January Personal Income and Spending

Total personal income increased by 0.3% in January after rising by the same amount in December.

Total wages and salaries jumped by 0.6% ($42.4 billion) after edging up by just 0.1% in December. Wages and salaries are the largest component of personal income for most Americans. Wages in private goods producing industries were up by 0.5% ($6.8 billion), while wages in the much larger service sector increased by 0.7% ($33.3 billion). Wages in the public sector rose by 0.2%. Over the past  year, government workers have seen much slower wage growth than workers in the private sector – just 1.7% over the 12 months ending in January compared with 5.6% for private industry employees.

In addition to wages and salaries, government transfers (social security, Medicare, Medicaid, unemployment insurance, veterans’ benefits) boosted personal income, rising by 1.0% over the month ($24.8 Billion) and by 5.8% over the year.

Real disposable income (adjusted for taxes and inflation) shot up by 0.9% in January, while real personal consumption expenditures rose by just 0.3%, after declining by 0.1% in December. With income growth outpacing spending, American households put more of their earnings aside last month. The saving rate was 5.5% in January compared with 5.0% in December and 4.5% in November.

Real consumer spending on both durable and nondurable goods increased by 0.2%, while spending on services increased by 0.4%. Services include utilities consumption so it is not unusual to see stronger spending on services during the cold winter months.

On a year-to-year basis:

·         Real disposable income was up by 4.2%

·         Real personal consumption expenditures increased by 3.4%

·         Growth in real spending on goods (5.2%) outpaced spending on services (2.5%)

Inflation continues to be a non-issue for consumers. Consumer prices declined by 0.5% in January (the third consecutive monthly decline), but factoring out food and energy, prices edged up by 0.1%. Prices for food dipped by 0.2%, while prices for energy goods and services plunged by 10.4%. Over the year, consumer price inflation was just 0.2%, well below the Federal Reserve’s target range of 2.0%.

Disposable personal income continues to grow at a healthy rate, helped by rising wages and the current low inflation environment. Consumer spending was weaker than expected last month – lower gasoline prices haven’t translated into higher spending elsewhere – but increases in the saving rate over the last few months may support high consumption expenditures going forward. 

Source:  http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm