The recent drop in consumer income in May has raised concerns about a potential recession, but experts argue that this decline may not be a true indicator of an economic downturn. On Friday, data showed that total personal income from all sources fell by 0.4% in May compared to April. This marks the first month-over-month decrease since September 2021.
Personal income drops can signal a recession if they persist over time. However, economists caution against drawing conclusions based on a single data point. Total consumer income includes wages, salaries, employer contributions to retirement funds and social insurance, rental income, interest and dividend income, farm and small business income, and personal transfer receipts such as Social Security benefits.
In May, this aggregate income dropped to a seasonally adjusted annual rate (SAAR) of $25.7 trillion. Despite the decrease, some analysts are not convinced that this signifies an imminent recession.
Consumer income decline in May
Economic confidence and consumption levels relative to disposable personal income have shown other trends that may counterbalance the recent dip. One commenter speculated about the impact of immigration policies on employment, particularly in sectors like agriculture, which saw a 10% decline relative to the trend in May. They noted that residential construction employment remained unaffected, even though residential construction spending has been trending down.
Another economist pointed to a potential slowdown in May but attributed it to possible adjustments following increased economic activity in previous months. They have been closely monitoring retail sales data, which saw a year-over-year increase of about 5.5% during the first quarter, surging to 7% in April and early May before falling back to around 5%. While there are concerns, observers anticipate that any significant economic slowdown might not manifest immediately.
They suggest that if economic adjustments occur, they will likely follow broader fiscal changes and potentially delayed consumer reactions. Economic analysts will continue to monitor these and other indicators to provide clearer forecasts on the state of the economy. The recent dip in consumer income, while noteworthy, may not be a definitive sign of a looming recession.
