More Pain to Come?

This morning, real disposable personal income data w ere released. On an annualized basis for the first four months of 2022 , they were down 5.5% . This reading is 1.5 standard deviations below the historical mean for the series (dating back to 1959) and is consistent with an economy near recession ! Declining real incomes first detract from demand and then prices, in a lifecycle that takes about one year. The question key for the economic outlook is — w ith the economy sharply downshifting — which will slow faster , the labor market or inflation?