I was just reading Daniel Indiviglio’s chart of the day article on stagnating disposable income covering the past six years and was wondering what the trajectory of disposable income looks like over a longer period of time.  Current disposable income being at the same level as 2006 sounds rather gloomy, however how much of an historical anomaly is it really?  With this in mind, I downloaded the full time series from the BEA website.  Figure 1 below shows the trend in inflation-adjusted per capita disposable personal income since 1959 (blue line). The red line shows the annual change in disposable income which averages out to 2.2% per year over the full time period.

The green line shows the five-year growth rate, indicating how much disposable personal income increased relative to five years ago. The average five-year growth rate is roughly 12%. The lowest five-year growth rate before the collapse of the housing market was in February of 1994, when real per capita disposable personal income only grew by 3% over the preceding five years. Then the boom years of the late 90s and early 2000s came with 5-year growth rates of up to 17%. Disposable personal income peaked in May of 2008, after which it fell sharply, recovered slightly and then remained relatively stagnant until today. These unprecedented monthly decreases in disposable personal income come in the middle of the latest economic recession that started in December of 2007 and officially ended in June of 2009.

The five-year growth rate turned negative in December of 2009 – the worst growth rate in the history of the series – and currently stands at zero percent in September of 2011, the second worst growth rate value. Compared to last year, income is down 0.5%. Disposable personal income hit a record low in terms of a year-over-year drop at -5.3% in May of 2009. For comparison, in the later part of 1974 disposable personal income fell close to 4% on a year-over-year basis, however the five year rate held up much better in that time period because it came on the heels of very high growth rates in the early 1970s. This wasn’t the case this time around, as high annualized rates during the great recession came on the heels of relatively modest income growth prior to the recession. That means inflation adjusted per capita disposable personal income is currently at roughly the same level it was in September 2006, marking the longest period of stagnation in the history of this series. A rather gloomy picture, indeed!