Real disposable income, consumer purchasing power after taxes and inflation, has been essentially steady since the beginning of 2007, with brief bumps and dips as the various rounds of rebate checks have been mailed to households.  Purchasing power fell at nearly a 3% annual pace in August and September after the latest round of rebate checks was exhausted.  Purchasing power will fall further in the next few months in the absence of new rebate checks.

Just as important the composition of consumer income has changed.  Aggregate wages have declined 5% and have almost fully replaced by an increase in federal transfer payments.  This includes the various rounds of rebate checks plus more people receiving unemployment benefits, extended unemployment benefits and …