Personal Income

Income for everyone

Personal income is the perfect metric to transition back to the macro side of things. Essentially, it’s the top line of that simple budget template…for everyone in the country! That’s a lot of income:

If you’re like me, the first thing you probably thought is “wow I’m not getting very much of that 18 trillion in total income.” The next thought might be that the trend looks really similar to all the other long-term economic trends out there, particularly GDP.

That’s because personal income is derived from GDP. The calculation is pretty simple it’s just GDP - Capital Consumption - a few small adjustments = Personal Income. Capital consumption is basically depreciation or how much things get used up to produce goods. (Think of this economic component like it’s a car - to produce value in getting you from point A to Point B you have to put some mileage on it and then the car loses value so you write that off.)

Dividing personal income by GDP shows us a ratio that has been increasing over time. That’s good for consumers as more income means more spending.

This ratio tends to rise slightly in recessions and that’s exactly what we are seeing now. So, it’s just one more thing to confirm that these are indeed bad times.