James Picerno at The Capital Spectator features this morning a neat graph of changes in "disposable personal income" (DPI) in the U.S. over the last two years. Picerno defines DPI as "income that's left over after Joe Sixpack has paid his bills and so it's a key number about his capacity for running to the mall and picking up an extra TV."
The chart shows DPI rising steadily from June 2006, taking a big jump in May 2008, and then declining, for the first time in two years, in June 2008.
The reason for the big jump is no mystery: The economic stimulus checks distributed by the IRS to millions of Americans over the last two months. Picerno's chart is as clear a demonstration of the pump priming capacity of the federal government as one could ask for. Without that jolt, the second quarter GDP numbers for the U.S. would likely be significantly different.
If you subtract the big jump in May, disposable personal income is still trending upwards, but the decline in June is proof that the effect of the stimulus is already waning. So what happens next? Was the economic stimulus boost just a holding action that may have forestalled recession by a few months?
The Wall Street Journal's report on the new consumer spending numbers released by the Commerce Department on Monday led with the cheery line that "consumer spending jumped in June." But the Financial Times' first sentence was far more somber, reporting that "new data" showed "a sharp rise in prices in June that cut into consumers' spending power."
The difference: The Journal chose to lead with the raw numbers, which indicate that American consumer spending rose by .6 percent in June. But the Financial Times immediately adjusted for inflation, and reported that "real consumer spending was actually down 0.2 percent."
To be fair, the Journal did eventually get around to noting the real decline in consumer spending, at the end of the fifth paragraph. But the difference in emphasis, and headlines, "Consumer Spending Rose in June" versus "Jump in inflation data weighs on Wall Street" is significant. Picerno's graph and the Financial Times' reporting tell us that the real story is that inflation is taking a bigger and bigger bite out of the American pocketbooks, even as the effects of the economic stimulus already begin to wither away.