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Income Growth Remains Low But Prospects Brightening - 8/13/15

Conventional wisdom suggests that income growth remains very slow in America.  This helps explain why the Federal Reserve maintains such aggressive pro-growth monetary policy even during the seventh year of economic expansion.  But as with many things economic, the manner of measurement matters. 

Nominal disposable income growth, which does not control for inflation, is modest by historic standards, rising about four percent presently.  That’s not only lackluster from the perspective of prior economic recoveries, but also relative to the early portions of the current one.  But by adjusting for inflation, one derives real after tax income, and that’s currently growing by more than three point five percent, which is rapid by historic standards.  Income can come from various sources, including government, investments and jobs. 

As indicated by Moody’s Analytics, wage and salary growth remain disappointing, with average hourly earnings rising just above two percent, not far from historic lows.  Prospects are brightening.  With the labor market tightening, there are signals that wage pressures are building.  The employment cost index indicates accelerating wage growth, though much of that is related to incentive compensation rather than base wages.

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.