Inflation cut Minnesotans per capita Personal Incomes 0.7% in first quarter

Two weeks ago, I wrote about how Minnesotans’ per capita Personal Incomes were falling in real terms. The Bureau of Economic Analysis (BEA) released data today for the first quarter of 2022 that shows that this inflation-adjusted fall in Personal Income is ongoing.

Figures for Personal Income include income derived from three sources: wages, capital, and transfers, like Social Security. Figure 1 shows how that has changed in real per capita terms since the fourth quarter of 2019, the pre-pandemic peak. We see that per capita Personal Income did not plunge in real terms in the United States and Minnesota specifically during the COVID-19 pandemic, but instead saw two distinct peaks in the second quarter of 2020 and first quarter of 2021, which coincide with the various ‘stimulus’ payments. Even so, real per capita Personal Income has been trending downward since the second quarter of 2021.

Figure 1: Real per capita Personal Income growth (2022:Q1$. 2019:Q4=100)

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, and Center of the American Experiment

We can strip out the effects of such ‘stimulus’ payments by looking at real terms per capita Personal Income from labor and capital sources. Figure 2 shows a significant dip rather than a peak in the second quarter of 2020, just as you would expect. We also see swift rebounds both in Minnesota and the United States generally until the fourth quarter of 2020. After that, the pace of growth slows. Indeed, in real terms per capita Personal Income from labor and capital sources was 2.4 percent lower in the first quarter of 2022 than it was in the second quarter of 2021.

Figure 2: Real per capita Personal Income growth, labor and capital (2022:Q1$. 2019:Q4=100)

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, and Center of the American Experiment

These numbers show the corrosive effect of inflation on American’s livelihoods. In nominal terms, per capita Personal Income is rising at a fair old rate but inflation is rising even faster. The result is that the higher nominal incomes are losing their real value. If average Americans aren’t feeling the great economy we supposedly have, this is why.