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Yesterday’s GDP data was thoroughly picked over by economic observers, with most people doing a decent job of looking past the gaudy headline number and realizing it didn’t mean the economic crisis was over. 1
Today, we got data on personal income from September. This provided a great reminder of just why – despite yesterday’s GDP number – we’re poised for a slow, sloggy recovery going forward, absent radical policy change. 2
This figure shows personal income minus transfers and personal income. The difference is entirely the relief efforts we passed in the first phase of the crisis. These efforts were huge, and kept up incomes in the face of an enormous shock. 3
But, now this relief spending contracting rapidly. One example: UI benefits as a share of all wage and salary income are shown below. The pre-Covid high was < 3%. They reached ~15% at the worst of the crisis. Since then, they’re down to <4%. 4
It should be obvious that what the recovery does not need (let alone U.S. households) is an enormous pay cut – yet that’s essentially what we’ve given them by letting the extra $600 expire. And many are exhausting the duration of even normal benefits. 5
At an annualized rate, the extra $600 in UI benefits added $950 billion to personal income in June, but $0 in September. That is some serious contraction. 6
So, again, a big 3rd quarter GDP number is great, but, unless policy steps up in a big way (particularly to restore enhanced UI and blunt the coming S/L budget crises), we’re in for a long, hard slog from here. 7
