Income Falls 2.7% in December 2013

According to the Bureau of Economic Analysis, December real disposable income was $11,712 billion real dollars (seasonally adjusted at an annual rate). The month-over-month rate of change in December declined by 2.7%. However, the magnitude of this drop is overstated because disposable income was artificially high in December 2012 due to upcoming tax law changes that caused individuals to pull income into 2012 from 2013. If income in December 2012 had grown at the average rate for that year, then real disposable income in December 2013 would have grown by 1.5% instead of contracting. But, even if we remove the effect of tax law changes, income has been growing slower since September 2013. The annual rate of growth in income has slowed each of the last two months. But, again, the magnitude of the drop in the annual rate of change has been exaggerated by the tax law changes. Still, the slowing annual rate of growth in incomes indicates that there will be further slowing in the rate of growth in consumer spending.

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