Real Income
Real Income represents income adjusted for inflation, serving as a crucial metric for evaluating household purchasing power and financial stability. The chart shows real personal income excluding transfer receipts such as government benefits (FRED series W875RX1), one of the measures NBER watches when dating recessions.
Key Insights
When real income increases, consumers typically possess greater purchasing capability, stimulating economic expansion. Conversely, declining real income constrains consumer spending and may signal approaching economic contraction.
NBER uses real personal income less transfers as one of its main monthly measures when it dates a recession.
Significance During Recessions
A reduction in real income serves as a strong signal that recessionary conditions have begun affecting average households. This decline triggers a cascading cycle of reduced consumption and investment, intensifying the economic downturn.