Personal Incomes to decline sharply for January

Personal Incomes, less Transfer Payments and deflated by Personal Consumption Expenditures, is used as one of the four co-incident components of the NBER Recession Model. There was a huge jump in this indicator for the months of  November and December 2012  quite possibly as a result of incomes being pulled forward as a result of the Fiscal Cliff taxes uncertainty.

According to the BEA, “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments.”

Below is our preferred growth metric for Personal Incomes, the 3-month smoothed growth rate. Prior spikes in Personal Incomes growth (for whatever reasons) very quickly come back down to earth, even entering negative growth  and there is every reason to suspect the same this time around.

We are therefore not reading too much into this spike, and it is better to focus on the other 3 factors of the NBER Recession Model for the next 2-3 months until this anomaly has been worked away.

About RecessionALERT

Dwaine has a Bachelor of Science (BSc Hons) university degree majoring in computer science, math & statistics and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.