January’s Personal Income and Outlays report show personal income grew by 0.4% in January 2017, outpacing the 0.3% rise in December 2016. Personal income from all sources rose 3.6% in 2016, compared to 4.4% the prior year. It is encouraging to see personal income growth rebounding from the November 2016 lows, and January’s figure above its 12 month average.
In 2016, wages and salaries, which are the most important segment of personal income, increased by 4.3%, but fell short of 2015’s 5.1% output. Personal interest earned rose 0.9%, while dividends receded 0.3%. Rental income was by far the leading personal income growth area. Rental income was up 6.9% in 2016. This week, Case-Shiller reported home price annual gains of 5.6%. Wages and salaries must keep up with the rate of rising residential home prices for first time buyers to be able to afford a home.
The American family’s financial agenda is evolving. When I was growing up, there were many one income families with stay-at-home moms. Twenty-five years later, most households have two working providers and barely make ends meet. Now, it takes three incomes to get ahead, stay ahead, and plan for a meaningful retirement. The third income is derived from investments. Producing assets, such as stocks, bonds, farmland, precious metals, collectibles, and single and multifamily dwellings have been enriching savers and investors for generations. As illustrated in the personal income growth chart, rental incomes have compounded nearly 20% over the past two years. When investors become landlords in the residential rental space, they earn the rising rents that continue to grow if the demand is there.
