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Personal Income Plunges in January; Spending Up

Personal income dropped $505.5 billion, or 3.6 percent, and disposable personal income (DPI) fell $491.4 billion, or 4.0 percent, in January, the ""Bureau of Economic Analysis"":http://bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf (BEA) reported Friday.

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Personal consumption expenditures (PCE) increased $18.2 billion, or 0.2 percent in January. In December, personal income increased $353.4 billion, or 2.6 percent, DPI increased $325.7 billion, or 2.7 percent, and PCE increased $14.8 billion, or 0.1 percent, based on revised estimates.

The income drop was steeper than the 2.1 percent decline economists had expected. December's income had been artificially inflated by special corporate dividend payouts in anticipation of changes in individual income tax rates, which were tied into negotiations to avoid the ""fiscal cliff."" At the same time, January's disposable income reflected the expiration of the two-year payroll tax holiday.

The increase in spending was in line with economist forecasts.

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In January, dividend payments fell $362 billion or 34.8 percent. At the same time though, wages and salaries dropped $43 billion, all in the private sector. Government transfer payments--including Social Security payment and unemployment insurance compensation--rose $6.7 billion, half of which was Social Security as new cost-of-living adjustments kicked in January 1.

The $18 billion monthly increase in personal spending was slightly higher than the $15 billion jump in December.

Virtually all of the increase in spending came for services, which rose $28 billion. Purchase of non-durable goods in January was flat to December, and the purchase of durable goods--usually a sign of confidence because those purchases are funded by borrowing--fell $10 billion.

Personal interest payments (non-real estate related) rose $3.6 billion in January, the first month-over-month increase since September, largely because of December durables purchases.

As spending grew faster than income in January, personal savings fell from $797 billion in December to $284 billion in January, and the savings rate declined to 2.4 percent from 6.4 in December.

Inflation, as measured by personal consumption expenditures--considered the Federal Reserve's favored gauge--remained tame, dropping to 1.2 percent (year-over-year increase) from 1.4 percent in December. Core inflation (excluding food and energy) was 1.3 percent, down from 1.4 percent in December.

_Hear Mark Lieberman Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 a.m. and again at 11:45 a.m. EST._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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