March 28, 2014, 10:47 AM ET
Vital Signs: Income Gets a Lift Thanks to Government Assistance
By Kathleen Madigan
The 0.3% increases in personal income posted in January and February look positive for the future of the consumer sector until one looks at what’s driving the gains.
Almost half of the increase in personal income in the past two months has come from bigger government transfer payments even though that category only accounts for about 16% of all personal income (adjusted for employer and employee payrolls taxes paid).
Much of the surge in transfers reflects higher Medicaid spending as more people are covered under the Affordable Care Act. That extra spending has more than offset the decline in unemployment checks once extended-jobless benefits ended. After the ACA enrollment period ends, the lift to income should dissipate.
Compensation of employees—mainly paychecks–has grown at a slower pace, reflecting weaker job growth and minimal pay raises. A more balanced consumer sector will depend on wages and salaries growing at a faster clip in coming months.
Almost half of the increase in personal income in the past two months has come from bigger government transfer payments even though that category only accounts for about 16% of all personal income (adjusted for employer and employee payrolls taxes paid).
Much of the surge in transfers reflects higher Medicaid spending as more people are covered under the Affordable Care Act. That extra spending has more than offset the decline in unemployment checks once extended-jobless benefits ended. After the ACA enrollment period ends, the lift to income should dissipate.
Compensation of employees—mainly paychecks–has grown at a slower pace, reflecting weaker job growth and minimal pay raises. A more balanced consumer sector will depend on wages and salaries growing at a faster clip in coming months.
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