Disposable Income Grows at Fastest Rate in Nearly Two Years

According to the Bureau of Economic Analysis, August real disposable income was $12,020 billion real dollars (seasonally adjusted at an annual rate). This is the second highest level of income ever (only December 2012, which was artificially inflated due to tax law changes, was higher). The month-over-month rate of change in August was 2.7%. This is the fastest rate of monthly growth since October 2012 (excluding November and December 2012 because of the previously mentioned tax law changes). The current month-over-month rate of change is approaching the historical average of 3.1%. The annual rate of change, now 1.2%, has grown at a faster rate every month in 2014. This is the fastest rate of annual growth in disposable income since October 2013. However, the rate of growth is still well below the historic average rate of growth in disposable income.

In the chart below, if the effects of the tax law changes are eliminated the annual rate of change in disposable income has been slowing down since the second half of 2011. The remained of 2014 will indicate whether disposable income is breaking out of this decelerating growth trend or not.

Real disposable income is one of the earliest leading indicators for the following end markets: aerospace; construction materials; custom processors; electronics/computers/telecommunications equipment; food/beverage processing; forming/fabricating (non-auto); hardware; HVAC; industrial motors/hydraulics/mechanical components; machinery/equipment manufacturing; metalcutting job shops; oil/gas field/mining machinery; power generation; primary metals; and printing.