Prometheus 6

Food, Gas Prices Offset Increase in Income
By Nell Henderson
Washington Post Staff Writer
Tuesday, June 29, 2004; Page E01

Americans' incomes and spending rose strongly last month, but much of the money went to pay higher food and gasoline prices, the government reported yesterday.

This factoid contains a surprisingly dense bit of information.

When the statistics say Americans' income rose over the last month they are not saying everyone's individual income rose. You know from your own job you get a raise periodically…once, twice a year at best. But the higher food prices DO affect everyone.

Personal income -- which includes wages, salaries, rents, dividends, interest, government benefits and other sources -- rose 0.6 percent in May, the same seasonally adjusted rate of increase as in April, the report said. But incomes were flat after adjusting for inflation and taxes.

So some folks saw more income (especially those with dividend and interest income), and that income was enough to offset the increase in food and energy costs, plus inflation. But most folks, workers whose increases are punctuated, did not see more income to offset those expense increases.

Worse, when they DO get an increase it's keyed to inflation. And the reason it's worse, perception-wise, is because it's salaries rather than inflation that's playing catch-up. Your average worker see the purchasing power of his take-home pay reduce incrementally, then a cost-of-living increase brings him back to where he started.

At one point this pattern was acceptable: when we were recovering from double-digit inflation a 12% raise in a year with 10% inflation followed by a 10% raise in a year with 8% inflation feels a lot like two years of progress. But when you've damped inflation down to its current level you don't have a lot of space in which to cast your illusions.

All in all, it strikes me like the only people that can be convinced the economy is improving are those who get a job or significant raise between now and November.