NEW YORK (CNN/Money) -
As Lou Rawls sang so mellifluously years ago: "The eagle flies on Friday...Saturday I go out to play."
It's a blues musing on a basic truth: what I make in my paycheck determines what I spend. That's why economists place so much importance on personal income -- it's the raw material for spending.
In fact, it's one of the four horsemen of the business cycle along with employment, industrial production and business sales. As long as they are all growing we are in an economic expansion; if they start shrinking, that means recession lies ahead.
With that in mind, let's look at the numbers for personal income and spending in March. Income rose 0.4 percent, boosted by some healthy growth in wages and salaries, the biggest part of this number.
Personal consumption expenditures (spending on goods like cars and services like hair cuts) rose 0.4 percent, driven by a jump in car sales.
But economists don't stop there. They like to take out changes in prices to see how much of a change in total sales is due to things costing more and how much is due to people actually buying a bigger quantity. (If the cost of cars goes up 5 percent in a month, sales of cars would show a gain of 5 percent even though the same number of cars had been sold.)
| Recently by Kathleen Hays
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The government has a special inflation measure in this report called the personal consumption expenditure deflator (which also happens to be Fed chairman Greenspan's favored inflation measure). It rose 0.3 percent in March on top of 0.5 percent in February for a gain of 2.8 percent annualized in the first quarter of this year.
That's due largely to the big jump in energy prices that has pushed inflation measures sharply higher. In the case of income, adjusting for inflation lets you see how much your increase in wages and salaries is due to an actual REAL raise from your boss, and how much of it is just keeping up with the economy's current price trend.
In addition, economists subtract out taxes from income. Again, that's because most of us spend what we see in our paycheck, and that's what is left over after the government takes out its many pieces.
Now the numbers aren't quite so good. Adjusted for inflation and taxes, consumer spending rose just 0.1 percent in March and income was unchanged.
In fact, what looked like a quarterly gain of 3.9 percent in income in the first quarter of the year turns into gain of just 1.1 percent once it's adjusted for inflation.
Maybe it's not just war and bad weather that slowed consumer spending down to a paltry 1.4 percent annual rate in the first quarter (we saw that in the first quarter GDP report on Friday) and in turn helped rein the economy in to a 1.6 percent annual rate.
Maybe it was also the weak labor market and people's low take-home pay that hurt consumer spending.
One big plus for income growth now is that energy prices are coming down. So as much as higher energy prices ate into real income in the first quarter, lower energy prices will put some money back into real income and that should help consumers.
And if stocks keep rallying that is widely expected to make us all feel better, and that means consumers loosen the purse strings and, even more important, businesses start buying some more computers and machinery.
Who knows what happens when the president's tax cuts are voted in, whatever their size. Supply-side economists say look out, stocks and the economy will roar. Skeptics aren't so sure, but that's another story.
That brings us back to the lead horseman, horseperson, horsewoman -- whatever! -- of the business cycle: jobs. If all the pluses add up, then the next logical step is for companies to hire and unemployment to fall.
If this doesn't happen, though, then the lack of jobs could overwhelm the growing pluses and keep the economy in a soft state.
Which brings me to one of my very best favorite lines of an old blues song, one that I repeat often, but certainly one that applies now to the economy: "Things aren't so good they couldn't get better, but they aren't so bad they couldn't get worse."
Kathleen Hays anchors The FlipSide, airing Monday to Friday on CNNfn. As part of CNN's Business News team, she is also a regular contributor to Lou Dobbs Moneyline.
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