Monday, June 28, 2010

Income Growth Improves

The trend in income growth carries a lot of weight in our process under normal circumstances. Recently, it’s been elevated even higher. The reason for that is that we (and others) believe that if employment picks up, and thus underlying incomes, it could be the critical piece that allows the economic recovery to continue and for stocks to resume rallying.

On that note, the latest report on personal income that was released by the Commerce Department this morning was encouraging. Until recently, that hadn’t been the case – income growth had been noticeably lacking. And bears like to point out that even the subpar income growth was largely due to government assistance in the form of “transfer payments,” as opposed to organic wage and benefit gains. So, it’s particularly encouraging that “personal income ex-transfer payments” has risen by 0.5% in each of the past two months – which hasn’t happened since late 2006, as shown on the chart below.

All in all, it was a welcome positive report amidst a slew of otherwise disappointing economic data recently. The next big hurdle is Friday’s employment report for June.