Income And Spending Are Headed In Opposite Directions

Since Covid hit, the stable relationship between income and spending broke down.

Opposite Directions

Real PCE vs Real DPI June 2020

The BEA's Personal Income and Outlays report shows Real Personal Consumption Expenditures (PCE) rose 5.2% but Real Disposable Personal Income (DPI) decreased 1.8%.

Personal saving was $3.37 trillion in June and  the personal saving rate—personal saving as a percentage of disposable personal income—was 19.0%.

What's Going On?

The answer is Economic Impact Payments.

The CARES Act of 2020 provided $300 billion in direct support economic impact payments to individuals, with advance tax rebate payments distributed mostly in April 2020.

A $1,200 refundable tax credit was provided to individuals ($2,400 for joint taxpayers) that meet specified criteria. In addition, qualified taxpayers with children receive $500 for each child. The amount of the rebate phases out at $75,000 for individual filers, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income. The rebate phases out entirely at $99,000 for single taxpayers with no children and $198,000 for joint taxpayers with no children. Tax returns for 2019 or 2018 will be used to calculate the advance payment to taxpayers, but taxpayers eligible for a larger rebate based on 2020 income will receive the increased amount in 2021 when taxes are filed during the 2020 tax filing season.

Taxpayers with higher incomes in 2020 will see any overpayment associated with their rebate forgiven.

Those $1,200 checks packed a wallop because they went out whether or not anyone was impacted.

In contrast, the $600 weekly checks more than made up for lost income for some people, but others lost income. 

What's Next?

That depends on Congress and President Trump, assuming Trump would sign any bill Congress passed.

Bickering could last weeks. Meanwhile, benefits expired.

Clock Runs Out

As noted on Sunday, the Clock Just Ran Out on $600 in Weekly Unemployment Benefits.

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