Disposable Personal Income as a % of GDP

On last night’s show, we  discussed the vanishing savings rate (Dismissed as unimportant by Jim Glassman) and the  Asset to Debt ratio — which is reminscent of the same old argument in 1999: The asset then was equities, the asset today is real estate.

Lets now look at a different ratio: 

U.S. Disposable Personal Income as a % of Gross Domestic Product (Current $)


Source: Mike Panzner

The total amount of money Americans have to spend after taxes relative to overall output of goods and services has hit the lowest level in 25 years.

Remember, Debts are forever, while Assets are subject to markets forces and variable pricing!


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  1. B commented on May 12

    How has this Glassman guy become so famous? Did he tell people to get out of equities in 2000? I haven’t seen CNBC in a while but didn’t Bernstein cohost this week or a few days this week?

    Even though he reduced his bond exposure and dumped that into stocks and cash, he’s still underweight stocks and likely upped his equity allocation because of pressure from management as so many indices are making cycle or all time highs. Because his statements don’t jive with his actions. He recently made the statement the earnings are the most cyclical based in 50 years and he thought we were at the earnings top. No revelation of earnings top. But quite a revelation in the cyclicality of the earnings.

    That means earnings quality sucks and could also collapse instead of just tail off somewhat. And the market PE is likely artificially inflated short term. Throw in the unfunded pensions, options expensing and a few other pretty pictures including below average returns in pension investments over the next few years and you have a market that isn’t so cheap.

  2. Tom commented on May 12

    Is that spike in what looks like 2004 the microsoft special dividend?

  3. Trent commented on May 12

    I’m being a little facetious here, but saying things look like 1982 makes me want to rush out and buy stocks. I do see, though, that in ’82 it crossed this threshold on the way up and now is doing so on the way down. Perhaps extending the chart back a few more years to see the last time there was a reversal toward declining DPI?

  4. Emmanuel commented on May 12

    Debts aren’t forever–but you have to qualify as a Highly Indebted Poor Country to have them written off. The US might be highly indebted, but it isn’t exactly poor (just yet).

  5. vf commented on May 12

    since you are such a big fan of the transport valuations i wonder if you have an opinion on how the narrowing trade deficit will affect the sector.. i happen to believe they have been a prime beneficiary of the trade deficit despite our declining manufacturing sector. someone has to move all that imported crap across the country. i think if the deficit continues to narrow it could be a short signal for DJT.
    sliding disposable income also not good and could be causing the trade deficit to narrow… at least imo

  6. B commented on May 12

    I’ve changed my mind. I think the Transports are going to 36,000. This is my “Garzarelli” call. I want my moment of fame, even if it paints me as an idiot.

    I think we are in the midst of a blow off. I’m not convinced it is over but maybe we are finally seeing volatility return until it is over. I don’t think the bulls will give up so easily as to just capitulate because we had two down days from new highs. It ain’t that easy. But, the top may be in. Picking it is silly but fun.

    I don’t know that I have any insight you don’t. But, I keep harping on this China thing because I don’t think people realize how big it is. Currency, Treasuries, Trade, Prosperity, Profits, Commodities, Equities. They are all tied to this China situation. I think this past trade deficit reduction is a nit. It really is because consumer demand slowed rather than some transformational shift.

    Alot of bears on here like to think we have this big problem and China is going to eat our lunch. It isn’t going to happen. And while I type faster than Superman flies, I’m not going to blabber forever as to why. This is a GLOBAL issue with all developed nations. Especially Europe and the US. But, more than that. 70+ percent of the world’s wealth lies in Europe and the US. While I harp from a US perspective, the Europeans are now following the same trend as us. They didn’t have the trade imbalances with China. But, now they are developing significant imbalances and they are on trend to be where we are in the not to distant future. Now, they are starting to squawk and join the chorus coming from the US.

    So, China refuses to move more quickly to address the imbalances. They need to be concerned and they know moving faster could put their economy in crisis. It isn’t that they are hell bent on global domination. It is fear of collapse with many imbalances of their own. So, after the US and Europe sell China infrastructure to build out their economy with machine tools, industrial equipment, etc, what do we have left to sell them? The flow of goods out of China is a never ending stream as opposed to the western flow of goods in which are industrial. And the kicker is China now wants to target industrial goods as well. So, there is a reasonable chance exports from the US and Europe will abate at some point. That makes the imbalances worse.

    Europe and the US are now left with a tremendous imbalance. How does it end? I’ll tell you how it ends. The dollar is revalued, mostly against Asian currencies. The Euro follows. Both have the potential to rock the world’s economies and financial markets. If China doesn’t make major structural changes and the imbalances don’t go away, the US and Europe shut them off.

    This isn’t a silly game of dropping the dollar 10%. This is the biggest political and economic crisis “in brew” in 40 years. There is no way China can win. The world’s wealth will eventually turn on them without reform. There will be a change. It might be reasonable or it might be very unsavory. It might be two years. It might be five years. It might be next year. China will be forced to reform or collapse. That is why I laugh at these people saying it is the Asian century. It could be, but it isn’t setting up that way. In the modern era, no one has moved from an export driven to consumer driven economy. The odds of China making the shift are not with them IMO. Europe and America consume the world’s goods and when we start to see a mess develop in our economies because of it, there will eventually be hell to pay. And, while it will effect everyone negatively, we hold the cards because we have the consumers and we hold nearly all of the world’s wealth.

    That is what I think about the Transports.

  7. B commented on May 12

    Sh*t! DOH! Dumb is me. I thought it was Garzarelli. Geez! He is my new favorite investment advisor!

  8. alan commented on May 12

    Finally, the bond market goes down when the stock market goes down. Now that’s the way to control inflation and commodity prices. But they won’t stay down unless short and long term interest rates go up some more and we see a collapse of the housing bubble. At least then, the next generation will not have to leverage themselves to afford a house, and we can buy less foreign products. The dollar will have to go down some, but let’s put our people to work building things other than houses and roads.

  9. Gus commented on May 12

    Love seeing you on Kudlow, thank goodness someone has a realistic viewpoint. I keep Doww 36,000 on my desk just to remind me how out to lunch guys like Jim are. Keep up the great work, love the blog.

  10. GRL commented on May 12

    Some commentary on today’s market:


    This kind of remnds me of October 16-19, 1987, where a 100+ point drop on Friday was followed by Monday’s crash. I’m not saying it will happen, and keep in mind, I know nothing about technical analysis. But I note that we are post-Hindenberg.

    At an opportune time, it would be interesting to hear what BR thinks about the current market environmnet/technicals.

  11. PikesPeaker commented on May 12

    I like your site and reality based commentary AND I tried real hard to watch you on CNBC yesterday…but I can’t take Kudlow and Glassman on at the same time. I threw up in my mouth a little. Now….if you had your own show….

  12. JWC commented on May 12

    I like the idea of you having your very own show. Now that is something I would watch. I can’t stand Kudlow and do not watch him, ever, even to see you. I watch CNBC in the morning, sort of, catch to see what the close is… and then I’m out of there. Can’t stand Maria or Cramer either.

    But I love this blog. My first stop for things economic.

  13. Mark commented on May 12

    Hmm. Some broken trendlines out there today. XAU, Naz, RUT. That will give pause to some come Monday morning. So maybe B’s call of Turnaround Tuesday will be the earliest we can tell on this one.

    Lot of 1987 chatter out there. I thought I saw fear replacing greed as the main player on stage but let’s hope it’s a little more orderly than THAT.

  14. Brian commented on May 12

    PU. What a steamer. Everything down. They sold the loser yesterday and the winners today.

    If everyone keeps saying “1987” then that means the opposite will happen on Monday?

  15. Brian commented on May 12

    How about The R.&B. Show….
    I’d pay to see that.

  16. Dave commented on May 12

    Correct me if im wrong, but isn’t a decrease in disposable income good when we’re worried about inflation?

  17. Estragon commented on May 12

    Debts are forever – unless it’s debt with a fixed coupon in an accelerating inflation environment. The present value of the cashflow and principle repayment declines, meanwhile the price of the asset tends to increase in proportion with replacement costs. Not that an opportunistic government would ever think of engineering such an environment. Nah. Couldn’t happen.

  18. Mike G commented on May 13

    B asks: “How has this Glassman guy become so famous? Did he tell people to get out of equities in 2000?”

    He’s the guy who wrote the book [published in 1999] saying that the Dow was going to 36,000

    After that stinker of a prediction, he should not be heard from ever again. Or maybe he’s booked on TV shows just to see if he’ll come up with something equally laughable to get attention.

  19. T.R. Elliott commented on May 13

    I really hate to be so shrill, but I just see no choice. In the earlier thread, I said Stephen Moore is an idiot. Well, Glassman is an idiot as well.

    There is a saying for people like him: knows just enough to be dangerous.

    WSJ opinion page. Tech Central Station. Propaganda and advocacy. Not truth.

  20. Mark commented on May 13

    “Correct me if im wrong, but isn’t a decrease in disposable income good when we’re worried about inflation?”

    Okay, I admit I am slow in the morning but is this being said facetiously?

  21. Zephyr commented on May 13

    I guess the idea is that poverty will cure inflation. I think inflation would be the lesser of two evils in this case.

  22. Zephyr commented on May 13

    I note from the chart that the personal income share of GDP declined during the 1990s and then rebounded since 2000. The recent low is comparable to the two lows reached during the 1990s.

    What was different about the 1990s that made personal income a lower share of GDP than during the decade before and after?

    I know we had different political parties in the white house for those periods, but I do not believe the President has sufficient influence on the economy to cause this shift. I doubt that Clinton’s policies could have caused the decline observed in the 1990s.

  23. D. commented on May 13


    Yes. If everyone else’s income declines but yours!

  24. Get Long Vega commented on May 14

    The only reason the VIX is up is because spot SPX is sliding up the skew curve as spot moves down. That’s a facny way of saying I’m not seeing any sort of real fear out there from institutions. In fact, all I saw on Thursday and Friday were massive put sellers in index-land. To say there continues to be complacency is an understatement.

  25. calmo commented on May 14

    There is that other sense of “disposable” as in “not worth keeping beyond a single use” –like those cameras that are the bane of thieves looking for a good Canon.

    So think trashy people.

    And here, looking at income normalized over the past 3 decades , it’s important (maybe trashy) to note the volatility illustrated esp by the RH scale. Is this information, disposable income/GDP the lowest in 25yrs, the chunk you should take home? (How much more volatility would it take to draw attention to that aspect?) [ Maybe a pussy-cat figure starting in the last decade…]

    Zeph asks (ignoring most of that volatility):

    What was different about the 1990s that made personal income a lower share of GDP than during the decade before and after?

    forcing me to reconsider my trashy views about this ratio ‘disposable income/ GDP’ in a non-normalizing fashion (the whole point of referencing income away from $, no?). The exponential growth of the financial component of GDP starting in the 80s and the surge in imports during the last decade? It is in the denominator whatever it is.

  26. Anil Dang commented on May 14

    American citizen has been taxed (will continue to be taxed, until there is revolt of sorts) by various schemes by politicians accross the spectrum, even the non taxed expenditures are regulated to the limit (e.g. healthcare). The reason saving rate is so low, because Americans are struggling to survive and keep their middle class status, inspite of politicos so out of control


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