In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses personal income and consumption.
- People spent less in the past month as they saw no rise in income. Personal consumption fell 0.2 percent in April while personal income was unchanged.
- The decline in overall dollar spending was partly due to lower prices in April. After taking into account lower prices, the real personal consumption (the amount of stuff that people bought and not dollars spent), rose a tiny 0.1 percent over the month and by 2.1 percent from one year ago. Though not a robust expansion, consumers still are willing to open their wallets just enough that there will not be a fresh recession.
- As to income, total salary and wage disbursement rose by 3.2 percent from one year ago. Farm income rose an extraordinary 20 percent. Rental income was impressive as well with 15 percent higher total rent collections from one year ago, reflecting higher rents and more renters on the residential side and higher commercial real estate occupancy.
- Today’s data reaffirms steady though not robust economic expansion. But the steady job expansion will lead to steady income gains, which in turn lead to steady consumer spending growth, just as economic textbooks assume.
- However, let us digress for a moment about the possibility of the reverse causation of higher spending leading to higher income. It is a risky behavior but some have successfully done it. The half-Brit, half-American Winston Churchill lived most of his life with abundance of fine food and wine. For him, the causation was not what economists assume. Rather, Churchill lived as if boosting personal spending was the needed motivation to work hard and increase income. When his bank account was running short, he did not cut back on consumption. He instead worked late into the night writing and writing. The published books provided him with the income he needed to fund his lifestyle and also to eventually earn him a Nobel Prize in literature.
- This Churchill digression is to help some REALTORS® think about the value of homeownership. We know the vast majority of homeowners are much better off compared to renters over the long haul. The Federal Reserve data shows that a typical homeowner has $174,000 in net worth while a typical renter has $5,100. Correlation never means causation, so one cannot automatically say that being a homeowner leads to higher wealth. It could be that higher income and wealth naturally provides the financial wherewithal to become a homeowner, so the homeownership itself does not create wealth. But it is also plausible for some that becoming a homeowner means taking on a greater responsibility and the desire to work extra hard in order to live the American Dream. Certainly, extra hard work is what America needs more of.
- In a similar vein, we know nearly all big contributors to RPAC are successful in their business. What is the causation? Is it because extra income from being successful provides these REALTORS® with the wherewithal to invest in RPAC? Or is it the case of giving to RPAC first then leads to the extra motivation of wanting to work hard and get deeply involved in the industry, which then leads to greater income? The direction of causation cannot be known for certain, but it is quite plausible that investing in RPAC may indeed be one of the finest hours afforded by some REALTORS®.