GDP Report: What Did Consumers Do With $41 Billion in Accelerated Income

By Pam Martens: January 31, 2013

Protesters Outside 15 Central Park West, the Residence of Lloyd Blankfein, CEO of Goldman Sachs

Yesterday, the Bureau of Economic Analysis (BEA) released its report for the fourth quarter gross domestic product (GDP), representing the output of goods and services produced in the U.S. and the most keenly watched measure of the vitality of the U.S. economy. The BEA data, which is subject to revision, showed a decrease of 0.1 percent in the annual GDP rate, versus an increase of 3.1 percent in the third quarter of 2012. 

Most economists were shocked by the decline, which was impacted by a 22.2 percent decrease in the government’s spending on national defense versus its third quarter increase in spending on that segment by 12.9 percent. 

But the most worrisome part of the report is the revelation that the BEA assumed an additional $41.4 billion went into the pockets of American workers in the fourth quarter; and yet we still saw a shrinkage in GDP. 

According to the BEA, real disposable personal income increased 6.8 percent in the fourth quarter, following a meager increase of 0.5 percent in the third. The dramatic upturn in real disposable personal income was aided by a one-time event: the payment of accelerated and special dividends, as well as some acceleration in wages and bonuses. Companies made those early payments in the fourth quarter of 2012 rather than the first quarter of 2013 to allow workers to avoid the higher individual income taxes that were coming along in 2013. 

According to the Bureau of Economic Analysis (BEA), using reports from more than 2,000 companies provided by Compustat, accelerated payments of dividends amounted to $39.5 billion in the fourth quarter, of which $26.4 billion was paid to individuals and was included in the personal income data. 

In addition to the special dividends, the BEA made the assumption that companies accelerated their payment of bonuses or other types of irregular pay. According to BEA, “In the absence of source data that cover these types of payments, BEA made a judgmental adjustment to its estimates of fourth-quarter wages and salaries, adding an additional $15 billion to the regular estimate of wages and salaries.” 

The total of the assumed payments of accelerated dividends, wages and bonuses total $41.4 billion. Where did all that extra money go if it didn’t boost consumption enough to lift GDP into positive territory? 

The fourth quarter is not just any quarter; it’s the quarter that includes holiday spending. With an extra $41.4 billion in hand, one would have expected to see a dramatic upturn in personal consumption. But real personal consumption expenditures increased only 2.2 percent in the fourth quarter, compared with an increase of 1.6 percent in the third quarter — which did not include holiday spending to any major degree.

If we want to make our own assumptions, we might speculate that the continued, unprecedented concentration of wealth and income in the U.S. is failing to produce widely dispersed disposable income.  A good anecdote for that assumption is the revelation that Goldman Sachs accelerated payment of $65 million in stock awards into December of 2012 to just ten executives, including CEO Lloyd Blankfein, to skirt the higher U.S. income taxes set to take effect in 2013.

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