Ominous Dip in Real Disposable Income (posted April 3, 2000)

Last week, the U.S. Department of Commerce reported an ominous dip in real disposable personal income. After several months of increases, the income number for February, 2000 dropped one-tenth of one percent. This was its first drop since September, 1999, when the reading fell 0.5. . In January, real disposable personal income increased .6, in December, 1999 there was no change, in November RDPI rose .3 and in October, it rose a whopping 1.1 percent.

Real disposable personal income provides a reliable summary measure of the economy because it measures after-tax dollars adjusted for inflation. As an overall measure, it is ideal because it incorporates factors such as employment status, inflation rates, and tax rates.

In an election year, the RDPI takes on added significance because it often is a leading indicator of the likelihood of people voting for the party controlling the presidency. Typically, when RDPI growth is greater than 4 percent on an annualized basis, it signals an easy election for the party controlling the presidency. Conversely, when RDPI growth is negative or below 2 percent, the out-party does better. Any reading between 2 and 4 percent income growth signals a competitive election. For the six months running from September, 1999 to February, 2000, RDPI has grown at an annualized rate of 2.8 percent.

If it continues, the weakness in real disposable personal income would create a major difficulty for the election candidacy of Vice President Al Gore. Since one of his best arguments is peace and prosperity, any softening of income growth figures would be good news for GOP candidate George W. Bush

Source: Commerce Department Bureau of Economic Analysis (Click to See Bureau Report)