Personal income jumped a staggering 2.6 percent in December, almost four times the 0.7 increase economists forecast, the ""Bureau of Economic Analysis"":http://bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf reported Thursday. Personal consumption spending rose 0.2 percent, slightly below the expected 0.3 percent increase.[IMAGE]
The sharp December gain came from special dividends paid by many companies in anticipation of changes in individual income tax rates, which were tied into negotiations to avoid the ""fiscal cliff.""
Spending rose at about half the rate of November's increase, which itself was a recovery from October's 0.1 percent drop.
By the numbers, income rose $352.4 billion of which $268.2 billion came in the form of dividends. Part of the December increase, BEA said, was due to ""accelerated bonus payments and other irregular pay in private wages in anticipation of changes in individual income tax rates.""[COLUMN_BREAK]
Wage and salary payments--which took a hit in October following Superstorm Sandy--rose $44 billion in December after increasing $61.4 billion in November.
Transfer payments--largely Social Security, Medicare and unemployment insurance--rose 0.4 percent ($8.9 billion) in December, up from 0.3 percent in November. Social Security rose 0.7 percent ($5.3 billion), and Medicare was up 0.5 percent ($3.1 billion). Meanwhile, unemployment insurance payments dropped 5.9 percent ($6.2 billion).
The increase in personal spending--$22.6 billion --came primarily in spending on services, which rose $14.2 billion. Spending on durable goods rose $12.4 billion, reflecting purchases of autos and other high ticket items destroyed in Superstorm Sandy. Spending on non-durable goods dropped.
That spending rose because of the purchase of durables suggests the increase may not be sustainable.
Personal interest payments--non-real estate related--fell $1.6 billion, the third straight month-over-month decline. Personal savings jumped $310.2 billion to $805.2 billion and savings--savings as a percentage of after-tax personal income--zoomed to 6.5 percent from 4.1 percent in November.
Inflation, as measured by personal consumption expenditures, considered the Federal Reserve's favored gauge, remained tame, dropping to 1.3 percent (year-over-year increase) from 1.4 percent in November. Core inflation--excluding food and energy--was 1.4 percent, down from 1.5 percent in November.
_Hear Mark Lieberman Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 am eastern time and again at 11:45 am._