Real Disposable Income Up by 11.4% in Q2

by: Mark J. Perry

According to yesterday's BEA report (Table 10), real disposable personal income increased in July by 1.2% compared to July last year, following a 3.4% annual increase in June and 6.3% increase in May (see chart above). Both growth rates (May and June) were above the 2.6% average growth in real disposable income since 2001, following 7 months (October 2007 to April 2008) of below-average growth (see chart above). On a monthly basis, the July growth in real personal disposable income was negative at -1.7% (from June).

Although real disposable income growth showed weakness in the last quarter of 2007 (0.6%) and the first quarter of 2008 (-0.7%), the above-average, year-to-year growth rates of 6.3% (May) and 3.4% (June) contributed to an 11.4% increase in real disposable income during the second quarter 2008 (see Table 6), one of the biggest quarterly increases in history, largely due to the the Economic Stimulus Act of 2008. According to the Joint Committee on Taxation and the Congressional Budget Office, "rebates to individuals are expected to total $106.7 billion for 2008. The majority of rebates were sent during the initial round of payments, which began April 28, 2008, and will continue on a weekly basis through mid-July 2008."