Incomes Rise, But Don't Break Out the Champagne Just Yet
Whoo hoo! Personal incomes are on the rise, according to this morning's Commerce Department report. Real personal income rose 0.3 percent in March after rising 0.1 percent in February and 0.4 percent in January, another signal that the recession ended sometime in 2009 and happier times are ahead.
But hold off on those party hats and cruise catalogs. There are some troubling details in the March data. Increases in government benefits such as Social Security and unemployment payments accounted for a large percentage of the boost in income, although wages and salaries did increase 0.2 percent. Disposable income -- the amount left after taxes -- fell at the beginning of the year and has been anemic ever since. But consumers, prompted by pent up demand for goods and flush with the first signs of wallet recovery, spent the whole increase and then borrowed more to push consumer spending up to a record high annual rate of $10.4 trillion. Personal income remains below 2008 levels, however, and the savings rate fell to 2.7 percent.
That may be good for the economy, but it's bad for your bank account. And ultimately unsustainable, lest we dip into another credit-crunch recession. Let's assume, for now, that the increase in demand will feed more hiring and at least paltry increases in your paycheck. Here's how to prepare yourself to make the most of your own 0.3 percent:
- Be patriotic, but only to a point. Even if you're frustrated, don't spend money that you haven't got on nonessentials -- keep paying down the debts first and worrying about doing your part to juice the economy later. One exception: If your fridge or air conditioner is ailing, this is a good time to shop for those durable goods. Prices are still recession-weak, and there are federal tax credits for energy-efficient appliances that expire soon. Each state runs its own program and the expiration dates vary.
- Spend on items that will boost your earning power. Education is an appreciating asset. Once demand for workers improves, there will be more competition for the good ones (keep the faith). So adding that MBA or even some web or language skills to your portfolio will help position you for when job offers and raises start to reappear.
- Network, even if you have a good job. Go to conferences and meetings held by your professional association and in your industry to maintain your contacts and make new ones; here are some good tips for networking without looking desperate. Check out sites like Glassdoor to keep up on what your colleagues are making and who's hiring. And if you really want to spend your 0.3 percent increase in a hurry, take a recruiter or ex-colleague to lunch, and consider it an investment.
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