While the Commerce Department released a report on Friday showing a much bigger than expected increase in U.S. personal income in the month of December, the report also showed a modest decrease in personal spending.
The report said personal income climbed by 0.6 percent in December after tumbling by a downwardly revised 1.3 percent in November.
Economists had expected personal income to inch up by 0.1 percent compared to the 1.1 percent slump originally reported for the previous month.
Disposable personal income, or personal income less personal current taxes, also increased by 0.6 percent in December after plunging by 1.5 percent in November.
The Commerce Department said the growth in personal income primarily reflected increases in government social benefits, compensation, and personal dividend income
Meanwhile, the report said personal spending dipped by 0.2 percent in December after falling by a downwardly revised 0.7 percent in November.
Economists had expected spending to decrease by 0.4 percent, matching the drop originally reported for the previous month.
Excluding price changes, personal spending showed a more substantial 0.6 percent decrease in December following a 0.7 percent decline in November.
With income rising and spending falling, personal saving as a percentage of disposable income jumped to 13.7 percent in December from 12.9 percent in November.
Gregory Daco, Chief U.S. Economist at Oxford Economics, estimates U.S. households have accumulated $1.6 trillion in savings since the onset of the Covid crisis.
“This initially reflected savings from fiscal transfers in the CARES Act – checks to families and expanded jobless benefits,” said Daco. “Now they entirely reflect higher-income families’ lack of opportunity to spend on services amid steady finances.”
He added, “The top two income quintiles now own all of the accumulated cash stash, while the bottom three have been dissaving.”
A reading on inflation said to be preferred by the Federal Reserve showed the annual rate of core consumer price growth ticked up to 1.5 percent in December from 1.4 percent in November.
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