Monday, March 3, 2014

Personal Income Growth Outpaced by Consumption Growth in January

Personal income rose 0.3% in January, but was outpaced by consumption, which grew by 0.4%. The savings rate held steady at 4.3%. January’s personal income growth may be distorted as many individuals took advantage of expiring tax credits in December, artificially boosting income. As a result growth from a month prior is likely understated.

Personal income grew 0.3% in January, largely due to a 0.2% increase in wage growth. The Affordable Care Act boosted personal income by lifting transfer income and increasing federal salaries in January. Moreover, growth was lowered in December due to expiring unemployment benefits. As such, the BEA found that absent the Affordable Care Act, personal income would have fallen 0.1% in December and increased 0.2% in January.

Consumption rose 0.4% in January, however, a large portion this growth was due to increased utility spending from the unusually harsh winter weather. Spending on goods dropped 0.6%, both real and nominally.

Inflation picked marginally, reaching 1.2% year-over-year as measured by PCE. Core PCE year-over year growth was similar at 1.1%. Overall inflation levels remain well below the Federal Reserve’s target annual rate of 2.0%.

Read the BEA report.

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