US incomes rise, but disposable income drops. Blame oil prices.

A new report from the Department of Commerce shows average US incomes rising, but with rapidly-climbing fuel and food prices, 'real' disposable income is down.

Paul Sakuma / AP / File
A gas station in Belmont, Calif., listed $5 per gallon gasoline on March 9. Climbing gas prices – which passed $3.50 per gallon nationwide in March – have eaten the slight rise in US incomes, reported the Department of Commerce Monday.

American incomes continued to rise in February, but not enough to offset rising prices at the gas pump and grocery stores. The unwelcome shift points to a potential danger spot in the economic recovery – the risk that inflation could chip away at consumer well-being.

Overall, income from employment and other sources rose 0.3 percent in the US in February, on par with the trend over the past half year or so, according to a report released Monday from the Commerce Department. Consumer spending rose even faster, by 0.7 percent – partially due to growing confidence in the staying-power of an economic recovery.

But as the recovery has taken hold, so has an upward trend in prices for basic commodities like grains and gasoline. In February, US consumers were basically forced to spend more because of rising prices for groceries and fuel. Adjusted for consumer-price inflation, the gains in household earnings disappeared, with "real" disposable personal income actually falling 0.1 percent for the month.

"The American consumer does not seem to be getting a break in the first quarter of 2011 due to rising gasoline and food prices, a poor housing market, tight credit conditions, and stock market volatility," economist Chris Christopher of IHS Global Insight wrote in an analysis of the Commerce Department numbers.

Despite the negative forces weighing on household pocketbooks, Mr. Christopher also notes improvement in the job market and a broad income boost for Americans because of the one-year cut in payroll taxes passed late last year.

The tax cut for millions of workers went into effect in January, but snowstorms kept some of them from starting to spend extra cash right away. That, alongside the rising prices, helps explain why consumer spending got an upward bounce in February.

It's not clear how persistent the uptick in inflation will be. Oil and gasoline prices, for example, could hinge heavily on events in Libya and the Middle East.

Federal Reserve Chairman Ben Bernanke, in testimony to Congress earlier this month, painted modest inflation as the likely scenario for this year. With unemployment still high, he cited little risk that labor costs would become a source of inflationary pressure.

For four months prior to February, gains in personal income outpaced inflation, bolstering consumers' contribution to the economic recovery.

Still, global prices for oil and food have been on an upward course since last summer – long before the recent unrest in North Africa and the Middle East.

In his testimony, Dr. Bernanke added a cautionary note: "Sustained rises in the prices of oil or other commodities," he warned, "would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well-anchored."

Personal income from all sources including wages, investments, and government transfer payments, totaled $37,511 per person in February, the Commerce Department reported. Per-capita incomes have risen 0.7 percent since the middle of last year, on an inflation-adjusted basis.

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