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Tuesday, September 06, 2011

Trend in Proprietors’ Income

Personal income data for July was released on August 29. When looking at the bottom line, that is, seasonally adjusted, real changes, personal income was flat in July versus June, and disposable income actually declined by 0.1 percent.

That’s troublesome.

In assessing the longer-term trend in personal income, though, it’s also worth taking note of what’s occurred with proprietors’ income. Keep in mind that when assessing how businesses are performing, it’s not just about corporate profits, but very much about proprietors’ income as well.

When annual proprietors’ income and corporate profits peaked in 2006, nonfarm proprietors’ income stood $1,103.6 billion and corporate profits at $1,784.7 billion.

After big drops in 2007 and 2008, corporate profits subsequently grew in 2009 and 2010. At $1780.4, corporate profits in 2010 were almost back to their 2006 level.

Meanwhile, proprietors’ income declined dramatically in 2007, 2008 and 2009, with some growth finally in 2010. However, at $984.2 billion in 2010, annual proprietors’ income remained well below the 2006 high.

Throughout 2011, on a seasonally adjusted basis, proprietors’ income has grown in each month.

Proprietors’ income matters a great deal to the economy. It is the annual return on most business ventures, and is a key source of investment in new and expanding businesses, and in job creation.

There’s no doubt that the 18 percent decline in nonfarm proprietors’ income from 2006 to 2009 played a major role in the recession and huge job losses.

A return to growth in 2010 and 2011 is most welcome. It shows the tremendous resilience of U.S. entrepreneurs and businesses, and provides a bit of hope for the future during this time of economic gloom.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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