Service sector wages fell by $3.4 billion in September after a very solid $16.4 billion increase in August. Government wages edged up by $0.2 billion following a $2.4 billion increase in August. Over the last six months, total wages are down by 0.5% and private wages are down by 1.0%. Total government wages (all levels) are up 1.3%.

If personal income is flat but wages are falling, where is the income coming from? Supplemental payments by employers for things like pensions are also essentially flat for the month, and are up just 0.4% over the last six months. Proprietors' income was up only slightly for the month, but is up 1.2% over the last six months.

Part of the growth is coming from a relatively small area, rental income, which rose 1.9% for the month, and is up 13.9% over the last six months. Frankly, I find this to be shocking given the news of soaring vacancy rates and plunging rents on both commercial and residential rental properties. It is not due to personal income from financial assets.

Personal interest income fell 0.6% in September and is essentially flat over the last six months. Personal dividend income has been consistently ugly, falling for at lest seven straight months (that's all that is presented in the release, and I have not gone back to check previous releases). Interest rates have been low, and companies have been cutting or eliminating dividends.

Historically, big banks like Citigroup (C) and Bank of America (BAC) were among the most generous dividend payers, but they should not be paying common dividends for a long time now. In September, dividend income fell by 1.3% and is down 12.5% over the last six months.

So if it's not coming from wages or supplements, and it's not coming from financial assets (and rental income is too small to make that big of a difference), where is the personal income coming from? Why, good old Uncle Sam. In September, transfer income like Social Security income and unemployment benefits rose by $17.3 billion or 0.8%, following a $9.3 billion or 0.5% increase in August. Over the last six months they are up by 6.4%. These six month increases are not annualized, so you can double them to get the annual rate (well, technically, convert the 6.4% to 1.064 and square it).

While rising income from Social Security and unemployment insurance does help keep the economy moving in the short run, it is hardly a healthy long-term situation.

The second graph is really frightening and comes from http://energyecon.blogspot.com/. It shows year-over-year change in total personal income minus government transfer payments by quarter going all the way back to 1949.

While I wish the data were presented on a log scale or was done in percentage changes (a $10 billion change in the 1950's would be significant; today, not so much) this is really noteworthy. It has been almost unheard of for personal income from the private economy to fall year over year, let alone by a rate close to $600 billion. This data raises real questions about the sustainability of the 3.5% growth that we saw in the third quarter.