What is Personal Income?
Personal income, aka 'before-tax income,' is the total annual gross earnings of an individual from all income sources, such as: salaries and wages, investment interest and dividends, employer contributions to pension plans, and rental properties.
How Personal Income Works
Personal income is used in calculating adjusted gross income (AGI) -- which is important to individuals for income-tax purposes.
It is also an essential measure to investors because it serves as an indicator of future demand for both goods and services in the market. If personal income is high, there could be more money spent in the economy, indicating a future business boom.
Why Personal Income Matters
National personal income levels are very closely linked to the Gross Domestic Product (GDP), and they serve as a key indicator on consumer spending, inflationary pressures, the overall economy and markets.
Income statistics also provide an excellent indicator for socioeconomic disparities and inequalities that could threaten the stability of the economy down the road -- and consequently pose risks for the long-term prospects of the markets.