skip navigation

By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

Recent Income Softness May Explain Retail Sales Slowing

The Commerce Department announced today that personal incomes rose 0.5% in April, with private-sector wage and salary income up 0.3%. (Private wage and salary income comprises about 42% of total personal income). That release also included news that private-sector wage income through March was revised downward by a hefty -0.9%, to the point that wage income now shows a substantial deceleration over the last nine months, from a previously reported 5% rate to a currently reported rate of 3.7% (on a 6-month annualized growth rate basis).

Earlier this month, when covering the April retail sales news, we commented that retail sales growth—and related growth in consumer spending on merchandise—has been showing a meaningful slowing in growth since mid-2018, but we didn’t have any real explanation for this slowing. Today’s income data provide such an explanation. In other words, income growth now looks to have been proceeding more slowly lately than previous data had suggested, and that slower income growth is a compelling explanation of the slower consumption growth seen recently.

Today’s revisions are a somewhat different animal from the monthly revisions that we routinely discuss for various indicators. Essentially all US economic data are based initially on surveys from responding firms. The "month-to-month" revisions to such series then reflect information from late-responding survey participants. Eventually, those series are "benchmark-revised" to incorporate more universal information gleaned from various tax returns, which everyone is required to complete.

Almost all indicators are benchmark-revised once a year to reflect tax return information from about a year-and-a-half earlier. The personal income data—specifically the wage-and-salary income data—are the exception to this rule. They are effectively benchmark-revised each quarter to reflect information from payroll tax returns filed four to six months earlier. Thus, the income data we had a month ago were based on payroll tax returns through September 2018 and survey data for subsequent months. Today’s news folds in payroll tax return data for the months October through December 2018, with survey data then holding for January through April 2019.

We belabor these points because today’s news wiped away most of the wage income growth previously reported for 4Q18. Previous data showed private wage income growing at a 5.4% rate in 4Q18. The revised data mark this rate down to just 1.6%. Now, it is true that wage income growth for the first four months of 2019 is currently estimated at a 4.4% rate. However, those estimates are based on the same survey data for January-April that proved to be so overstated for October-December. In other words, if that 4Q18 income slowing represents some substantive move in the economy that is still in place, the 2019 data income growth data could be revised down just as much (come August) as the 4Q18 data were revised down today.

In any case, again, the data in hand indicate a noticeable slowing in income growth since spring 2018. Consumer spending on goods shows a slowing over the same time span, and growth in consumer spending on services has also looked a bit soggier in recent months. None of these threaten recession, but they are, again, suggestive of slower growth than the Federal Reserve would like to see.

Income Growth
Income Growth
Source: Bureau of Economic Analysis. As of 30 Apr 19

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.