Personal income for Americans rose by 1.0 percent in December, according to new data from the Department of Commerce. That was better than expected and year-over-year growth lifted to the highest reading since July 2015. Personal spending, though, which accounts for roughly 70 percent of U.S. gross domestic product (GDP), fell by 0.5 percent in December. That was significantly worse than anticipated and agrees with the unusually weak retail sales figures released a few weeks ago. As for the January figures, the full report remains delayed due to the partial government shutdown but some of the data was released this morning and showed that personal income fell by 0.1 percent.
That was the first monthly decline in over three years, but not surprising following December’s above-trend gain and according to the Commerce Department was due primarily to “decreases in personal dividend income, farm proprietors’ income, and personal interest income.” More generally, Americans’ earnings continue to rise at a healthy pace thanks to the tight labor market, but even faster wage growth may be needed to sustain consumer spending going forward. Additional help will likely come from Americans setting more money aside because in December personal saving as a percentage of disposable personal income, i.e. the personal saving rate, jumped to a 3-year high of 7.6 percent as total savings rose to $1.21 trillion. Elsewhere in the report, the Federal Reserve’s preferred inflation gauge held below the 2 percent “target” even after accounting for the volatile food and energy components. This will help monetary policymakers justify their new “patient” stance towards raising interest rates, and in turn potentially support consumer sentiment in the medium-term.
Sources: Econoday, U.S. DoC, Bloomberg, Reuters, FRBSL
Post author: Charles Couch