA press release.

http://www.bea.gov/newsreleases/national/pi/2009/pdf/pi0509.pdf

“PERSONAL INCOME AND OUTLAYS: MAY 2009”

“disposable personal income (DPI) increased $178.1 billion, or 1.6 percent, in May … The May change in DPI – personal income less personal current taxes – was boosted as a result of provisions of the American Recovery and Reinvestment Act of 2009. Provisions of the Act reduced personal current taxes and increased government social benefit payments. Excluding these special factors, which are discussed more fully below, DPI increased $20.6 billion, or 0.2 percent, in May …

The American Recovery and Reinvestment Act of 2009 provides for one-time payments of $250 to eligible individuals receiving social security, supplemental security income, veterans benefits, and railroad retirement benefits. These benefits boosted the level of personal current transfer receipts by $157.6 billions at an annual rate in May. These payments are classified in other personal current transfer receipts rather than in old-age, survivors, disability, and health insurance benefits because they are not benefits paid from the social security trust fund. …

Personal current taxes decreased $11.1 billion in May, compared with a decrease of $61.6 billion in April. The Making Work Pay Credit provision of the American Recovery and Reinvestment Act of 2009 reduced personal current taxes $49.8 billion at an annual rate in both May and April, and $11.2 billion in March. The provision allows a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. …

NOTE. - - Monthly estimates are expressed at seasonally adjusted annual rates, unless otherwise specified. Month-to-month dollar changes are differences between these published estimates. Month-to-month percent changes are calculated from unrounded data and are not annualized. “Real” estimates are in chained (2000) dollars.”

Current deflator is to chained 2005 dollars

28 Jun 2010. BEA press release.

http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

“Personal Income and Outlays, May 2010”

                                        2010
                                        Jan.            Feb.            Mar.            Apr.            May
                                                       (Percent change from preceding month)
Personal income, current dollars        0.4             0.0             0.4             0.5             0.4
Disposable personal income:
 Current dollars                        0.3             0.0             0.5             0.6             0.4
 Chained (2005) dollars                 0.1             0.0             0.3             0.6             0.5
Personal consumption expenditures:
 Current dollars                        0.2             0.5             0.6             0.0             0.2
 Chained (2005) dollars                 0.1             0.5             0.4             0.0             0.3